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Remuneration at heart of misconduct seen at Royal Commission

by Lewis Panther SA FIN | 27 Nov 2018
Remuneration structures lie behind the worryingly high number of examples of misconduct seen at the Royal Commission. 500 Remuneration at heart of misconduct seen at Royal Commission - FINSIA

That was the conclusion of a special panel of FINSIA’s younger members who spoke out as the hearings entered into the last stage in Sydney and Melbourne.

Interestingly, those who spoke about issues they had witnessed were more willing to take action than those senior executives questioned during Round 7 of Commissioner Kenneth Hayne’s into misconduct in the financial services industry.

They also suggested that in future customers would do the same - and vote with their feet - if they were not satisfied with their bank.

The mood may mean a brighter future when it comes to the restoration of customer trust.

It seems the next generation of leaders are taking note of the challenge a keynote speaker made at FINSIA’s Young Professional Awards earlier this year - on the eve of the Royal Commission - when she urged them to leave a legacy of restored trust. 

But Pauline Vamos’ call to restore confidence in the banking system over the next decade will require an overhaul of attitudes towards payment structures coming from FINSIA millennials.

One high performer who spoke at our event told how the remuneration structures that didn’t sit well with them at the Big Four bank they were at led them to leave.

Profits over customer outcomes was at the heart of this “fundamental” issue the banker had after being pressured to perform in an unacceptable way.

“There was no such thing as a balanced scorecard and I was being asked to bring in $1m and that was the be-all-and-all. There was little consideration for the customer.

"That’s the context of how I look at the problem.”

“I did see that change over time. But financial metrics still played the most important role.

“But where bankers aren’t rewarded through commission, how do you incentivise them?

“My take on it is informed through working through having remuneration elements as the most important element to a balanced scorecard.”

The consensus from our panellists was that there was nothing wrong with targets, but that they had to be better thought through - with an emphasis on the whole business. That means including all stakeholders, from customers to shareholders. 

“It still comes down to targets. It’s still about hitting team targets. But it’s not about: ‘You haven’t written this many lines this week’.

“It’s about engaging with stakeholders.

“It’s about getting people in the right roles.

“People matter. But getting the balance right is a big challenge.”

A sense of moral outrage was apparent in another banker who remarked on the fact that they had seen millionaire clients able to claim benefits, which they thought was immoral even if it was legal.

And it was the fact that “financial advisers helping those sorts of clients saw it as easy money” that left a lasting impression.

“It reinforced the view with me that things had to change.”

Talking about Hayne, the banker added: “Remuneration and how that is structured is central. That can really engender certain behaviours.

“You are not going to speak out if 15 per cent of your earnings are up in the air.

“I just wonder to what extent that is going towards ethical conduct. 

“If you are divvying up money and if people are getting less, something at some stage is going to trip in the brain.

“To what extent is upscaling going to make them more ethical. Education is important. But it could lead to people being able to rationalise greed.

“You can study the theory of ethics, but being able to act on it depends on empathy. If you can empathise with customers then you will treat them fairly.

“If you are going to have cold hard targets, that’s when dead people get charged for services.”

Looking to the future, the panel raised the prospect of what digitisation would mean when “you disembody the client to bank relationship”. 

While the panel did not specifically comment on whether this was a good or bad thing, there seemed to be an acceptance that it would lead to better compliance.

“Generally we don’t trust people or institutions but we will jump into an Uber or stay at an AirBnB,” a panellist said.

“It works because there is an easily followed peer review system which is important to younger people.

Everything from barbers to garages are rated. Even a hair cut.

It is part of an attitude of pushing back - being disruptive - which is apparent in younger people who are not satisfied with the choices that have been made for them, according to another member of the panel.

“The BNS is where investors won’t want to put their money with us. People will vote with their feet.

“Social media has led to a growth in naming and shaming. So banks have to be aware of that - and the damage to brand reputation that can follow.

Bigger purchases - like a home loan - may still need the input of a professional which is why continued professional training is important.

But there was also a palpable sense that financial literacy had to be improved massively because of how information is asymmetrical currently.

“Financial literacy is important to the bigger things in life, like house purchases and superannuation. There should be a call to arms for people on the outside.

“Mums and dads need to understand where they are putting their money.

“Financial literacy in schools is important, but lacking.

“Ninety-nine per cent of teachers can’t see a good peer to peer lending rate.”

Which leaves your average consumer facing up to being lumbered with added costs.

An example one of our panellists gave summed up the shoddy behaviour of a financier that should make all sides stand up and listen. 

It revolved around the story of a friend outside the industry who had bought a car on a really promising finance deal, but couldn’t work out the extra add-ons in the fine print. It was only when he sought the added advice of our panelist that he found out he had been ripped off.

But it’s not just those working at the banks who have a part to play, we were told.

“Investors have a part to play. You have got to sign incentives for everyone from tellers, through the C-suite as well as involving shareholders.

“If you have shareholders saying that they are going to appoint a more ethically-minded board that will lead to a very different board that will lead to very different outcomes in the long term.

“That’s a long term shift in dynamics that people need to get their head around.

“The spectre of Larry Fink raised.”


  • | Jan 23, 2019

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