Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Hansard source

Proverbially speaking. We have the opportunity to do something about it today through this legislation. I flag that the Greens will be moving amendments in the committee stage and an amendment to the second reading motion. We'll be moving an amendment today that will be a giant step in not only matching community expectations in the remuneration of banking executives but fixing the toxic culture that has got the banks in so much trouble and undermined the trust that the Australian people have in their banks and their financial system.

I'm sick and tired of going through ritual mouthings every time I speak to a journalist when they call me about the banks' results or make a comment on bank CEOs' pay or when a scandal erupts. Senator Williams would know. He probably would be the first person to be dialled by most journalists. How do you fix a culture that's set up to make lots of money and a culture that puts profit before people? It's fairly simple. This is where I disagree with Greg Medcraft. He once said you can't regulate for culture. I don't agree with that. We can regulate for the culture in this sector by capping the salaries of bank CEOs, in line with community expectations. We have the right to do that because our parliament and our Australian people give them their reason for being and their licence to operate, and we insure them against failure.

This legislation before us today is an admission, even by this government, that we need to take more measures to hold bank executives to account. As Senator Cameron outlined, they are predominantly around prudential measures and risks within the financial system, but they should also be in line with meeting community expectations and getting the balance right between a bank's social licence from the Australian people—which is more than just a pun in this case; it's actually real—and the bank's commitments to other stakeholders such as their employees and their shareholders, and their customers, many of the people they've ripped off over the years.

Why would capping bank salaries go a long way to fixing the culture in the banking industry? The Greens have always said that the culture of any organisation starts at the top. I don't think many people would disagree with that. As the head honcho, the head fat cat at a big bank, if your remuneration, fixed salary and variable component, share options, issued shares, derivatives, whatever it happens to be, is based on your profits—and I will say they are also based on other metrics, but profits are definitely the major component of how they are remunerated, their return on capital, the benchmarks that are set for them—then it is logical that you are going to put pressure on the person on the next rung down the ladder, and the next person and the next person, until you get to the teller, the lowest paid worker in the bank or the financial services company. And that pressure will be to make as much money as possible.

As I have written in my dissenting report to the committee that looked into this, this profit at all costs or profit pressure down the ladder has led to the cutting of staff, the sacking of workers, the closure of branches, overcharging fees, cross-selling of products, the culture of conflictive remuneration in meeting sales targets, and unethical and illegal conduct, because people are under pressure. I've worked in banks. I've worked in a sales culture. I used to live for my bonus; I have admitted that in this place a lot of times. I know what it's like. I absolutely know what it's like and I know the pressure some people are under. It puts people under pressure to behave badly, to cut corners, to ignore the law and to take shortcuts. And, unfortunately, these costs—if these employees are caught—are borne by the employees, as we've seen in some of our inquiries, although I don't believe necessarily that a lot of the penalties have been enough, and they are seldom ever borne by senior management. That is one thing I hope this royal commission really looks into.

I hope it looks at all the communications between senior management and lower management and staff around these issues. Who's been passing the buck? Once again, it is not just a pun in this case. Who has been passing the buck? Well, it hasn't really affected the salaries of senior management at any of these banks, let me tell you. And the other costs are the duress and loss of quality of life for victims of financial crime and, of course, the systemic risks that we see in our market, which, by the way, is exactly what led to financial contagion and the biggest financial catastrophe this modern society of ours has ever seen: the global financial crisis.

If you're a small government and you don't believe in regulation, well ask yourself: how did the GFC happen in the first place? It happened because of a lack of regulation and a lack of resources. Who could say that the opportunity costs, the direct costs, of that financial crisis weren't severe? They are still being borne by taxpayers all around the world. Very few bankers have ever borne any of those costs. There is plenty of literature around to support that.

If we cap executive salaries in the banks, would we be the first parliament to do it? Well, it might surprise some senators in here that other parliaments have looked at this. Other countries have looked at this. But one country started looking at this in 2010 and brought in legislation in 2012 that put more onerous restrictions on executive accountability, including remuneration. Eventually, in 2016 they brought in the first laws in the world that capped total remuneration for banking CEOs. That was Israel. In 2016 Israel capped salaries for bank CEOs at a multiple of 44 times the salary of the lowest worker of the company, or 2.5 million shekels, which is about 460,000 pounds a year. Our amendment looks at capping salaries at 10 times average weekly earnings—that's about eight hundred grand—and five times for variable remuneration, so you're looking at about $1.2 or $1.3 million. That is almost in line with what Israel have capped their total executive salary at. Let me read to you why the Israelis did this:

The legislation was pushed through by the finance minister, Moshe Kahlon, who, before last year’s parliamentary elections, ran on a platform of lowering the cost of living and reforming Israel’s banks.

The Israeli parliament voted unanimously 56-0 to cap executive salaries at banks. The article said:

Bankers' pay is a sensitive issue in Israel, especially since banks make large profits partly from a wide variety of fees on such things as deposits and withdrawals.

Bank salaries were unjustifiable and had been going through the roof for some time. Mr Kahlon said:

There is a moral significance beyond the economic significance in this law. It symbolises narrowing pay gaps, solidarity and consideration for the weak—

and the poor. He goes on to talk about how this is one way Israel has tackled inequality in its country.

It may appear symbolic because we're not talking about a very large number of executives, but it's really, really important. We could actually do it today if the Senate supports the Greens' amendment. We could do what Israel's done and take a quantum leap in narrowing the gap on inequality. It is the most sensible thing we can do to actually change the culture in a large financial services company. How many Australians wouldn't agree that 10 times average weekly earnings, or five times average weekly earnings, for a bonus—15 times—is still not an incredible amount of money? That's a lot more than we're paid, and rightly so. It's three or four times what the Prime Minister in this country is paid. There's no justification for the salaries that these CEOs are taking.

I will go through our amendments in more detail in committee and will continue to push the Greens' case for why we should be reforming executive remuneration. Let me say: this legislation does actually attempt to do something about executive remuneration. That is why there are some Liberals in this place and in the other place who have been complaining that this is a fundamental breach of faith with Liberal Party principles—the fact that the government is reaching its hand into regulating remuneration for banks. But all this legislation does is potentially defer the tens of millions of dollars that these CEOs are being paid for risk-taking behaviour for between one and four years. If I've got $10 million in deferred pay for four years, there are some opportunity costs for me not investing that money, but it's hardly even a slap on the wrist. We can go a lot further and actually fix this today.

I do want to move a second reading amendment on behalf of the Australian Greens. I move:

At the end of the motion, add "but the Senate calls upon the Government to initiate a review by the Council of Financial Regulators, within two years of the commencement of the Act, in respect of whether the Act provides adequate regulation to directly protect consumer outcomes, and whether the scope of the Act should be expanded to cover the entire financial sector."

What we're looking at there is simply saying, 'Let's see how this goes.' Similar systems to what we're debating today have been put in place in other countries. Let's see how it goes and then let's expand it to the rest of the sector. I hope that's not something that anyone would disagree with. It's a perfectly reasonable suggestion. I will go through my other amendments in more detail when I get to them in the committee stage.

I just want to reiterate that even the Harvard Law School has done a forum on this. It said:

The issue of executive compensation has been on the forefront of corporate governance discussion around the world in the past [decade].

We need to represent our communities in here. We need to actually take action that will help fix the problems that we have in our financial services culture. I'm proud to be part of a party that has worked with Senator Williams and the Nationals and with the Labor Party—and I recognise the work that Senator Dastyari did, especially before he left this place—in helping to get a banking royal commission in place. That kicks off next week. I hope that's a thorough investigation. I've told the CEOs of the banks directly myself, 'If it's not, if this is a whitewash, then, if you think this has been a big political issue until now, wait and see what happens going into the next federal election.'

This needs to be a proper investigation. We need to make sure that we learn from the lessons of history, that we don't have a repeat of what we've seen in the last 15 years and that we don't go through another GFC caused by excessive greed and putting profits first before people. The untold damage that that kind of behaviour has caused—not just in the US or Australia, but around the entire globe; it is the entire contagion that we've seen throughout our economic system—is still being felt today.

And we should not be taking our foot off any throats. We should be looking at new ways to make sure that kind of risk-taking behaviour doesn't happen again, and that people who are representing us in what is an essential industry—the banking and financial services industry—do it properly and do it with standards, so that we can all have trust in them, trust in our financial planning and trust in the future wealth of our nation.

The single biggest thing we can now do is support this Greens amendment to cap executive salaries. The Israeli parliament did it. It took them 10 years of debate to get there. It may take 10 years of debate here to get there, but we are floating this idea today. There'll be more legislation to come on this. It's not going to go away. It's a bloody good idea. Everybody should get behind it.