"We tried, but we got it wrong. We are listening to you. We will try again," says National Australia Bank (ASX: NAB) chairman Ken Henry.
NAB shareholders have issued a strong sign of disapproval to the board with 80 per cent voting against a proposed remuneration report that included significant concessions for CEO Andrew Thorburn (pictured).
Under the Remuneration Report proposed in November, Thorburn would have taken a cut of almost a third to his salary in comparative fair value terms, but it appears a final pay of $4.375 million was still too high in the eyes of investors.
The blow comes just before the CEO is about to take extended leave to recharge his batteries, and shows just how much the Royal Commission has empowered investors to hold banks up to greater scrutiny.
NAB had sought to introduce a "simpler" remuneration system for its executives, with elements that sought to improve the focus on customers and promote long-term performance.
The proposed scheme also comprised pay rises for other key figures including chief financial officer Gary Lennon, chief technoloy and operations officer Patrick Wright, chief legal and commercial counsel Sharon Cook and chief customer officer - private and banking, Anthony Healy.
At the company's AGM, chairman Ken Henry admitted the share price was "not where any of us want it to be", having fallen almost 20 per cent since August.
Henry said that based on conversations with major shareholders, the bank estimated that of the 80 per cent of votes cast against the remuneration report, more than a third were due to changes to the scheme.
Only 25 per cent of votes need to be against a remuneration report for a first strike to occur, so this puts NAB's scheme well behind investors' expectations.
Meanwhile, Australia and New Zealand Banking Group (ASX: ANZ) chairman David Gonski told his company's AGM today that so far 34 per cent of proxy votes had been against its remuneration report. The final vote figures are yet to come out of the meeting.
"The Board acknowledges the very real concerns of those who have voted against the report and I assure you we will continue to work hard in 2019 to ensure further alignment between compensation and shareholder interest," said Gonski, who personally will be taking a 20 per cent cut in his remuneration fee next year.
"We have been making changes to remuneration for some years, including significantly reducing the compensation paid across the Group."
Henry claimed that "long before" the Commission started the NAB board had come to the view its executive remuneration scheme was "not right".
"It didn't put enough focus on the management of non-financial risks and conduct matters. And, there was a risk that our so-called Long-Term incentive scheme might even be encouraging short-term thinking and value-destroying behaviours," he said.
"We tried, but we got it wrong. We are listening to you. We will try again."
He also expressed great confidence in Thorburn and the rest of the leadership team.
"We have a clear plan for NAB and remain confident in our future under the leadership of CEO Andrew Thorburn and an executive team of truly global quality," Dr Henry said.
"Andrew has announced this week that he plans to take annual leave from this Friday and will return to lead NAB's response to the Royal Commission's final report.
"He will then take a month of his Long-Service Leave entitlement. This is a decision we had discussed earlier this year and which the Board fully supports."
Thorburn told shareholders the move from base pay to greater incentive compensation wasn't managed carefully enough, and at times has "rewarded the wrong behaviours", focusing on product sales and short-term growth.
"We have taken actions in this area, and will continue to make changes," he said.Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
Business News Australia
Get our daily business news
Sign up to our free email news updates.
Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support