Another tone-deaf Australian company got punished yesterday when Commonwealth Bank shareholders revolted over the bank’s payments to top executives, inflicting on the lender with a historic “first strike” against its remuneration report.
That was despite a desperate last minute attempt by the bank to limit the damage by withdrawing a controversial resolution that would have eased the yardsticks used to reward the performance by the bank’s CEO, Ian Narev.
A combination of issues came together to whack the CBA – the change to the way remuneration for the CEO was to work in coming years, the remuneration report generally, the location of the meeting and no doubt its timing – and the way the bank appeared not to be listening to the rising tide of shareholder complaints.
For instance, the CBA had timed its annual meeting for yesterday, as the world watched the results of the US election campaign.
And it added to that sneakiness by setting it down for Perth, with a start time of 12.30pm Sydney time (9.30am Perth time) as interest in the events in the US would have been gathering pace.
But that didn’t stop investors and activists focussing in on a key issue – executive pay, especially for the bank’s CEO, Ian man Narev.
Before trading started yesterday, the CBA bowed to shareholder pressure on the issue and withdrew a resolution from the AGM would have made chief executive Ian Narev’s pay more linked to softer financial targets and therefore more easy to achieve and be paid for (in the opinion of some analysts and big investors).
While the CBA claimed in yesterday morning’s statement that it had enough proxy votes to ensure Resolution 4 would have passed, it said the board “recognises shareholder concerns about the changes made to the group leadership reward plan, and will commit to further engagement over the next year to better understand and address these concerns”.
It didn’t help the bank’s case when the country’s biggest investor, AustralianSuper came out yesterday morning in the media opposing the resolution, joining another big investor in UniSuper.
But that withdrawal didn’t help and the country’s biggest bank became the first Big Four lender to incur a vote of more than 25% against its executive pay report since the “two strikes” rule was introduced in 2011.
Proxy votes displayed at the meeting showed 49% of votes received were against the remuneration report – a stunning humiliation.
Under the “two strikes" rule, if a company receives two consecutive votes of more than 25% against its remuneration report, it sparks another vote on whether to force the board to stand for re-election.
The trigger for the backlash was that move to link chief executive Ian Narev’s long-term bonus to new “soft targets,” and concerns about the payment of multimillion-dollar bonuses despite a long list of a scandals over weak advice, abuse of customers by imposing fees unfairly, hitting its insurance customers unfairly and claims of rorting of key market interest rates.
Mr Turner (who retired yesterday) acknowledged the concerns, vowing to engage with shareholders over the year ahead, after the earlier withdrawal of that resolution asking shareholders to approve changes to Mr Narev’ bonus scheme.
Mr Turner acknowledged a "lack of clarity" in how the bank had explained its plan to change Mr Narev’s long-term bonus, and said the bank would engage with shareholders on its plan to change incentives for top executives.
"We will receive a strike on the remuneration report, and as I said earlier, we will of course discuss this with shareholders over the course of the next 12 months," Mr Turner said.
Mr Narev was paid $12.3 million last year – more than other Big Four bank bosses (Westpac’s annual report yesterday revealed that its CEO was paid just over $6 million) – but Mr Turner defended the payment, which will not be affected by the first strike.
The meeting was the last for Mr Turner as chair, who is retiring to be replaced by former Telstra chair Catherine Livingstone. Her election to the board was endorsed by 97% of proxy votes cast before the meeting.
It will be up to her to lead the repair of the CBA’s reputation, especially with its shareholders, large and small. That will also depend on the way the banks cleans up the lingering scandals.
CBA shares ended down 1.6% yesterday at $70.89.
