As expected Westpac suffered a first strike from shareholders against its remuneration report at yesterday’s annual meeting in Perth, but what was not expected was the extent of the negative vote after more than 60% of shares voting were cast against the bank’s 2017-18 remuneration report.
It was a stunning vote of no confidence in the bank board and management at a level we have seldom seen in Australia.
The negative vote had been expected for more than a week as the tide of unease and shareholder protest mounted in the wake of disclosures in the Royal Commission.
But the 64.16% vote against is not only one of the largest ’no votes against any company’s remuneration report, but the largest against one of the market’s bluest of blue chips in the shape of Westpac.
Only 35.84% were cast in favour of the remuneration report. It was a dramatic demonstration of the depth of feeling shareholders have against the bank and banks in general as a result of the disclosures from the royal commission.
Chairman Lindsay Maxsted told the bank’s annual general meeting in Perth that early voting shareholders had mentioned unhappiness over executive bonuses.
While all but one Westpac group executive had their short-term cash bonuses cut and top-tier staff saw an average 25% drop in rewards, shareholders were still unhappy and ready to give the bank a whacking at the meeting.
“The key point from those voting against the remuneration report has been that although the board took events over the year into account, many have questioned whether we went far enough, particularly in reducing short-term variable reward paid to the CEO and other executives,” Mr. Maxsted said on Wednesday.
Investors ignored the negativity from the meeting and pushed the shares up 1.6% on the ASX yesterday to $25.47.
Commonwealth Bank rose 2.4% to $70.08, ANZ added 1.7% to $25.20, NAB also added 1.7% to $23.89. The latter two get their working over a week yesterday.
But the market had closed before the extent of the rejection was revealed in a statement to the ASX just after 5 pm.
CEO Brian Hartzer saw his cash bonus cut by around $450,000, or 30%, to $1.04 million (a still substantial amount) in a year when profits were flat and public image of Westpac and its peers took a hammering thanks to the disclosures at the royal commission.
Mr. Hartzer’s total realised remuneration fell 9.4%, or $512,325, from $5.46 million to $4.94 million (again a still substantial amount of money).
Mr. Maxsted defended the bonus structure but said the bank would respond to the blow of the sizeable shareholder revolt, which puts the board at risk of a second strike and spill vote at next year’s AGM.
“The board takes your feedback very seriously,” Mr. Maxsted said.
“Given the many concerns expressed we will reach out to more shareholders this year to fully capture and understand your views.”
“Although the royal commission has clearly focused on matters of extreme importance, it has captured only a fraction of the activity taking place inside financial institutions,” Mr. Maxsted said.
Nonetheless, Mr. Maxsted said Westpac had taken four key lessons: it was slow to understand and react to complaints, it did not quickly enough focus on conduct and reputation, some bonuses encouraged poor behavior, and it did not appreciate risks in financial planning.
“Addressing these issues is our priority and we are absolutely committed to restoring the standards that you, the community, and customers expect,” Mr. Maxsted told Westpac’s annual general meeting in Perth.
Westpac has put aside $281 million for customer remediation and associated costs but has indicated more could follow.
In his speech, Mr. Hartzer made a strong defence of Westpac and the way it was addressing the issues outlined at the royal commission. But he ended his speech on an upbeat note by expressing confidence in the bank.
“… while 2018 was a challenging year, and 2019 no doubt will continue to bring its own challenges, I believe Westpac is very much on the right path.
“Our balance sheet has never been stronger, we have an excellent customer franchise, a clear strategy to build a simpler, more efficient, and low‐risk business, and what I believe to be the strongest management team in the sector.
“As a result, I believe we are well on the way to delivering good value and returns for shareholders, and doing it in a way that you can remain proud of your investment in Westpac,” he said.
Yesterday’s no vote shows how much work he and the board still have to regain the trust of shareholders.
