The board of Suncorp received a slap in the face from shareholders, with a record 41% of proxies being cast against the bank’s remuneration report at yesterday’s Annual General Meeting.

The non-binding vote represented the largest ever protest in Australian history against a remuneration report. The vote came as the bank and insurer struggles to digest its $7.9 billion acquisition of Promina (owner of such brands as AAMI, APIA and Just Car Insurance).

Suncorp’s Annual Report noted that:

… as a retention incentive, [CEO John] Mulcahy will receive 100% of the performance shares under the 2004 and 2005 offers if he remains CEO until October 2009 and 2010 respectively. These allocations will be granted irrespective of TSR performance.

This seemed to contradict an earlier statement in the Report, where it was said that:

… it is essential that executives and senior management, as the group which has responsibility for achievement of sustained performance and strategy, have reward incentives linked to longer term Group performance and to creating value for shareholders.

Beleaguered chairman, John Story, told shareholders that the decision by the bank to waive long-term hurdles attached to executive’s long-term incentive scheme and replace them with “retention bonuses” was wrong. The error has been compounded by Suncorp’s depressed share price (Suncorp shares have slid more than 7% this year, while the market has rocketed by more than 20%).

Story later stated what seemed fairly obvious, telling shareholders that “these matters were not handled well by us”.

It is believed that the Suncorp board’s original reasoning was based on a fear that executives might work elsewhere, or that Suncorp executives would feel slighted by the fact that executives at merger partner Promina were immediately rewarded by takeover. The Suncorp board should probably heed the advice of Warren Buffett, who noted that:

CEO perks at one company are quickly copied elsewhere.”“All the other kids have one” may seem a thought too juvenile to use as a rationale in the boardroom. But consultants employ precisely this argument, phrased more elegantly of course, when they make recommendations to comp committees.

Interestingly, one of the members of Suncorp’s four-person remuneration committee is none other than Leo Tutt (Tutt was appointed to the Committee following Suncorp’s merger with Promina merger in March 2007). Some may remember Leo as the former chairman of MIM, who recommended the sale of the coal miner to Swiss-based Xstrata for $2 billion – right before the commodities boom (Xstrata is now valued at more than AUD$74 billion).

Other members of the remuneration committee include Story, former Caltex boss Ian Blackburne and doctor Cherrell Hirst.