Hayne’s remuneration recommendations ‘contradictory’

by Tas Bindi•05:35 AM, 25 Mar 2019•11 minute read

The royal commission’s final recommendations on the remuneration of brokers and bank executives are “contradictory”, an industry leader has argued.

Speaking to The Adviser, HashChing COO Siobhan Hayden pointed out that, on the one hand, commissioner Kenneth Hayne advocated for the Banking Executive Accountability Regime, under which authorised deposit-taking institutions are expected to establish a remuneration policy requiring that a portion of executives’ variable remuneration be deferred for a minimum of four years and reduced commensurate with any failure to meet their obligations to act in the best interests of customers.

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On the other hand, the royal commission recommended that the payment of trailing commission – where a portion of the broker’s commission is paid incrementally over three or four years – be banned initially, with the payment of upfront commissions to also be forbidden in due course and replaced with a borrower-pays broker remuneration model.

“The dichotomy, from my perspective, is that throughout the same royal commission, he advocated for the Banking Executive Accountability Regime, which in parallel says, as an executive, we won't pay you all your bonus in your first year, we will make sure your decisions as an executive will deliver good outcomes for the bank or the financial institution, and we will pay those over three to four years,” Ms Hayden said.

“In the same conversation, [the royal commission is] saying that’s how brokers are remunerated, but they will unravel that. So, it’s completely contradictory.”

The HashChing COO recalled a broker writing that “it’s so bad, it’s good” following the release of the final royal commission report.

She described this as a “great adage” because the report was “so bad to our industry that we mobilised, and we were quick to engage with MPs”.

“We’ve been successful in clarifying our model,” Ms Hayden said.

“When commissioner Hayne was looking at unravelling what he viewed as conflicted remuneration, the challenge with any change is [whether] you [are] moving to something better.

“Sometimes it’s easy to say, ‘Well, that’s not ideal, but we’ll move to X’ without actually considering the impact of the change.”

Both major political parties were firm in their initial statements that they would be implementing commissioner Hayne’s 76 recommendations, but have since backpedalled.

Following widespread campaigning and lobbying by the broking industry, the Liberal Party announced that, if re-elected, it would look at reviewing the impacts of removing trail in three years’ time rather than abolishing it next year as originally announced, while the Labor Party proposed that lenders instead pay brokers a standardised upfront commission as a proportion of the loan amount. It suggested that commissions be capped at a fixed rate of 1.1 per cent.