NAB's Andrew Thorburn got paid 120% of his bonus on a 'soft' target

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NAB chief executive Andrew Thorburn’s pay packaged jumped 22% in 2016 to $6.7 million.

The payout was boosted by a short term bonus, for which he got an over award payment of 120%, mainly because he exceeded a so-called soft non-financial target — customer satisfaction.

His incentive goal was $2.3 million but he was given 120% of that, or $2.76 million.

So-called soft targets, or non-financial measures of success, have been under attack by some shareholders as growth in profit slows at the banks.

Last week the Commonwealth Bank withdrew a package of proposed changes to the way incentives are calculated just hours before they were due to be voted on at the bank’s annual meeting.

The Commonwealth then became the first bank to have a first strike, of more than 25% of votes at an AGM against its remuneration report. A second strike would mean all director positions being spilled.

CEO Ian Narev was paid $12.3 million in 2016. Just $2.65 million of that was base pay, the rest being short and long term incentives.

At the NAB, the short term bonus for senior executives is two-thirds weighted to financial measures — cash earnings and return on equity. The final third is about customers and their views of the bank.

According to the NAB’s annual report released today, the senior executives at NAB “met expectations” for the two financial measures.

Cash earnings grew 4.2% to $6.48 billion for the year to September.

Return on equity (ROE) fell 50 basis points to 14.3% but this was mainly due to the dilution effect of a $5.5 billion capital raising.

The third performance measure was called Net Promoter Score which looks at overall customer advocacy — whether customers would recommend NAB to family and friends.

This measure “exceeded expectations”.

“Good progress has been made on activities to improve the customer experience by enhancing our technology and digital offerings, as well as process improvements making it easier for customers to deal with NAB,” says the bank’s annual report.

Thorburn’s base salary was $2.36 million and, after all benefits, his total package hit $6.7 million, a 22% increase on 2015.

The contribution from the short term bonus was $1.38 million. The rest of the $2.76 million is deferred, to be paid later.

The total combined payout to senior executives at the NAB was $35.09 million, 38% more than they got in 2015.

Thorburn, when prompted at a parliamentary inquiry in October, apologised to customers for “issues in our industry and at NAB”.

NAB has paid out a combined $15 million to 750 customers who got bad advice from financial planners at the bank.

The banks were widely criticised in September for only passing on about half the 0.25 percentage point cut in cash rates to 1.5%. The banks instead also increased some rates on deposits.

That prompted prime minister Malcolm Turnbull to start an annual grilling of the big four CEOs via the parliamentary committee.

The banks have also been hit by a series of scandals including giving faulty financial planning advice to customers and restricting payouts for disability insurance claims, as well as allegations of rigging the bank bill swap rate (the Commonwealth Bank is not included in this).

The NAB’s annual remuneration report, released today, did touch on this.

“NAB and other Australian banks are experiencing criticism of the culture within the banking industry and the conduct of some people working for the banks,” the report says.

“The remuneration committee has been, and remains focused on, these issues.”

The committee says the consequences of management breaches standards is regularly reviewed.

“Poor conduct and behaviours create risk for NAB,” the report says.

“Should these occur, there are consequences including dismissal or reduced or zero variable rewards. These issues will continue to receive the strongest attention from the Committee and indeed the NAB Board.”

Thorburn came under intense questioning at the parliamentary inquiry over the fact that none of his senior executives had been sacked when 43 financial planners had been dismissed for misconduct.

The committee also noted that director fees were increased in 2016 to “remain competitive with comparable companies and to continue to attract and retain the best talent”. The next annual review is due in August 2017.

Chairman Ken Henry got $689,598 for the year. Other directors are on a base of $230,000 plus extra for committee work.

The bank’s final dividend to shareholders was flat at 99 cents per share.

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