Ever since the Royal Commission has been investigating alleged cases of misconduct in banking, superannuation and financial services firms in 20171, it has scrutinized and fined Australia's largest financial institutions and banks. This article examines AMP Limited's governance practices, board of directors' skills and expertise, and its CEO Pay for Performance, to understand why it found itself in hot water.
AMP Limited is one of those companies that has frequently dealt with the Royal Commission. The company has been investigated for several cases of misconduct in recent years, making shareholders furious over the company's mismanagement and dishonesty. As a result, shareholders have questioned both the executives' performance and their compensation.
On May 8, 2020, AMP obtained a 'first strike' on its remuneration report during its Annual General Meeting (AGM) after 67.25 per cent of its shareholders voted against the adoption of the remuneration report for the financial year ending December 31, 20192. However, this is not the first time the wealth management firm had experienced a first-strike. During its 2018 AGM, 61.46 per cent of shareholders voted against the adoption of its remuneration report because of the numerous scandals the firm was involved in3.
In 2018, the company faced backlash for charging their clients service fees over a period of 90 days without rendering any advisory services4. AMP executive Anthony Regan admitted that the firm repeatedly misled the Australian Securities and Investments Commission (ASIC) about the deliberate nature of the 90-day fee policy. The company has announced that it will return AUD 778 million for the service fees charged to its clients, with a further AUD 440 million being returned to clients that were given inappropriate advice5.
The company was also questioned for its implementation of the
government's Banking Executive Accountability Regime (BEAR),
which was intended to hold executives accountable for misconduct
and malpractice. AMP explained that it adopted a "hybrid
model" where only executives from AMP Bank, as opposed to
executives from the larger AMP Group, would be held accountable.
The company stated such a model would be more "flexible and
pragmatic" in achieving the company's
long-term objectives.
Unfortunately, the company again found itself in hot water in 2019 when AMP and the trustees of its superannuation funds, AMP Superannuation and NM Superannuation, were confronted with a new class action for excessive fees on their accounts since 20136. The law firm Maurice Blackburn claims that AMP billed unreasonably high fees to customers and violated its legal duty to act in the best interest of its clients.
One of the well-known violations of AMP was the case involving the late Mr. Daryl Oehm, who despite having passed away in October 2018 was charged fees from his account until March 2019. This occurred even after the company was informed of Mr. Oehm's passing and the company's subsequent agreement to "freeze" the account7. The Royal Commission discovered that at least 3,124 clients of AMP were continuously charged a collective total of AUD 922,000 in life insurance premiums even after their passing.
The financial giant released a statement in August 2019 announcing that it developed a three-year investment program to "fund growth, cost reductions and fix legacy issues." The cost minimizing program plans to achieve AUD 300 million annual run-rate savings by FY228. Despite its aggressive initiative, shareholders still voted against the adoption of its remuneration report during the 2020 AGM after reporting an AUD 2.5 billion loss, with AUD 2.35 billion spent on non-impairment charges and AUD 190 million on misconduct fees9. Shareholders protest that even though the company's share price has declined by 25 per cent in the past 12 months from AUD 1.91 to AUD 1.42 and declared a non-payment of a final dividend, current Chief Executive Officer Mr. Francesco De Ferrari was still able to take home more than AUD 4 million in salary and short-term awards10.
CGLytics' Pay for Performance analysis compares CEO Mr. De Ferrari's total realized pay with the industry peer group's three-year total shareholder return (TSR). The CEO's pay is disproportionately higher than the company's TSR, with the CEO pay in the 40th percentile rank and the company's TSR in the 0 percentile rank. The misalignment shows that the CEO's compensation is not tied to the company's performance resulting in the CEO receiving a generous reward despite the company's poor performance. AMP Chairman Mr. David Murray defended the CEO's compensation stating that the hurdles faced by the executive were of an extremely challenging nature11.
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Footnotes
4 https://www.abc.net.au/news/2018-04-16/banking-royal-commission-financial-planners/9662166
7 https://www.abc.net.au/news/2019-11-11/amp-continued-to-charge-customer-months-after-death/11691870
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