Senior executives at AMP will receive little if any short term bonuses for 2016 after the worst bottom line profit performance in 13 years.
The precise financial pain for senior management will not be known until the annual report is released in about three weeks. But it is clear from the executive remuneration structure at AMP that most of the hurdles for short term incentives were not met in 2016.
AMP's top 11 executives, excluding AMP Capital, earned $9 million in short term bonuses in 2015 on the back on higher underlying profits, tight cost controls and success in meeting some growth measures.
Chief executive Craig Meller, who earned a short-term bonus of $2 million in 2015, recently recommended to the board of AMP that he not be paid a short term bonus for 2016.
"The board agreed with my recommendation," Meller said on Thursday.
He had just announced a bottom line loss for the year to December of $344 million, down from a profit of $972 million in 2015.
AMP prefers to use a measure called underlying profit, which fell from $1.12 billion to $486 million thanks to life insurance division losses of $415 million.
The results have shown how vulnerable the country's largest independent wealth management company is to government regulatory changes and financial market conditions.
Changes to super pushed through in last year's federal budget in May triggered a dramatic change in discretionary cash flows into AMP's super products. Discretionary super flows were down by about $500 million in the second and third quarters of 2016 compared to 2015.
Shareholder return focus
But discretionary flows turned positive in the three months to December and chief executive Craig Meller expects that positive momentum to be maintained in the lead up to the imposition of a new $1.6 million cap on favourably taxed super for each individual.
Meller is focused on three things to boost returns to shareholders: cashflows, costs and capital. Some of these areas are more difficult than others.
AMP's strong capital position allowed the company to launch a $500 million share buyback on Thursday. That will be earnings per share accretive and help AMP turn around its woeful return on equity (ROE).
ROE in the 2016 year fell 7.6 percentage points to 5.6 per cent in 2016. Meller said the company's target is 15 per cent.
Shareholders have been told to expect further capital management later this year after AMP completes the negotiation of a reinsurance agreement covering the life liabilities in the former National Mutual Life subsidiary.
Reinsurance of the NML business, which was merged with AMP Life late last year, should release another $500 million in capital.
In relation to costs, Meller announced a new cost cutting target of 3 per cent for 2017. That would see costs reduced from $981 million to $950 million.
Cashflows have been problematic in the domestic wealth management business and in AMP Capital. Both these businesses had flat earnings.
Net retail cashflows in wealth management slipped from $3.18 billion to $1.49 billion, total corporate super net cashflows were down from $603 million to $281 million and external net cashflows were negative $1.44 billion.
The star performer
AMP's wealth management success story is the North platform, which lifted net cashflows from $4.49 billion to $4.98 billion partly due to the closure of other AMP products and AMP advisers shifting client funds from external platforms to North.
The jewel in AMP Capital is the joint venture with China Life called CLAMP which is the fastest growing new asset management company in China. Its assets under management rose by 55 per cent in Australian dollars to $22.9 billion. AMP has a 15 per cent share of that.
The fastest growing businesses in the group were AMP Bank, which lifted profit 15 per cent to $120 million and New Zealand financial services which lifted profit 5 per cent to $126 million.
AMP still squeezes a reasonable profit from its mature business but it is in run down mode.
