'Bonuses 'overrated' and need overhaul, says NAB CEO Andrew Thorburn' by Patrick Durkin, the AFR
National Australia Bank chief executive Andrew Thorburn says staff bonuses are overrated and need to be overhauled but doesn't believe they should be scrapped.
The bank announced last month that it would overhaul how bonuses are set for more than 4000 staff in its branches and call centres, cutting the importance of financial targets and putting more emphasis on customer service.
"As a market economy we need incentives. I think they can be seriously overrated in terms of their motivational capability.
Mr Thorburn indicated Mr Baird would be a great successor but said it was not up to him. Supplied
"People want encouragement, progression, they want to work for a company that makes a difference," Mr Thorburn told an Australian British Chamber of Commerce event in Melbourne on Wednesday, as part of an interview-style discussion with NAB's chief customer officer Mike Baird.
"Money is part of it but I think it is much deeper," Mr Thorburn said. "Some of the incentives systems we have have encouraged the wrong behaviour, they have encouraged excess and excessive risk taking and we have not had good enough controls to fix that."
Problems not systemic
Mr Thorburn said as a career banker he was "disappointed" by the revelations from the banking royal commission and "we need to be more authentic about saying sorry" but denied the problems were systemic and insisted there was "hope".
"Even when we had the wrong incentives most people did not abuse them. Some did. That's my bad," he said.
"When people do the wrong thing we should come down hard because we rely on trust."
Under the NAB staff bonus changes, which are similar to changes already made by NAB's rivals, sales will contribute 25 per cent of an employee's overall incentive structure as part of a "balanced scorecard", which includes measures of customer advocacy, compliance with risk, process improvements and financial goals.
It will bring incentives in line with the rest of the bank, more than two years ahead of the timetable recommend by the Sedgwick review.
However, the changes stopped short of abolishing bonuses linked to the volume of products such as loans and credit cards sold.
"We have to fall back and ask are they encouraging the right behaviour, having a long-time view, doing the right thing, having character and serving clients," Mr Thorburn said.
"Incentives should play a part, they are overrated and we have to be careful and change some of the ones we have," he said.
Thorburn, Baird pass 'everyman' test
Mr Thorburn said the royal commission would add cost to the bank but was only one factor among many.
"Where is growth coming from, budget deficit, where is the interest rate cycle going, impact on borrowers and mortgage customers and yes, I think the royal commission and what might come out of it in terms of additional cost and a regulatory burden, so I think it's a factor but it's not one thing making a difference," he told The Australian Financial Review after the lunch.
Mr Baird, after joking about Melbourne, revealed the "secret" that he was born in Melbourne, which "never came out when he was NSW premier".
He said that Mr Thorburn, who became friends with him through St Matthews Anglican Church in Manly, called him the day after he resigned as NSW premier to ask him to return to the bank where he started as a graduate.
He denied that he was coveting Mr Thorburn's job. Mr Thorburn indicated Mr Baird would be a great successor but said it was not up to him.
"I still wanted to contribute; I felt I was young enough to help run something," Mr Baird said.
The pair also passed an "everyman" general knowledge test, including guessing the minimum wage, average weekly earnings, average deposit for a house in Melbourne and the price of a 100-pack of newborn nappies.
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