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Solid earnings: ANZ CEO Mike Smith is taking home $10.4 million. Photo: Louise Kennerley
What an amazing achievement by the ANZ board to mark themselves as being out of touch with the reality of Australia in 2013, to hold themselves up as the geese of the finance sector with a single act of conspicuous consumption, to allow themselves the hubris of thinking "their" choice of CEO is so very much better than that of the other banks, even though the numbers don't support it.
With NAB's report card published, three of the big four banks have now disclosed that they're paying a bit or a fair bit less for a CEO, in keeping with the international and local realisation that bank CEOs' pay packets had become obscene, that the person at the top actually wasn't worth it and that the size of the salary was not really an indication of the quality of performance. It is the trend around the world for banksters to reward themselves a little less richly.
But not at the ANZ. Never mind that ANZ is ranked third out of the four, it chooses to pay its CEO the most and has just stretched the lead by giving Mike Smith a pay rise when the price of his peers has fallen.
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Oh, it wasn't much of a pay rise – a mere $300,000 or so. Peanuts really – just six times the wage of the average Australian worker. Barely worth getting out of bed for, but I suppose it's the thought that counts when you're copping $10.4 million for the year – $200,000 a week.
ANZ's head teller was paid $1.2 million more than the next most expensive bank CEO – Gail Kelly at our second biggest bank, Westpac, who took a $500,000 cut and is still overpaid when compared with the $7.8 million Ian Narev received for running the larger and much more successful CBA. Cameron Clyne is down $1 million to $7.7 million at fourth-placed NAB – which also looks expensive compared with Narev.
The CBA board took the opportunity of a new CEO to show some leadership and ratchet back their top executive's pay after the acute embarrassment of finding that they had to pay Narev's predecessor, Ralph Norris, $16.2 million for one year's work, making him Australia's highest paid CEO.
In their own small ways, Westpac and NAB have followed suit, but not the ANZ.
It's a bad look for a number of reasons, but most of all it either shows the ANZ board dog is being wagged by a greedy CEO tail, or that all 10 members of the board are simply out of touch with their own industry, never mind the world. That's not a healthy thing in a bank.
ANZ's commitment to greater involvement in the region is its key differentiator, its main appeal. As the bank's annual report noted on Friday, it is a long-term strategy – which is a way of excusing it for continuing to be costly. Hiring Smith from HSBC was part of that long-term strategy – but that doesn't excuse overpaying him now. In any event, Smith is likely to be long gone before we find out if the strategy has really worked.
Smith has been CEO for six years. On the day he started, the share price was $29.61. As I write, it's $32.12 – a rise of 8.5 per cent. Over the same time frame the CBA is up 36.6 per cent, Westpac is up 15.7 per cent and NAB is down 13.9 per cent. It is a simplistic comparison, not allowing for share issues during the GFC and the rich dividends, but it's not an unreasonable rough guide.
The ANZ board might protest that there was the small matter of the GFC which Smith can't be blamed for. But similarly, the local bank bosses can't accept credit for the fine job Australia's regulators have done, the value of the government guarantee when they needed it, the role of the four pillars policy in preventing them doing anything too stupid and the fact that they happened to be operating in a country that didn't suffer a recession – they were simply making so much easy, relatively safe money, they didn't have to take the risks many foreign banks did.
No, Smith isn't worth his fat eight figures. Besides, if he was any good as a CEO, after six years in the job, he should have a couple of people as good or better than himself ready to take over in a heartbeat, or lack thereof. So the supply of potential ANZ CEOs should be up, the demand is unchanged, and therefore the price should fall.
But it hasn't. The ANZ board must think it's the only one marching instep.
And there's no excuse to claim that the ANZ is a victim of Smith having an existing contract. Mature adults in charge of their institution's destiny should be capable of negotiating a change when it's obvious that the contract no longer is appropriate.
In passing, it's worth noting that the ANZ would be in breach of the 1:12 law that the Swiss will vote on in a referendum this Saturday. The Swiss know a bit about banking, are a long way from being rabid Occupy types and Switzerland is an even more expensive country to live in than Australia. But there's a fair chance the good burghers will vote for 1:12 and thus enshrine in their constitution that the top executives can't be paid more in one month than the cheapest of their employees earns in a year. To put it another way, the top annual salaries can't exceed 12 times the wage of the lowliest employee.
I somehow suspect there are people working for less than $72,222 a year at the ANZ – that's better than the Australian average wage, but only a 144th of Mike Smith's.
Thus ANZ shareholders should do their board a favour by rejecting this year's remuneration report at the AGM – they need to be brought back to reality.
Michael Pascoe is a BusinessDay contributing editor.
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