The Australian Bankers Association (ABA), says the banking industry welcomes a new independent report by former Public Service Commissioner Mr Stephen Sedgwick AO, which has found that banks are on track to meet their 2020 deadline to overhaul staff pay, a critical issue highlighted by the Royal Commission, while also noting there is more work to be done to ensure full implementation.
In April 2017, the industry announced an overhaul to the way banks pay and reward their retail staff to deliver better outcomes for customers. The deadline to fully implement these changes is the 2020 performance year. These key changes include:
- No longer paying retail bank staff bonuses based directly or solely on sales
- Where incentives are paid, they will be based on a range of measures such as excellent service and good outcomes for customers (with financial targets not the main component)
- Incentives paid will not be based on the type of product (eg one type of credit card over another) but rather rely on the time taken by staff to process an application for a customer
- Refocussing workplace culture and leadership structure to ensure a focus on the customer is paramount.
Following the release of the Royal Commission Interim Report, the Australian Banking Association commissioned a progress report by Mr Sedgwick on the changes to ensure the reforms were on track to meet their 2020 deadline.
The key findings of this progress report are:
- Banks are on track to implement the report well in advance of the 2020 deadline
- Banks have significantly reduced the use of bonuses based on financial incentives for front line staff
- Bonuses for bank tellers, typically 10% of fixed salary, are now generally based on broader customer service measures, with ‘sales based’ measures greatly reduced
- Salaries for other bank staff such as ‘in house’ mortgage brokers, are now greatly weighted towards fixed pay, rather than variable bonuses
- Banks are retraining front line staff to encourage a ‘customer first’ approach, rather than a ‘sales first’ mindset
- There is still more work to be done on ‘leaderboards’ (which track individual performance), with the practice still found to be occurring in a limited number of branches.
Regarding third party mortgage brokers, Mr Sedgwick noted his recommendations made in 2017 were not yet fully met (although there is a 2020 deadline). He acknowledged the uncertainty caused by the Royal Commission which itself has recommended different changes to the area and acknowledged the difficulty in navigating reform in a diverse industry such as mortgage broking.
CEO of the Australian Banking Association Anna Bligh said the Royal Commission highlighted the need to continue to implement the 2017 report by Mr Sedgwick as soon as possible.
Commissioner Hayne in his final report stated:
“In my view, full implementation of the Sedgwick recommendations is an important first step towards improving front line remuneration practices. But implementation will only improve these practices if banks implement the Sedgwick recommendations both in letter and in spirit” (pg 370-371 Final Report, Royal Commission into Banking, Superannuation and Financial Services).
“The way banks pay their staff was revealed as a critical issue of concern throughout the Royal Commission,” Ms Bligh said.
“When investigating the issue of bank staff pay Commissioner Hayne acknowledged these reforms were an important first step towards improving front line remuneration practices.
“In the Final Report, Recommendation 5.5 made it explicitly clear that Sedgwick needed to be fully implemented, which the industry has heard loud and clear.
“Following the Royal Commission Interim Report the industry saw the need to do a ‘check-up’ on the reforms to bank staff pay to ensure they were on track to meet their commitments by 2020.
“Mr Sedgwick engaged a number of stakeholders including the Financial Sector Union, ASIC and APRA to ensure the report was thoroughly independent and gave the most accurate reflection of the current state of the reforms.
“This report has found banks have been on the front foot in implementing the ‘Sedgwick reforms’ to bank staff pay, with many on or ahead of schedule in overhauling their salary structures.
“Bonuses for bank staff are better balanced, focussing on what’s best for the customer and excellent service rather than simply sales targets.
“Mr Sedgwick also highlighted the lack of action on mortgage broking remuneration, however he acknowledged the complexity of the area given the number of parties involved and potential for regulatory intervention following the Royal Commission,” she said.
