How too much pay killed the banks’ middle managers

The death of middle management has been an overarching theme of the management restructuring of Australian banks over the past 15 years – with the latest example being ANZ.

Middle managers once formed the core around which a financial institution built its culture.

It was the long serving, moderately paid middle managers that formed the backbone of an institution. It was the middle managers that gradually made their way up the ladder and eventually formed the top echelon of the bank.

Their pay never reached the stratospheric heights that it has today. There were rewards for making it to the top, but they were not counted in millions of dollars.

It is easy to forget that when David Murray was appointed managing director of Commonwealth Bank in the 1990s he was paid about one 20th of what CBA’s current CEO Ralph Norris receives today.

His pay was in keeping with what you would expect from a government-owned bank. But it was not one 20th of what was being paid to his peers at Westpac, NAB and ANZ.

Following its gradual privatisation, the CBA board recognised that Murray’s pay was out of whack with those around him and paid him an annual undisclosed bonus payable after 10 years.

It got out of whack because once Bob Joss arrived at Westpac he introduced generous options-based incentives, which were structured to fly below the radar and paid out of shareholder funds. Although these days the incentives are much more generous and widespread, they still remain opaque to the average reader.

Murray’s predecessors at the CBA were happy with the various non-monetary fruits of office such as a tea lady being on call.

It is worth asking the question whether someone could follow Murray’s lead and join a major retail and commercial bank with no tertiary or secondary qualifications and make it to the top.

The answer is; extremely unlikely.

The CBA still sponsors the education of its staff and, like every modern corporate organisation, places an emphasis on personal improvement programs.

But it is so competitive for talent that it would be almost impossible to join a bank at age 16 and still catch up with the elite stream of entrants who have two degrees and are about to do their MBA.

The possibility of progressing through the ranks to the top of a major retail and commercial bank is made so much more difficult by the change in the structure and operations.

Middle managers have become, and are becoming, redundant because it is too hard to measure their contribution to the organisation.

The restructure at ANZ comes with a “guarantee” that customer-facing positions will be protected.

There was a similar commitment from Westpac CEO Gail Kelly when she announced the merger with St George.

The customer-facing positions are regarded as being far more important than middle management.

The major banks are now set up to have thousands of customer-facing staff selling products such as home loans, personal loans, credit cards, business loans, deposits and wrap platforms.

Credit skills are still highly valued, but that stream of work is no longer a ticket through middle management to the top of the bank.

The top echelon of super-highly paid executives have backgrounds in consulting, marketing, consumer goods, and are definitely not from middle management.

This article first appeared on Business Spectator