Case study: One board’s approach to the remuneration of front-line employees

Q&A with Deputy Chairman of QBE, John M. Green FAICD.

The remuneration of frontline employee has become an increasingly important issue following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The approach and involvement of boards in relation to front-line employee remuneration varies considerably. The Governance Leadership Centre recently spoke to the Deputy Chairman of QBE, John M. Green FAICD, about the approach of QBE’s board.

GLC: In your view, how important is front line remuneration as a contributor to your company’s culture, and why?

JMG: At QBE, we consider remuneration, and in particular incentives, as a key enabler to achieve the culture we aspire to. The way we reward and remunerate our people tells them what we consider to be important and what we truly value as an organisation. This is equally true for all employees, not just those with customer-facing roles. Every employee either directly supports a customer or supports an employee who supports a customer.

GLC: Is front line remuneration explicitly within the remit of your Remuneration/People Committee, and, if yes, what is the role of the Committee in this regard?

JMG: Yes, the ultimate responsibility for the governance of all remuneration and people matters sits with the People and Remuneration Committee (PARC) of the Group Board, though we do receive valuable input and support from our geographically-based divisional boards. The vast majority of our front-line employees are remunerated within the same global framework that applies to all employees across the Group. This means that apart from a very small agency business in the US, with fewer than 100 employees, we have no sales incentives plans at QBE. This has been a deliberate decision of Management and the Board, pre-dating the Hayne recommendations.

GLC: Has this changed following the Hayne recommendation, or are you considering a change?

JMG: No, as I mentioned above, the QBE Group PARC had already taken a view that commission or volume-based incentive plans create a risk of conflict that could result in behaviours contrary to our values and adverse customer outcomes. At QBE, we previously had only a very small number of sales plans which applied to a small number of junior level employees and while these plans were well-managed, we felt there was no need for stand-alone sales plans and we took the decision to phase them out a few years ago.

GLC: How often does your Board review the design and operation of the remuneration framework for front-line employees?

JMG: The Group PARC reviews the Group-wide remuneration policy and its effectiveness every year. This includes front line employees and has resulted in a number of deeper reviews over the past 5 or so years. It is an area where we are always seeking to improve; how we measure effectiveness and what are the right data points. We haven’t always got this right and we have learnt a lot from our own experiences as well as from APRA case studies and the Hayne Royal Commission.

GLC: Hayne’s recommendation draws out the importance of measuring not only what front line staff do, but how they do it. In your company what do you consider when assessing the “how” and what is the impact on front line remuneration?

JMG: Our approach at QBE applies to all employees and not just front-line employees. We believe the “how” is just as important as the “what” and we have introduced a new performance framework for 2019 (called ME@QBE) which formally assesses both aspects of performance. Throughout the year, employees receive multi-rater feedback on how their behaviours align to the QBE DNA, a set of cultural attributes which describe who we are, what we stand for and how we need to operate to be successful. This includes how we manage risk and our customers. The final performance rating, incorporating both the “what” and “how” has a direct impact on the incentive outcome – and importantly can be both positive and negative.

About the author

John M Green is a leading company director, writer and publisher. Currently he is Deputy Chairman of QBE Insurance Group, a non-executive director of Challenger, and a member of the AICD’s Corporate Governance Committee.