Banks are on a collision course with powerful shareholders over Treasurer Scott Morrison's plan to give the prudential regulator stronger powers to intervene in senior bankers' multimillion-dollar pay packets.
As part of the May budget, Mr Morrison unveiled the banking executive accountability regime (BEAR), which will grant significant new powers to the Australian Prudential Regulation Authority to influence how top bankers are paid.
The regime includes a requirement that between 40 and 60 per cent of very senior bank executives' bonuses be deferred for at least four years; APRA will be able to "review and adjust" remuneration policies in response to "inappropriate outcomes"; and it could have senior bankers disqualified.
In submissions to the federal Treasury, ANZ, National Australia Bank and Westpac raised concerns about certain aspects of the new regime for banker pay - which is currently set by boards, albeit within broad APRA guidelines.
However, the banks' positions are at odds with the views of powerful shareholders from the not-for-profit superannuation sector, which have been pushing for greater accountability on banker pay and helped give the Commonwealth Bank a historic first "strike" on remuneration last year.
ANZ said it appreciated the government's "policy intent", and the rules deferring executive bonuses for four years could be appropriate, but giving APRA greater powers to set pay could undermine the role of the board.
"We question whether involving APRA so closely in setting and influencing remuneration risks undermining the responsibility of boards for appropriate remuneration standards and the role of shareholders in holding boards to account," ANZ's submission said.
National Australia Bank also argued boards and remuneration committees were "best placed" to determine the pay packets of top bankers, subject to getting the approval of shareholders.
"The remuneration of senior executives is complex and NAB does not believe that prescriptive legislation about it will be effective," NAB said.
Westpac said it supported the rationale for the BEAR in trying to rebuild trust, and it backed the proposals for executive bonuses to be deferred for four years. However, it opposed giving APRA greater legal powers to intervene in remuneration, saying this is a matter for boards.
"We believe that boards and management should continue to be able to assess, and be accountable for, the design and operation of remuneration frameworks that support long-term financial soundness," Westpac said.
Proxy adviser Ownership Matters said Westpac and Macquarie Group were already meeting the proposed requirements on deferred pay.
The industry's position puts it at odds with some major shareholders such as Australian Super, which backed the move to defer senior banker bonuses and extra powers being given to APRA.
Even though the $120 billion fund said it was normally cautious about regulation that interfered with board decision making, it said "heightened prudential regulation" was warranted in banking after "repeated failures" by some banks to protect the interests of consumers in the past decade, and banks' critical role in the economy.
The Australian Council for Superannuation Investors, which represents 37 large not-for-profit investors including super funds, also backed the BEAR and warned banks against trying to blunt the impact of the accountability regime on senior bankers' bonuses by increasing base rates of pay. It said there was "very little appetite among institutional investors to see large increases in fixed remuneration".
"Any increases to the fixed remuneration of executives to 'compensate' for greater deferral of bonuses would be highly likely to attract large 'no' votes from institutional investors," ACSI said.
Commonwealth Bank, which did not provide its own submission on the BEAR, last year had its remuneration report voted down by shareholders, including Australian Super, in a first for a major bank in Australia.
Industry Super Australia said the proposal to mandate some portion of bonuses be deferred could cause executives to bargain for higher fixed pay, which could further heighten public concerns about banker pay.
In contrast, the Australian Shareholders' Association said the BEAR may go too far, and it was not convinced there was a case for mandating that some portion of bonuses be deferred. It said pay should be set by the board and shareholders, not a government regulator.
Meanwhile, on Tuesday Westpac chairman Lindsay Maxsted said it was appointing Nerida Caesar, former chief executive of Equifax, as a non-executive director on its board from next month.