Commonwealth Bank has beefed up its financial metrics when considering how to pay top executives and added in a new measure which aligns incentives with trust and reputation.
Ahead of its annual general meeting - which will be held in Sydney on November 16 - the CBA said 75 per cent of its long-term bonuses will now be calibrated against total shareholder return with the balance being split evenly between trust and reputation, and staff engagement.
This time last year, Australia’s biggest lender was roundly criticised for trying to lower the financial hurdle to 50 per cent with non financial or soft metrics like culture, people and community accounting for the rest of the performance measures.
However, plans to use the soft measures were shelved as they were "seen to lack transparency and to be overly reliant on board discretion".
Subsequently, half of the lender’s shareholders declined to back the remuneration report, making CBA the first major bank in Australia to receive a first strike.
CBA said in Friday’s note to shareholders that since last year's strike, the company had reviewed its remuneration policies and moved to make them more transparent.
“The board recognises the critical importance for the company and the industry of rebuilding and improving the trust of customers and the broader community," the bank said in a statement.
“This is a key factor in ensuring the company maintains its social licence to operate as well as enhancing long-term financial performance and value to shareholders. Accordingly, this is a fundamental focus area for the executive team and one for which they are accountable."
Accordingly, CBA will be measured against a cross-industry peer group to test the trust, respect and admiration a respondent has for a particular company.
However, according to Dean Paatsch, a principle at Ownership Matters, the boutique proxy voting advisory firm, these reports are always subject to directors’ discretion and the 12.5 per cent benchmark for trust and reputation is not set in stone.
“It will be the director's judgement,” he said, pointing out that short-term bonuses that were due to be paid out this year - at 107 per cent - were cut to zero after the board took into account reputation damage.
CBA New Zealand
In Friday’s report CBA chair, Catherine Livingstone, said chief executive Ian Narev would not be eligible to earn new long-term bonus shares this financial year.
If CBA receives a second "strike", it will trigger another vote on whether to call another meeting to spill the board, although it is not expected that shareholders will make that demand given recent board changes.
Separately, the head of CBA’s New Zealand unit ASB Bank, Barbara Chapman, will step down from the job after six years at Easter.
The ASB Board said it has started the search for a new chief executive to “ensure a seamless leadership” change.
CBA’s Kiwi arm posted cash earnings of NZ$1.03 billion for 2017, up from NZ$914 million a year earlier.