The Royal Commission calls into question the pay regimes across Australia's entire banking industry

Peter Parks/ AFP/ Getty Images

There is a dirty four-letter word at the heart of the Australian financial industry that has caused a lot of its problems.

Sell.

The Hayne Royal Commission’s interim report, released today, looks in detail at the pay structures and incentives across the spectrum of Australia’s banking industry, from front-line tellers and salespeople all the way up to the C-suite.

It puts some confronting questions to the banks, who have argued they are moving away from monetary incentives for staff, especially bonus payments for hitting sales targets.

As Chris Pash reports here, the money culture drove what Hayne summarises “pursuit of short term profit at the expense of basic standards of honesty”.

In an entire chapter examining pay, the interim report is blunt in its conclusion that existing pay structures have led to customers being shafted.

From the report:

There can now be no doubt that remuneration practices can drive, and in Australia have driven, conduct of staff and conduct of intermediaries that is not consistent with the interests of the customer. The emphasis given to sales and profit, and the rewards that were given for selling the employer’s product, are central reasons for the conduct of banks and intermediaries that has been identified and is criticised in this report.

The report goes headlong into a challenge to performance-related pay structures. These are critical questions for the banking industry as they are used for recruiting, retaining, and motivating hundreds of thousands of staff.

Bluntly, the report asks: if front-line staff don’t get paid sales bonuses, why should their managers? And where in the management chain can bonuses justifiably kick in?

Why do staff (whether customer facing or not) need incentives to do their job unless the incentive is directed towards maximising revenue and profit? How can staff (especially customer facing staff) be encouraged to do the right thing (to ask ‘Should I’) except by the line manager observing, encouraging counselling and supporting the staff in that task? What is the point of allowing an incentive payment for doing the assigned task in a way that meets but does not exceed what is expected of that staff member?

And, as explained earlier, if customer facing staff should not be paid incentives, why should their managers, or those who manage the managers? Why will altering the remuneration of front line staff effect a change in culture if more senior employees are rewarded for sales or revenue and profit?

It goes on to pose two questions (among many, many others) that, we can assume, it intends to try and answer through the course of its work:

  • Should any bank employee dealing with a customer be rewarded (whether by commission or as part of an incentive remuneration scheme) for selling the client a product of the employer? That is, should any ‘customer facing employee’ be paid variable remuneration?
  • If the answer is either ‘no’ or ‘some should not’ what follows about incentive remuneration for managers or more senior executives? If more junior employees should not be remunerated in this way, why should their managers and senior executives?

These are monstrous questions for banks and the people that work in them. The commission has clearly identified that current pay structures are not serving the interests of customers. The industry needs a good answer for this because incentives are powerful shapers of the behavioural problems that have led us here.

We are starting to see the tumultuous reshaping of Australia’s banking industry at a structural level as the banks start offloading divisions and refocusing on service but some of the elements of this report are pointing to how this investigation will reach into every element of the industry, including how they attract, pay, keep and motivate every employee.

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