The market crash has exposed a myriad of corporate governance failings. Grotesque termination payments, cash bonuses to CEOs whose company’s share price halved, retention payments to underperforming executives — but it is hard to top the Westpac board for the sheer audacity in seeking a 50 percent increase in directors’ fees as the company’s share price has almost halved in the past year.
Earlier this week, the bank was forced to raise $2.5 million in equity to shore up its tier-one capital ratio. The equity raising was undertaken at $16 per share — around half the value of WBC’s share price last December. While Westpac has managed to avoid some of the momentous follies committed by its Big Four rivals (such as ANZ’s Opus Prime fiasco, or NAB’s CDO blunder), it has still managed to lose around $40 billion in market value in a little over a year (on the back of lending hundreds of millions of dollars to the likes of Allco and ABC Learning Centres). A sterling feat given the company operates in a legislated oligopoly, charges hundreds of million dollars to customers in legally questionable penalty fees and has the benefit of a taxpayer-backed deposit guarantee.
Most embarrassingly, Westpac announced that its much vaunted takeover of St George is already unravelling, with the bank being forced to write off $500 million in “adjustments” in less than a month. That means Westpac wasted $500 million in shareholders funds in overpaying for St George (with the figure likely to rise in the coming years). The CEO who spearheaded the acquisition was former St George boss, Gail Kelly. Apparently, the Westpac directors have a higher opinion of Kelly than what the St George directors had — they paid her $8.4 million last year, compared with $4.3 million in her final year at St George.
Despite Westpac’s poor share price performance and $500 million St George-related write-down, Westpac directors sought a 50 percent increase in fees, from $3 million to $4.5 million per year. Even usually tepid shareholders took umbrage, with only 54 percent of shareholders supporting the fee rise. One of the most significant protest votes against a director fee increase and the largest ever for a top 50 ASX company.
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In one of the more ham-fisted attempts at justifying such an exercise in greed, Westpac purported to produce a slide at its AGM claiming that non-executive fees were actually dropping by 26 percent. Westpac came to this figure by adding up the total directors’ fees paid by St George and Westpac last year, and comparing it to the proposed fees for the merged entity. The fact that the merger reduced two companies to one is, in the eyes of Westpac, apparently irrelevant. As a result of the merger, three new directors joined the Westpac board, increasing its size from seven to ten.
Last year, Westpac chairman, Ted Evans, received $729,503, while Westpac directors, who include Carolyn Hewson, Peter Wilson and Elizabeth Bryan, received amounts ranging from $165,307 to $391,552. It should be noted that company directorships are a part-time role. Some directors, like former Ansell boss Harry Boon and James Packer, hold upwards of six different board positions.
Westpac sought a fee rise as recently as 2006, when shareholders approved an increase in directors’ remuneration from $2.5 million to $3.0 million. When it sought the enlarged pool in 2006, Westpac told shareholders than one of the reasons for the increase was to “create some scope to appoint additional non-executive directors as a step in the planned succession for non-executive directors.” The directors must have bad memories — between 2006 and 2008 the size of the Westpac board has actually reduced in size, from eight to seven members serving the full year. Bigger pie, less slices.
In its Notice of Meeting, Westpac claimed that it obtained the advice of independent remuneration consultants “for the purpose of confirming Westpac’s approach is appropriate having regard to market practice.” Exactly how independent those consultants were remains to be seen, given that they were paid for, and selected by, those very same Westpac directors seeking the pay rise.
However, not all Westpac employees are as lucky as the chosen few directors. Approximately 2,000 St George staff are expected to receive their marching orders in the coming months.