Employee commissions could be undermining business compliance and values, and be encouraging workers to take unnecessary risks, the banking royal commission has suggested.
During the third round of hearings, which explored SME lending practices, it was revealed that Bank of Queensland franchisees (or owner managers, as it prefers to call them) are paid solely on commission.
It came as the bank’s head of product and governance, Douglas Snell, admitted that it had breached responsible lending standards in loans issued to former Wendy’s franchisee Suzanne Riches.
The relevant owner-manager was subsequently found to have misappropriated client funds and the branch was closed. But the case raised question marks over a commission-only earnings structure, and whether that encouraged or even forced people into taking shortcuts in order to boost their earnings.
Sales pressures were also cited as a factor in a separate case study into Westpac-owned Bank of Melbourne, where pressure to meet targets in order to maintain earnings could have been behind a series of decisions that the royal commission said amounted to misconduct and could be open to pecuniary action.
Despite suggestions arising from the hearings that commission-only earnings structures do not foster a good culture or compliance practices, they are not illegal for businesses to implement in certain situations.
“A commission payment can be paid as an extra incentive on top of an employee’s pay or make up an employee’s whole wage (commission only payments),” according to the Fair Work Ombudsman’s website.
However, as would be expected, there are strict criteria on when and how this remuneration structure can be adopted.
“An employee can be paid on a commission only basis when an award, enterprise agreement or other registered agreement states an employee can be paid this way,” the website states.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.