Assignment Task
Specification
Group Report: How do Australian Public Companies measure and reward the performance of its executive teams?
The Boards of Australian public companies are under an obligation to hire the best executives to run their companies. To attract the best executives, they have to offer competitive salaries and to motivate performance offer bonus schemes for outstanding performance. Short Term Bonuses (STIs) are designed to reward achievement of various levels of success usually year by year basis and also seeking to balance that with achieving long-term earnings for the shareholders with Long-Term Bonuses (LTIs).
How do companies measure and reward performance of their executive team?
Over the past decade publicly listed companies have been required to report in more detail, how their highest paid executives are being rewarded. This became enshrined in the Corporations Act 2010 in Section 300A which details what declarations are required.
If 25% or more of ordinary shareholders vote against the remuneration proposed by the Board, then that Board is obliged to reconsider their proposal. If again rejected in the following year, it is suggested that the Board should resign their positions to allow a vote for new candidates to take place. (This is not binding on a Company in Australia however if they ignored the will of the shareholders, then it is likely that investors would leave and the value of the shares would fall.
Some of the executive performance measurement information used by the Remuneration Committees of the Boards of public companies is from the Financial Accounting records however given the specific nature of each industry, much of the information required is produced by the Management Accountants in these companies.
In addition, over the past two years, quite a few companies have had a „first strike? (where more than 25% of shareholders have voted against the remuneration policy presented and have demanded more „objective? measurements of performance. This often indicates a swing? back to more financial measures as some non-financial measures have been considered too subjective or are rewarding the executive team with excessive bonuses for simply „doing their job?.
Task:
The group is to review the literature available (30% of your report mark) on executive pay and remuneration and present the arguments for using either financial and/or non-financial measures of performance AND explore the research on the motivational effects of different remuneration/executive pay measures.
Then, READ the Remuneration Report of an Australian Publicly Listed Company (Company will be allocated) 2017 ONLY. This review must be specific to this company and in detail, not simply a reporting of the amounts paid to the top executives as follows:
1. Summarise the Remuneration Report of the company including details of what performance measures are used and in particular report on the use of benchmarking and „scorecards? and the use of any non-financial measures.
2. From the Remuneration Reports investigate and review as many aspects of the methods used. For example, can you gather many details about the measures used? Do you think that the shareholders are very well informed on the measures used?
3. From media reports (analysts, commentators, journalists and regulators (ASX, ASIC, ACCC and ATO etc.) investigate whether there has been any public discussion about
the remuneration of the relevant executives and if so, consider whether you believe their remuneration systems are considered successful?.
The GROUP report requirements
1. The overall report should begin with a review of relevant academic journal articles focussing on measuring executive performance. Please ensure you apply what you find to the methods used by each of the companies you review.
2. Present the findings of each of the companies? remuneration report, focusing in particular on the use of STIs and LTIs. Compare the explanatory information given in each of the Annual Reports and how each company approaches their remuneration strategies.
3. To help with the summary, it is strongly suggested that you use the same sub- headings for each individual company so it is much easier to compare findings and it will improve the readability of your report as a cohesive and coordinated group submission.
4. Analyse whether you believe the company has an effective remuneration scheme from both the perspective of the return to shareholders AND the motivational impact on the executive team. Support your findings with reference to the literature you researched.
5. From your analysis, present some recommendations that you believe could improve the remuneration methods of the company studied. Given we are not experts in any of these industries, you should base these recommendations ON THE LITERATURE researched. You could also consider the level of communication and detail given in their annual reports, i.e. is it satisfactory and is it transparent enough for shareholders to determine how the executives are having their performance measured?