What Financial Services Can Learn About Remuneration from their Mining Peers

In the post Royal Commission environment, it’s not just shareholders and regulators watching banker pay. Treasurer Josh Frydenberg has formally asked the House Economics Committee to review progress by the banks and leading financial services companies in implementing Hayne royal commission recommendations, which will include governance, remuneration and risk provisions.

I recently did an interview with Australian Banking Daily and explained that the financial sector’s remuneration practices need to be reviewed as they fail to properly align executive pay with the company’s long term interests.

The main issue I spoke about is the disconnect between the short-term incentive practices that are highly geared towards annual goals, that pay out in cash, and the long term incentives which fail to ensure that executives have any meaningful skin in the game. This means that financial services executives have no significant trailing exposure to their own decisions and the resulting impact upon company performance subsequent to their award - in simple terms, there is no accountability.

Whilst not perfect, remuneration structures in mining are generally centred around managing for wealth and sustainability, pay packages are geared towards the longer term, and our clients are receptive to having their executives have ‘skin in the game’, and that is not the same as having a right to participate in future shareholder wealth.