Bank Fundamentals, Executive Compensation and Public Perception of Banks in Australia

Abstract

Public perception of banks in Australia is relatively poor compared to firms in other major services sectors. This study explores a number of potential sources of negative public opinion. We find that bank profits are similar to firms in other sectors after adjustment for firm size. Average bank executive remuneration as a proportion of total staff costs are also lower than those in other sectors. Finally, Australian banks not only pay a higher average effective tax rate than their counterparts in OECD countries but are also closest to their statutory corporate tax rates. Our findings therefore suggest that poor public perception of banks is based on the flawed claims of generating excessive profits, overpaying bank executives, and underpaying taxes and is not justified.