Westpac avoids third strike as new chairman reviews short-term bonuses

Westpac's newly appointed chairman John McFarlane has vowed to overhaul the way executives are paid, potentially axing short-term bonuses after shareholders demanded greater accountability for the bank's failures.

More than 95 per cent of Westpac's shareholders approved the bank's remuneration report at the annual general meeting on Friday, avoiding a third strike against the lender's executive pay.

Newly appointed Westpac chair John McFarlane does not like short-term incentives.Credit: Supplied

But Mr McFarlane faced more than a dozen questions from shareholders over the need for greater accountability at the bank after Westpac in September agreed to pay a record-breaking $1.3 billion misconduct penalty over breaches of anti-money laundering laws and recently drew lashings from the banking regulator.

The Australian Prudential Regulation Authority (APRA) last week launched a court-enforced undertaking to improve Westpac's approach to risk governance after it found long-term deficiencies were continuing to cause problems for the country's third-largest bank.

"Will the board and Westpac's senior executives admit they have failed their shareholders? Where is the evidence of accountability for these failures?" one shareholder asked.

Mr McFarlane said there had been accountability for Westpac's failings, including suspending the executive team's short-term bonuses for this year, but later added he would like to permanently change the bank's approach to remuneration.

"I have a personal view on this in that I’m not in favour of short-term incentives, I would prefer remuneration to be much longer term for the more senior members of the bank including the chief executive," Mr McFarlane said.

"We don’t have that position today, but I would like that to be a position going forward."

Mr McFarlane, who joined Westpac as chairman-elect in February after Lindsay Maxsted's retirement was forcibly brought forward, said there was no concrete plan for the reforms, but noted change was afoot. "If it can be resolved satisfactorily after discussion with shareholders, in general, we may amend our approach."

All the directors put forward for re-election were waived through with overwhelming support, with the exception of Peter Nash who saw a protest vote of 12.8 per cent against his election.

Mr Nash has been a director at Westpac since March 2018, and shareholders queried his level of knowledge of the 23 million breaches of anti-money laundering laws that would later topple chief executive Brian Hartzer and throw the lender into turmoil.

Australian Shareholders Association director Carol Limmer probed the extent of Mr Nash's knowledge of the breaches. "Could he tell shareholders why they should entrust him for another term?"

Mr Nash learned of the issues when they were first reported in 2018, Mr McFarlane said, but has since led the investigation and resolution of these matters.

The majority support for the bank's remuneration report was largely thanks to the tick of approval from key proxy firms – ISS, Glass Lewis and the Australian Shareholders Association – that praised the bank's engagement with shareholders after the second strike was handed down at the bank’s hostile AGM in Sydney last year.

Glass Lewis' report said there had been accountability for the AUSTRAC matter as 39 employees had collectively foregone $13.2 million in remuneration that had been awarded in the previous year.

A number of shareholders also asked questions about the bank's decision to scrap its first-half dividend for the first time in decades in what was a more cautious approach to the coronavirus crisis than that taken by the other big four banks. "Why did I not receive any money? Is this a breach of human rights in a state of emergency?" one shareholder queried.

Mr McFarlane said the bank was constrained by APRA's regulatory guidance but acknowledged many shareholders depended on these dividend payments for income.

Westpac's share price fell by 0.28 per cent to $19.94 in early afternoon trade.

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