Investors back CBA push to put customer satisfaction in remuneration

Shareholders today overwhelmingly backed a motion that makes external customer satisfaction a key component of Commonwealth Bank chief Ian Narev’s long-term incentive plan.

Narev (pictured) told shareholders at the bank’s AGM that, as a large financial institution, CBA had a diverse range of stakeholders.

“In the long-term, the interests of our stakeholders work together,” he said, giving the example of banks with high customer satisfaction also being able to achieve good financial results in the long term.

“But we also need to recognise that at any given time, the interests of individual stakeholders may diverge. This means we need to understand the competing interests and work to balance them.”

Under the new long-term incentive (LTI) package, which was backed by all major proxy firms and 93% of pre-AGM proxy votes, Narev stands to gain options worth, in today’s values, $2.5 million dollars if the bank passes two hurdles in four years.

A quarter of his $2.5 million long-term incentive package will be determined by the bank’s performance with regard to customer satisfaction in retail banking, business banking, and wealth management, as judged by two external bodies.

The remaining three quarters of the incentive package relate to shareholder returns.

Incorporating customer satisfaction into long-term incentives is unusual in Australia, says Michael Robinson of remuneration consultancy Guerdon Associates.

Overseas, there is a trend towards this approach. Over the past five years in the United States, the United Kingdom and Canada, ‘scorecard LTIs’ are increasingly being used.

While still far from the norm in such countries, these ‘scorecard’ assessments of long-term performance take into account a smorgasbord of indicators such as customer service, employee productivity, production, expenses, product development, geographic expansion, innovation, or employee engagement or satisfaction.

“The arguments in favour of broad-based measures are that it’s difficult to assess a company’s performance on any one measure, and a scorecard, by taking into account many things at once, gives a more valid assessment of executive’s performance,” Robinson says.

“But the criticism is that many of those measures and their assessments can be very subjective.”

So, when it comes to looking at long-term incentives more broadly, is Australia just five years behind the times?

“Perhaps,” says Robinson. We’ll have to wait and see.