Westpac staff are facing inferior pay outcomes among the major banks in the next few years as the company battles to regain control over its ballooning cost base.
While each of the big banks are being impacted by endemic inflation and one-off hits to cover customer remediation programs and other exigencies, the challenge to reduce expenses is greater at Westpac because it entered the current economic turbulence with the most unflattering cost metrics of its peer group.
At the end of the 2021 annual profit season, Westpac was the only major bank to report cash earnings per share below 2 per cent and a return on tangible equity below 10 per cent.
A major contributor to Westpac’s comparative underperformance was its poor cost management.
The bank’s cost-to-income ratio was running at above 63 per cent at the end of September last year - a distant cry from NAB’s sector-leading ratio of 46.5 per cent and CBA on 52 per cent.
Chief executive Peter King’s response was to promise shareholders that he would deliver A$8 billion of cost reductions over three years ending in September 2024.
Although analysts such as Goldman Sachs’ chief number cruncher Andrew Lyons think he will fall short of that target, they believe he will still deliver the biggest expense carve-outs among the majors in the next few years.
Lyons is forecasting Westpac to lower its underlying costs by 7 per cent by the end of 2024.
Herein lies a viable explanation for why Westpac has decided to jettison a longstanding commitment to enterprise bargaining and to bypass securing agreement with the Finance Sector Union for a new industrial deal.
One of the keys to King being able to lower costs faster than Westpac’s three biggest rivals, is not only to resist the union’s industry-wide push for 6 per cent pay increases but to wangle the most attractive outcome for his shareholders.
To get there King is having to play a hardball game of industrial relations that might also be seen as risky given the bank’s comparatively high rate of unionisation and history of continuous engagement with the union.
In a memo issued to staff on Tuesday, Westpac’s head of human resources Christine Parker confirmed to staff what had been leaked to media more than a week ago – that the bank was side-lining the union to get a deal done.
“We worked hard to reach agreement with the FSU, however we couldn't get there, and the FSU has decided not to support Westpac’s proposed EA,” Parker told staff in the memo.
“We respect the FSU’s role in the process and their right to have a different view.”
The bank is now organising a direct ballot of its 30,000 staff to approve a new enterprise deal that the FSU says it could not stomach.
The pay offer of 4 per cent to staff earning up to $94,550 a year plus a one off payment of $1000 is well under the FSU’s 6 per cent claim.
Staff earning up to $118,000 are in line to get a 3.5 per cent fixed pay rise plus the $1000 one-off sweetener.
These increases appear lower than the 4.25 per cent being offered currently by CBA and the 5 per cent that NAB is said to be offering in its enterprise talks with the FSU.
The union says that Westpac’s proposed enterprise deal is deficient on pay and does little to address a raft of issues relating to working conditions.
FSU national secretary Julia Angrisano said the bank was refusing to acknowledge it has problems with unrealistic workloads and unpaid overtime.
“The bank is ripping off employees, totally exploiting them and is expecting that staff work excessive hours in order to meet unrealistic workloads," Angrisano said last night.?
“Our members at Westpac say their workloads are out of control, with so much work it cannot be completed in a normal working day.”
The bank’s decision to bypass the union and take its offer to a direct ballot of staff has elevated the stakes for King and Angrisano.
Has King underestimated the level of staff angst over workloads across the bank’s call centres, branches and back office operations?
Or has Angrisano miscalculated the urgency with which staff might be prone to accepting even a “lowball” pay rise at a time when inflation is wrecking their living standards?
If a majority of staff participating in the ballot decide to reject the bank’s offer then King could find himself marooned strategically with no clear path to achieving sector-leading expense reductions he promised shareholders.
Under this scenario the bank’s undertakings to shareholders could seriously unravel, especially if the bank becomes exposed to industrial action.
But if staff approve the offer then the FSU’s bargaining power would be strategically eroded at an enterprise where it has traditionally enjoyed a relatively high level of unionisation and influence.
Either way, the outcome of the Westpac ballot looms as a critical moment for testing the credibility of industrial agency in the banking sector.