Shareholders in Commonwealth Bank of Australia (ASX: CBA) have a rare reason to rejoice as the Banking Royal Commission debunked the “clawback theory” although the bank will find it harder to disprove a second clawback issue.
The original clawback relates to accusations by a number of Bankwest customers that CBA had forced their loans to default in order to gain a financial benefit.
This was allegedly done after CBA acquired Bankwest but Commissioner Kenneth Hayne found that the accusations were completely unfounded after reviewing 43 submissions to the Royal Commission on this issue.
That’s good news as an adverse finding would open the door to millions (if not more) in potential compensation and remediation. The big banks are already facing enough legal challenges as it stands.
However, the clawback investors should be more focused on are the bonuses CBA paid to its top executives in light of the Royal Commission’s interim report, which found the banks had acted immorally, if not illegally, to boost profits.
While bank bonuses are not only tied to financial performance, profitability is a big driver and CBA’s ex-chief executive Ian Narev was paid around $6 million in short and long-term incentives by the bank in 2017, according to a salary survey by the Australian Financial Review released in February this year.
His total pay packet jumped 5.4% over the previous year to $8.8 million, making him the highest paid CEO of the big four banks and 10th highest among CEO’s of ASX companies.
His counterpart at National Australia Bank Ltd. (ASX: NAB), Andrew Thorburn, was paid $4.3 million in bonuses in the same year, which takes his total pay packet to $6.7 million.
If you added up the bonuses paid to the CEOs of the big four, which also includes Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ), plus AMP Limited (ASX: AMP), the total would top $21.6 million – and that’s just in the last financial year alone!
The figure will also be much higher if we included other top executives who were also paid huge bonuses on the back of unacceptable practices.
Shareholders and the public should be asking why these bonuses shouldn’t be clawed back, particularly given the destruction of shareholder value with the share prices of these institutions lagging the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index by a wide margin.
That debate hasn’t started yet but I expect it will soon enough, particularly as NAB, ANZ, and Westpac are scheduled to report their full-year results next month.
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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, National Australia Bank Limited, and Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.