The banking industry has responded to criticism of its retail banking remuneration practices, which were too closely linked to sales outcomes, and payments tied to sales are now rare in the industry.
This is the key finding of the Final Report of the Retail Banking Remuneration Review, the Sedgwick Review, which was commissioned by the Australian Banking Association in 2016.
But the report also warns that competitive forces in the banking industry, particularly the mortgage market, present a challenge to the long-term continuation of these improvements.
The review’s leader Stephen Sedgwick made 21 recommendations in 2017, which were designed to remove or reduce unacceptable risk of promoting inappropriate behaviour that is inconsistent with the interests of customers.
In the final report released yesterday, Sedgwick said that, with a few exceptions, the industry’s policies have changed in line with the recommendations.
Maximum variable rewards have been wound back, with most banks now offering a maximum variable pay opportunity that is 40 per cent or less of fixed pay.
Some banks have reduced variable remuneration from some roles altogether, especially in teller-like roles.
Performance assessments and access to variable rewards are now typically assessed on a “whole of role” basis.
Almost all banks have stopped using formal leaderboards to monitor performance of teams against targets. Manager discretion is now pervasive in performance management.
Sedgwick said banks have backed up these changes with investments to “better articulate a customer-centric ethos and build leader and manager capability to support it”.
The exceptions include one “significant” bank still offering variable pay in excess of 50 per cent of fixed pay for a small proportion of its home lenders. However, it has committed to reduce this amount.
Other exceptions also tended to be in home lender roles. Sedgwick called on all banks to move to full implementation of the 2017 recommendations as soon as possible.
A few banks continue to assign effective weights to financial measures in their scorecards that exceed the recommended 33 per cent.
While banks say they have stopped using leaderboards, surveyed staff said some form of staff sales ranking was still in use.
Sedgwick is also concerned that there has been limited progress in capturing data correlated with customer outcomes. Most rely on net promoter scores, with some increase in the use of customer feedback, analysis of complaints and mystery shopping.
Sedgwick also conducted a survey of bank staff, asking them about how they saw bank culture. The overall finding is that staff see bank culture as more customer-centric, while a significant minority assessed their employers less favourably.
“The is still scope for improvement, possibly in respect of both internal communication and the lived experience of some staff,” the report said.
The final report calls on the Australian Banking Association co-ordinate regular public reporting of staff surveys.
The ABA said in a statement that it would work with its members to consider an appropriate mechanism to regularly monitor adherence to improved remuneration practices.
Sedgwick said reforms to date have been achieved in an environment where there has been considerable external pressure on banks, including the findings of the Hayne royal commission,