Managerial Accounting Group Report: Performance measures, remuneration and motivation
Learning Outcomes -
a) Analyse the roles of cost and management in organisations through the analysis of accounting concepts and tools.
b) Evaluate and apply financial and non-financial performance measures and tools used in assessing and rewarding individual and corporate performance.
c) Describe how management control theory and concepts apply to organisational settings through the generation of accounting and organisational reports.
Background information on Assignment Topic -
For the past decade, public companies in Australia nave been obliged to reveal details of how their senior executive team's remuneration has been determined. Each public company's Board must form a 'Remuneration Committee' (some companies may use different names for this committee) and generally the members consist of at least two nonexecutive members of the Company's Board plus the Chairperson. (Each student should check the composition of the committee relevant to their allocated company and briefly report the details in their report in the company overview.) The Committee's role is to determine and approve the methods and amounts of executive compensation including the base salary and benefits, the method of calculation and limits surrounding the Short-Term Incentives (STIs) paid and the method of calculation and limits or any Long-Term Incentives (LTIs) paid.
The details of the remuneration scheme are published in the Remuneration Report within the Annual Report for the company and then voted on by shareholders at the annual general meeting. If more than 25% of shareholders 'vote down' (against) the remuneration plan, the Board must revise the plan and if this revised plan is still rejected by shareholders at the next General Meeting, the Board's position in considered 'untenable' (unacceptable) to the shareholders and typically must offer their resignation.
Task: Each group MUST RESEARCH the academic literature available on methods used to evaluate executive performance and the level of success that is considered to occur from using such methods both from a shareholder return perspective AND a management motivational perspective. For example, a company may use a '(Balanced) Scorecard' of measures which include both financial and non-financial measures. Many companies used ONLY financial measures or even Market-Based Measures (such as relative share price) for long term incentives (LTIs). Some companies mostly focus on Financial Performance such as Profit however also consider non-financial measures to moderate or adjust the final incentive payment to executives. For example, Telstra recently reduced the bonuses paid to the executive team based on the low 'Net Promoter Score' given by customers based on their satisfaction with the company's service.
AFTER the academic research has been completed THEN the group is to examine and analyse the practices in place for one major publicly listed Australian corporation. The companies will be allocated by your Tutor during the tutorial in Week 6 (following the MidTrimester Exam). All group members should thoroughly READ the Remuneration Report within the selected Companies' Annual Report to find the details required to understand their executive pay structure and measures.
Once the group has formed an opinion and understand the method of the allocated company, you are to select another Australian company of your own choosing and compare their remuneration methodology. Please note that this second company MUST be in the same industry as your allocated company. (e.g. Health Services with Health Services) After a comparison has been completed, as a group, critically review both methods and analyse which methodology is believed to produce the following:
a) The 'best' result in terms of Shareholder Returns;
b) The 'best' result in the Short Term; and
c) The 'best' result in the Long Term.
The following is a Report Format that should be adopted by each group. More details will be given in the Week 6 briefing.
The REPORT component (Learning Outcome)
Each group member is to research and write an individual summary report that includes the following:
1. Research the Academic Literature using EBSCOHOST and/or other Academic Search Engines and discover academic articles discussing methods of measuring Executive Performance. (Note in the USA, remuneration is referred to as Executive Compensation so you may wish to substitute this term in your searches.)
2. Research and discover the corporate goals of each of the two companies reviewed. (Review the Chairman and CEO's Statements in the Annual Report and the Corporate Website for this information.)
3. Research and discover how the senior executive are having their performance assessed. This may be limited to only the TWO top earning Executives, usually the CEO and CFO.
NOTE - DO NOT REVIEW THE REMUNERATION OF THE BOARD OF DIRECTORS
4. Discover the performance of the company from a shareholder's perspective by reviewing growth (or decline) in the company's share price and dividends paid. (Use a copy of the share price chart for the past 3 years)
5. Research commentary on the company's performance and you may include some of these materials provided they are fully referenced. E.g. Use screen grabs using the Windows 'Snipper' Tool may be used to capture these images. Only a FEW (no more than THREE!) should be entered into your report and these MUST be fully referenced.
6. Reflect and COMPARE the information given between the two companies. Thoroughly report your findings and present your comparisons.
7. Your group should write up your findings AND conclude if your company is being truly transparent and if it is producing a 'good' result for the shareholders. In essence, you are concluding whether you believe their management control systems are working.
8. Present your final analyse of both company's methods.
9. Conclude with your overall findings in relation to the three research goals given.
Attachment:- Assignment File.rar