‘Significant’ differences in the way Bendigo Bank conducted aspects of its business, compared with its peers, were highlighted in the responses –  strategies Mr Johanson believed had served to prevent the bank from contributing to some of the ‘mis-selling issues’ the Royal Commission had exposed within the industry.

“We haven’t provided incentives for people for these short-term outcomes to participate in those behaviours,” Mr Johanson said.

Senior Counsel Assisting, Rowena Orr summarised the points of difference in the executive remuneration model at Bendigo Bank, compared with other banks, as: the deferral of part of the executive base remuneration; a lower proportion of short-term variable remuneration; short-term variable remuneration based on collective performance; and a long-term remuneration scheme including a customer performance model.

Mr Johanson said the remuneration model was designed to encourage the bank’s executives to think long-term.

“We feel that to build long-term relationships with customers – that’s a relationship that hopefully will include lots of parts of their banking business, not just making a loan – it’s got to be because we focus on those things and building a trusted business for the long-term,” he said.

“That’s why we build remuneration the way we do.”

He was asked about the bank’s stance in relation to short-term remuneration, and the potential disconnect between an individual’s interest and the long-term interest of stakeholders. 

“That’s not the culture we want. That doesn’t reflect a set of behaviours we think are going to be for the long-term betterment of the business and the stakeholder,” Mr Johanson said.

The Royal Commission heard that sales-based incentives and commissions for frontline staff had never been a prevalent part of the bank’s culture. Mr Johanson said they became a topic of discussion about the time a joint venture in a financial planning business became in-house. 

The bank provided evidence sales-based incentives and commissions for frontline staff had not been prevalent prior to the wealth business component’s introduction in-house, and were removed about 12 – 14 years ago. 

“I didn’t think at the time it was particularly shocking,” Mr Johanson said.

“It was consistent with the way we run the business.”

Asked whether it was a point of difference from the way the bank’s competitors operated, Mr Johanson said: “Apparently.”

Ms Orr questioned whether the lack of sales-based incentives had disadvantaged the Bendigo and Adelaide Bank, affected the staff’s motivation to help customers, diminished shareholder returns, or made it difficult to attract the right employees. 

In all cases, Mr Johanson believed the bank’s remuneration model had been of benefit.

“It’s not the remuneration model that determines our competitiveness,” he said.

“How we choose to compete is on customer service and trust – it complements that.”

The bank’s use of mortgage brokers – or lack thereof – was also a talking point.

Mr Johanson said the largest group of the bank’s loans came through its partner network, community banks. 

‘Mortgage managers’ accounted for about a fifth of the bank’s total loans.

“They’re not brokers in the sense of writing loans with commission – we effectively provide them a line of funds, and they then go and write mortgages with customers at a premium to that,” Mr Johanson said.

The difference between the line of funds and the mortgage went to the broker.

Mr Johanson spent some time describing a number of alternatives to brokers for sourcing mortgages, where people were not remunerated on a commission basis.

While he acknowledged the way mortgage brokers did business had its problems, Mr Johanson also emphasised the importance of enabling customer choice.

He, Ms Orr and Commissioner Kenneth Hayne discussed how the way mortgage brokers do business could be changed to ensure customers were able to make informed choices, and brokers were not rewarded for encouraging customers to take out higher loans.

The commission’s questions for Mr Johanson were exhausted in less than two hours.

EARLIER: THE Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry has returned its attention to the Bendigo and Adelaide Bank.

Chair Robert Johanson is speaking on the bank’s behalf in this seventh round of hearings.

Senior Counsel Assisting, Rowena Orr has so far queried Mr Johanson on the bank’s remuneration structures.

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Mr Johanson was describing the way in which executives and directors were paid and why the remuneration model had been structured in such a way at the time of writing.

Incentives have been a particular area of interest emerging from the Royal Commission, thus far.

The philosophy of the Bendigo and Adelaide Bank has also been an area of discussion in the relatively short time Mr Johanson has been speaking.

The bank’s 160-year history framed the early discussions.

“You won’t have a prosperous bank if you have an impoverished community,” Mr Johanson said.

More to come.