As the victims of corporate crime rose, so did the “performance” bonuses at the corporate regulator. Michael West investigates, with consultation from forensic accountant Jeffrey Knapp.
It’s just a quaint anecdote, although rather poetic in the circumstances. A Canberra connection once confided that, as a hearing was wrapping up in the halls of Parliament House, there was a spot of “high-fiving” to be seen among the entourage from the corporate watchdog, the Australian Securities & Investments Commission.
The ASIC bosses had endured once again, unscathed, through a session of parliamentary scrutiny. Nothing had stuck. No nasties. Pesky questions were batted away once again with aplomb.
It is not only in the Federal parliament where the stewards of consumer protection find satisfaction in short-term performances. Back at the agency itself, they have been delighting in short-term financial rewards for a decade, annual performance bonuses that is.
These bonuses were awarded for the first time in 2008. That was the year that Allco Financial Group collapsed; Babcock & Brown, ABC Learning and Storm Financial bit the dust too, the latter being the worst disaster for retail investors in this country’s history. It was the year of the greatest turmoil in financial markets since the Wall Street Crash of 1929, and the year when the government was compelled to ride to the rescue of the banks with taxpayer guarantees.
The performance bonuses are mentioned at page 44 of ASIC’s annual report for 2008, a document whose cover page is adorned with the words, “A Year of Change”. It was indeed a nice change for ASIC’s executives, although, as the Royal Commission into the banks has demonstrated, this year of change did little to protect the victims of egregious banking practices.
The “fees for no service” phenomenon, it would appear, is not quarantined to the corporate sector but alive and well at the corporate regulator.
The bonuses paid to ASIC staff are based on performance in the previous financial year. The payments in 2008 were for staff performances in 2007, the year of the credit crunch, the harbinger to the GFC. The annual report for 2008 describes the performance payments in the following terms: “Eligible employees received performance bonuses based on the outcomes of their performance review (3-15 per cent of salary)”.
As Table 1 below shows, ASIC staff bonuses paid in 2008 were $4.3 million and were shared between 820 employees across four different levels. The most senior staff at the SES level collared the biggest bonuses.
Apart from the nebulous disclosure of a “performance review”, the actual performance metrics or benchmarks are not revealed. We can only speculate that they must be subjective as, in April 2008, ASIC received a Stakeholder Survey Report from The Allen Consulting Group which showed the regulator was performing woefully for consumers.
Of the respondents surveyed by Allen, 79 per cent could not agree that ASIC “Protects consumers at the expense of helping business”, and 73 per cent could not agree that ASIC “Pays enough attention to disadvantaged consumers”.
Amid the corporate collapses and myriad abuses which flowed unpunished, the red flag for ASIC’s protection of bank customers was flying high in 2008. It seems that no one at ASIC, the Treasury or the government was paying attention because it took another 10 years for a Royal Commission to catch it and place it firmly before the public purview.
In ASIC head offices however, plenty of attention was continuing to paid to staff bonuses. As Table 2 below shows, ASIC staff bonuses paid in 2017 were $8.5 million and were shared by 1,258 employees. In comparison with the 2008 levels, there were 438 more staff receiving bonuses and the dollar value of the bonuses had doubled.
It is fair to say that ASIC’s upper echelon appears guilty of the very accusations levelled at bank executives at the Royal Commission, namely greed. Since 2008, the average bonus for the lowly ranked ASIC4 staff level has increased by $194 (6 per cent) while the average bonus for ASIC’s top guns in the SES category has increased by $6,732 (58 per cent).
No doubt the victims of bellicose banking practices would be displeased to find that the culture of the banks and the corporate watchdog are somewhat intertwined. Both offer bonuses or financial rewards to their staff for short-term performance and it drives their behaviour.
The Royal Commission Interim Report identifies short-termism as the root cause of the banks dropping basic standards of honesty. What an irony it is then that staff at the very agency charged with the duty of regulating bankers are being rewarded with bonuses in a similar way to staff at the Commonwealth Bank selling products and services to the dead.
Questions were put to ASIC about the criteria used to pay annual performance payments to its staff. No responses were received. We can only speculate: perhaps SES staff receive bonuses based on the number of meetings they have, or complaints from customers which are deftly made to go away, perhaps flick-passed to the Ombudsman. Boxes ticked.
ASIC performance payments to staff are clearly a nonsense. Performance pay is part of the problem in corporate Australia, as identified by Commissioner Kenneth Hayne, not part of the solution. Anyone who works at a regulator like ASIC should be motivated by a feeling of public service or a belief in justice – or even of just “doing the job” – rather than sticking to the institutional line for fear of missing out on short-term bonuses.
Indeed, the annual bonuses are likely to have had a toxic effect on the culture at ASIC because they operate as a tool of punishment for dissent.
If you want a bonus at ASIC, then don’t rock the applecart, don’t challenge your superiors and don’t ask the wrong questions. The bonus regime at ASIC appears to have strangled the most important feature a regulator can have, that is an open communication channel for full and frank discussion of different views.
A poignant comment from Kenneth Hayne in the Interim Report can be found on page 294:
As the [Royal] Commission’s work has continued, there are signs that ASIC may be seeking to alter its approach to enforcement. Even so, I remain to be persuaded that it can and will make the necessary changes.
The case for short-term performance pay and KPIs in the corporate world is tenuous, despite the cavalcade of self-serving industry gumph which supports it. Is there really any better performance to be had from a $3 million pay deal than a $2.5 million pay deal?
The case for performance pay at government regulators, particularly ASIC, is non-existent.
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