Sometimes even the critics of executive pay don’t get the real story.

It’s not always about the size of the retirement package, the amount of shares or options; it’s about performance and value for money each year, not in the future.

Just take the Commonwealth Bank as the latest example.

Reports this morning on the pay of Commonwealth CEO Ralph Norris concentrated on the restructured share package for him to take account of changes to remuneration that the bank regulators are insisting on, but they skated over what actually happened in the 2009 financial year.

The CBA’s cash profit fell 7% for the year to $4.415 billion, but Norris’ pay rose 6% to $9.2 million.

Yes, his short-term benefits fell to $5.853 million from 2008’s $5.973 million, but his share-based and other payments rose more than 20% to $3.256 million in 2009 and $2.590 million in 2008.

That was a very tasty dish for Norris, seeing shareholders had seen a 14% fall in their share-based payments (i.e. dividends) for the 2009 financial year.

Shareholders saw the final dividend slashed by more than 20% to $1.15 a share, and no word in the annual report yesterday about when it will be restored.

Having maintained the interim dividend at the same level as the prior year, the board took the view that in the prevailing uncertain environment it would be prudent to reduce the final dividend to $1.15 per share, a reduction of 25% on last year’s final dividend.

Total dividend paid for the year was $2.28 per share — down 14% on the prior year. “With 80% of its shares held by nearly 800,000 domestic investors, a significant proportion of the $3.4 billion paid in dividends ends up in the hands of Australians.

The shares have more than doubled from the lows of just over $24 in late January of this year, to end yesterday at $50.90, down 85 cents on the day, but about their highest levels since November-December 2007. The shares have touched a near two-year high of $52.37 in the past week.

But that rise has been because of the improvement in confidence generally in the economy and banks, helped by the considerable support from the federal government and the Reserve Bank.

And, through the annual report, as in so many company reports this reporting season, nary a mention of how they were saved from bigger slumps or even worse: the billions of taxpayers money spent in the two stimulus packages, including first-home buyer and builder grants, which helped push up the CBA’s home-loan business.

Then there’s the 4.25% in rate cuts from the RBA, which the CBA and other banks have passed a lot through to mortgage holders, but not on business loans and credit cards. Bank margins rose in the year as they borrowed for less.

For the banks, the blanket guarantee handed out by the federal government almost a year on deposits and fund raisings helped stabilise the then shaky financial system and allowed them time to survive.

The banks have been paying fees to Canberra for issuing guaranteed debt (and have cut that back as confidence has grown), but without those guarantees the CBA, Macquarie (which continues to trade off the guarantee to expand into the US and buy other businesses) and other banks would have been very sick and sorry.

It is highly questionable that the CBA has managed to find a way to pay Norris more when shareholders have been cut back, the bank continues to push up rates to business and some home-loan customers, and has managed to survive a tough year only with the strong support by the federal government.

“A number of factors have enabled the group to weather the global financial crisis in a position of strength. These include the strength of our banking franchises, our emphasis on maintaining high credit standards and our conservative approach to the management of capital, risk, funding and liquidity,” the CBA CEO said in its shareholder review.

That is a load of codswallop. The CBA’s “strength” was illusory 11 months ago as it and other Australian banks couldn’t borrow offshore and needed the guarantee from Canberra.

Remember that the Reserve Bank’s annual report revealed that it bought $45 billion worth of self-securitised home-loan mortgages from Australian banks, building societies and credit unions (all unnamed) in the December quarter of 2008 to provide them with cash to keep going because they were locked out of global money markets.

Not a mention of that or the government’s guarantee and the vital role everyone played in getting the banking system through the crisis in good shape. And Norris received more share-based payments as a result. Why?

CBA should be renamed to the Churlish Bank of Australia.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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