Any reference to total shareholder return may de dropped from the calculation of bonuses for executives at Commonwealth Bank, its chair, Catherine Livingstone, told the financial services royal commission yesterday.
In an uncomfortable half day of evidence at hearings in Sydney, Livingstone frequently conceded a recent history of weak and indulgent decision-making by the board and delays in consequences for the poor performance of top management.
"We are undergoing another whole review of the remuneration framework and the working of the short-term and the long-term variable remuneration," Livingstone told the commission.
"The total shareholder return relies on market influence, not just what the company does … it is far from a perfect measure," Livingstone said, noting that APRA is also looking for banks to replace TSR in assessing executive bonuses.
Obliged to explain her and the board's thinking on bonuses paid in 2016 and 2017 - and their connection to a litany of misconduct issues - Livingstone agreed that "in hindsight, we could have done a greater risk adjustment [in 2017] on several executives, including to zero."
Rowena Orr, counsel-assisting, had earlier asked: "Was it CBA's approach [in 2016] to wait until a risk had eventuated publicly before imposing any sort of consequence for failing to manage that risk?"
Livingstone clarified: "I don't believe that was the intention, but it might be the impression created."
Orr: "Particular managers and business units had failed to mitigate those risks over a long period of time?
---"That is the evidence, yes."
"And wasn't that failure in itself something that warranted an adverse remuneration outcome?"
---"I would agree with that, and as I've said, the process around the remuneration outcomes for 2016 was patently inadequate," Livingstone said.
"How many of these executives do you think should have had a risk adjustment recommended by the CEO [Ian Narev]?"
---"Well … I would say most of them."
And later, specifically challenging the generous bonus paid to Narev in 2016, Orr asked: "For this year, in which there were ongoing investigations into CBA's life insurance business, known problems with anti-money laundering compliance, it was known that customers had been charged fees for no service, and it was known that consumer credit insurance had been mis-sold …. Do you have any reflections on that recommendation, [for a 100 per cent bonus]?"
"We've all reflected on these outcomes, and would regard them as inappropriate," Livingstone responded.