The big banks have pledged to overhaul bonuses paid to their retail staff to try to get better outcomes for customers, but the move has already drawn criticism for not going far enough.Â
The Sedgwick Retail Banking Remuneration Review, commissioned by the peak body for Australia's banks, the Australian Bankers' Association, recommended on Wednesday that staff should no longer receive bonuses for simply hitting sales targets and the sales commissions given to third party mortgage brokers be replaced with a fee for service model.
The review, by former Australian public service commissioner Stephen Sedgwick, follows a string of scandals in the banking sector linked to staff commissions, including inappropriate financial advice, aggressive loan marketing tactics and insurance policy switching.
It also comes amid calls for a royal commission into the sector by the ALP and the Greens over bad banking behaviour.Â
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Australian Bankers' Association chief executive Anna Bligh said the banking industry supported the recommendations made by Mr Sedgwick and would implement them in full as quickly as possible.
"Mr Sedgwick has not only identified that remuneration arrangements need to improve, but also that it needs to happen alongside a change in culture and approach from management," she said.
That sentiment was shared by Commonwealth Bank, National Australia Bank, Westpac and ANZ which all released statements saying the banks would implement the recommendations in full.
Mr Sedgwick said while some banks had changed the way they paid staff, there was still a risk to consumers.
"Some current practices carry an unacceptable risk of promoting behaviour that is inconsistent with the interests of customers and should be changed," Mr Sedgwick said.
"The need for change is true of both direct (i.e. staff) and some third party channels."
Mr Sedgwick also recommended greater oversight of brokers by the Australian Securities and Investments Commission.
Under the recommendations, sales targets would only make up 50 per cent of any bonus payment. This must fall to 33 per cent by 2020. According to the review, the average rate is already between 40 per cent and 50 per cent.Â
This is about changing a sales culture to a customer culture and if it's not done holistically it will fail.
ABA chief executive Anna Bligh
Banks currently use a "balanced scorecard" to assess whether a staff member should receive a bonus. The scorecard often includes customer satisfaction and upholding the banks' values as well as sales targets.
Ms Bligh told Fairfax Media that some banks would be more affected than others by the changes, particularly banks with departments where 100 per cent of staff variable remuneration was based on sales targets.Â
She said ABA would monitor the adherence of its members to the recommendations and would also review how to make public if a bank did not adhere to the recommendations.
Finance Sector Union national secretary Julia Angrisano said the limited terms of reference mean the review did not examine the areas of banking that have been rocked by scandal over recent years.
"The Sedgwick review was commissioned by the Australian Bankers'Â Association on behalf of the banks, using the ABA's terms of reference," Ms Angrisano said.Â
"The review was limited to an examination of the bottom three tiers of retail banking jobs and was not provided with remuneration details of any staff above branch manager," she added.
Meanwhile, Industry Super Australia said the review "does nothing to stop banks continuing to cross-sell their underperforming super funds to the public".
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