Pay reforms must herald 'sharp break with the past'

  • By Andrew Starke

Australia’s major banks have committed to changing the way they pay and reward their retail staff, following the release of a report into the link between payments and customer outcomes. On Wednesday, Stephen Sedgwick published the Final Report of his review of product sales commissions and product based payments in retail banking in Australia, with its 21 recommendations generally being well received.

A former Public Service Commissioner, Sedgwick (pictured in centre above) was appointed by the Australian Bankers’ Association (ABA) to review how bank tellers and other customer-facing bank employees, their managers and third parties are paid by banks. The review is part of the ABA’s Better Banking reform package, which aims to protect consumer interests, increase transparency and accountability and restore trust and confidence in the industry. While the extent of change required will vary, almost every bank will need to change at least some of its practices to comply with Sedgwick’s recommendations.

“The 21 actions I propose, if fully implemented in the spirit in which they are intended, will complement other initiatives the ABA has underway in the Banking Reform Program and will assist in addressing a trust deficit that has emerged in the banking industry,” said Sedgwick. “They are deliberately intended to signal a sharp break with the past. Changing remuneration alone is not enough. Each bank should address the issues holistically.

“This means many banks should also revise their target setting, performance management, leader development and, most importantly, culture; and ensure they are aligned with the ethical, customer–centric philosophy that underpins my recommendations.”

These include: no longer paying retail bank employees incentives based directly or solely on sales; examining workplace culture and leadership frameworks to ensure they are aligned with good customer outcomes; and increasing transparency of remuneration arrangements with third parties, such as mortgage brokers.
 

Change in culture

Australian Bankers’ Association chief executive Anna Bligh said the banking industry supported the recommendations made by Sedgwick and would implement them in full as quickly as possible.

“Mr Sedgwick has not only identified that remuneration arrangements need to improve, but also that it needs to happen alongside a change in culture and approach from management,” she said.

“Banks don’t underestimate the changes recommended by Mr Sedgwick. This will not be easy for banks and there will be challenges. Changes will need to be made to bank policies, workplace agreements, contracts, staff training programs, internal controls, and performance management systems.

“This is not just about payments; it’s about governance and leadership. It’s not just about bank tellers and their managers; it goes up the line. Banks have heard the criticism about the sales culture. The industry needs to embed a customer-focused culture so customers have confidence banks are doing the right thing by them.”

Bligh added that individual banks would take action to make changes to their businesses, while any industry-wide response would need to consider competition and other legal obligations.
 

Major banks respond

NAB chief customer officer, Consumer Banking and Wealth, Andrew Hagger described the recommendations as a significant step for the industry, adding that it would require focus, discipline and strong leadership to implement them.

In relation to the recommendations that impact third parties including mortgage brokers and aggregators, NAB agrees with Sedgwick that any changes to their remuneration structure should be “viable” and “competitive”.

“We see mortgage brokers and other third parties as an important part of the future of our business. We will be working closely with the industry, Treasury and with the regulators, ASIC and the ACCC, to make sure we get the right result for our customers and the industry,” said Hagger.

ANZ also confirmed its commitment to implementing the recommendations with group executive Australia, Fred Ohlsson, explaining that ANZ had already introduced a new ‘balanced scorecard’ incentive plan in its Retail Banking Branch and Contact Centre businesses.

“While we have already taken significant steps to improve our remuneration structures, we know there is real concern in the community about the sales culture within banks and I’m confident these meaningful reforms will provide better outcomes for all customers,” he said.

Ina statement, Commonwealth Bank chief executive, Ian Narev, called the Sedgwick review “thorough, robust and independent” and committed CBA to implementing all of the recommendations.

“Over a number of years Commonwealth Bank has been working across a range of areas, including culture, people management, and incentives, to improve customer outcomes. The Sedgwick recommendations will accelerate that work by further encouraging our people to provide great customer service,” he said.

"We will implement many of the recommendations by 1 July 2017 and will have all changes in place by the following financial year.”