![The pay of CBA chief executive Ian Narev and other senior executives will be in focus at the AGM on Wednesday.](/content/dam/images/g/s/4/v/y/3/image.related.afrArticleLead.620x350.gsk7a1.png/1478589210669.jpg)
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Commonwealth Bank of Australia is at high risk of becoming the first bank in Australia to ever receive a "strike" on its remuneration report at its annual general meeting in Perth today.
An embarrassing first strike under laws that make directors more accountable for executive pay is a distinct possibility for CBA at its annual general meeting in Perth on Wednesday, after two influential proxy advisers, ISS and Ownership Matters, said pay packets don't reflect sufficient accountability for recent culture scandals.
Yet governance experts say growing unrest about big bank remuneration reports is not unique to CBA. Across the sector for many years, banks have very rarely withheld bonus pay from senior executives even as bonus pools for thousands of other bank staff have been shrinking. In December last year, both Westpac Banking Corp and ANZ Banking Group received sizeable protest votes against their remuneration reports (15 per cent for ANZ, 16.5 per cent for Westpac) as shareholders lashed out that the pay of senior bankers did not reflect volatile sharemarket performance.
CBA chief executive Ian Narev's total pay grew to $12.3 million last financial year, up more than 50 per cent after the inclusion of previously granted equity rights which vested during the period. In its annual report released on Monday, ANZ said chief executive Shayne Elliott's total statutory pay for the year was $5.07 million, almost half the $9.7 million his predecessor, Mike Smith, was paid during his last year at the helm of ANZ.
Difficult to predict
It is easier for CBA to receive a strike than other big banks. This is because it has the largest proportion of retail shareholders on its register, and the majority of them don't bother voting at AGMs. Historically, around 40 per cent of CBA shareholders cast votes at the bank's annual meetings. The two strikes rule, which came into force in 2011, recognises a "No" vote when 25 per cent or more of shareholders vote against the resolution, but the relatively low turnout for CBA's AGM means only 10 per cent of the register is needed to vote against a remuneration report to trigger a strike.
The Australian Shareholders Association is also recommending a vote against the remuneration report. Glass Lewis, another proxy firm, is recommending a vote for it. Most of ISS's clients are offshore institutional investors who typically follow its recommendations. Ownership Matters has mostly Australian clients, including many superannuation funds, who typically allow portfolio managers to decide how to vote at AGMs. This makes it difficult to predict the outcome of the CBA vote.
ISS was concerned that CBA had not disclosed how it calculates "profit after capital charge", a key performance metric, and also questioned "stretch" in the short and long term targets that use customer satisfaction ratings, suggesting these may "not fully reflect the true culture of the organisation in dealing with customers".
"It does not appear that there is any substantial consequence to executive remuneration following the numerous publicised issues [in margin lending, lending, financial advice, and insurance] which has increased regulatory and governmental scrutiny into banking practices, managers and executives," ISS said.
It added CBA's "lack of transparency is considerably below that expected of the largest ASX-listed company. Rather than obfuscating the link between performance and reward, shareholders expect the company to be leading the market with superior corporate governance practices".