CBA paid full bonuses through a year of scandals — one executive lost five per cent

CBA chairman Catherine Livingstone spent more than three hours in the witness box at the banking royal commission in November 2018, answering for why Commonwealth Bank executives kept receiving multimillion-dollar short-term incentives — worth up to 150 per cent of base pay — even as scandal after scandal was unearthed.

For FY2016, then-CEO Ian Narev recommended all executives receive at least 100 per cent of their short-term incentives. The chairman recommended Narev himself receive 108 per cent of target — $2.86 million on top of fixed pay. That was the year, Orr noted, of ongoing investigations into CBA's life insurance business, known anti-money-laundering failures, fees-for-no-service charging and mis-sold credit insurance. 'That's correct,' Livingstone admitted. Only one executive — Annabel Spring, cut to 95 per cent — had a bonus reduced amid the CommInsure scandal.

The discussion of the CEO's remuneration recommendations lasted 10 minutes, which Livingstone acknowledged was inadequate — and she conceded that, on what she later knew, 'most' executives should have had a risk adjustment recommended. The hearing also heard former CBA chairman David Turner had refused a board request to return 40 per cent of his final year's director's fees.

The board accepted a CEO recommendation of at-least-full bonuses in a year when multiple misconduct investigations were already known.

Risk-management objectives were assessed as met despite the scandals, decoupling pay from the bank's most consequential failures.

A 10-minute board discussion of executive bonuses signalled the decisions were rubber-stamped, not weighed.

Remuneration is where a board's values become arithmetic: when risk adjustments never arrive, the incentive system tells everyone the scandals are costless.

Livingstone's concessions — that most executives should have faced risk adjustments and the process was inadequate — came as the royal commission's interim report was tabled, cementing executive remuneration as a central exhibit in the case against Australian banking governance. It was only after the money-laundering scandal became public in August 2017 that bonuses for that year were cut to zero.