Here’s how Westpac is saving on the salaries of its senior executives

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Westpac today gave details on how Australia’s oldest bank is cutting the pay of its senior executives.

In his speech to shareholders at the AGM in Adelaide, chairman Lindsay Maxsted acknowledged concerns in the community about bonuses and payments to executives.

A proposal for so-called soft targets to be added to senior executive bonuses was behind a first strike vote against the remuneration report of the Commonwealth Bank last month, the first such revolt by shareholders against a major bank.

The proposal was withdrawn at the last moment but 51% of shareholder still voted against the full remuneration report. This counts as a first strike under new regulations. A second strike would mean a spill of board directors.

But Westpac, Australia’s second largest bank, has worked to head off any backlash on executive pay.

“We have sought to ensure that remuneration levels of new executives are lower than the executives they replaced,” Maxsted says.

When Brian Hartzer started in February last year it was on a target salary 16% below the previous CEO, Gail Kelly, whose salary had not been adjusted for four years.

Kelly’s final payout was $11.76 million, for a part year. The previous year she got $12.8 million.

Hartzer’s pay packet for 2016 was $6.75 million compared to $5.73 million in the year before, according to the latest annual report. His top 11 executives shared a combined $35 million for the year.

However, Maxsted says there has been a significant reduction in Hartzer’s real remuneration compared to his predecessor.

“We have maintained this discipline with newly appointed executives commencing on salaries generally below their predecessors.”

In 2016, short-term incentive payments for the CEO and the executive team were on average 11% below that of the previous year because the company’s earnings per share, economic profit and return on equity were lower.

And no long-term incentives were paid out in 2016.

Maxsted says the board has decided to adjust the performance hurdles applied to long-term incentives.

The total shareholder return hurdle has been retained for half of these incentives.

However, the earnings per share hurdle will be replaced with a cash return on equity target.

Westpac posted a flat full year cash profit of $7.822 billion.

The other major banks are moving to cut payouts as returns to shareholders come under pressure. The combined cash profits of the big four banks didn’t make last year’s record $30 billion.

The Christmas bonus at the ANZ Bank, in the form of $1000 in shares for employees who’ve been there at least three years, has also been cancelled.