Report: Performance measures, remuneration and motivation Subject

Learning Outcomes (LOs) assessed (from Subject Outline):

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 non- executive 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 for 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 Mid- Trimester 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.

Review of Topic and review of Literature

Present a summary of the literature researched on the topic of executive performance evaluation and remuneration in public companies. Creating this section allows your group to develop your knowledge on the topic to enable a better-informed consideration of the individual company's remuneration reports. Include a discussion on the effectiveness of control systems within companies focussing on management/executive performance and reward systems.

Company review - This includes the investigative report on their company - answering the questions about the remuneration report as required in the task requirements above.

Each group should decide which aspects of the Remuneration Policy they have matched to their research. This provides the group with the opportunity to related the academic articles and material to the policy of their company and it should also help organise the report in a professional and readable format.

For example, you may wish to use the following sub-headings:

1. Details for remuneration committee and its membership.

2. Allocation of Executive Remuneration (Fixed pay/STIs/LTIs)

3. Mix of performance measures used

4. (This could be used to consider the use of or weightings of Financial Performance measures such as EPS/ROI/ROE versus non-financial measures such as balanced scorecards etc.)

5. Company performance (Total Shareholder Value) versus executive pay
(This could compare the change in company share price AND dividends or Earnings per Share versus executive pay - e.g. Company share price is going up and pay is coming down - or visa-versa?)

Summary of findings - Bring together the findings of the group members about the company and a discussion about how effective (or ineffective) the company's remuneration program appears to be in improving company performance.

Analysis and comparison of remuneration methods used - Ensure you consider how well each of the company's approaches ‘worked' in encouraging higher performance by the executive teams and consider if this translated to higher COMPANY PERFORMANCE. (Note it may be difficult to separate executive performance from overall company performance - say by considering the share price - as other market and industry factors may also influence share price.)

Conclusion - Here NO NEW IDEAS should be introduced. Only a conclusion of your
findings and perhaps your group's nomination of which company has the best remuneration system and what your group believes can be learned from the report and the method of remunerating manager's in organisations. i.e. ‘Remind' the reader, why you undertook the report (no - not because you HAD TO DO IT!) and the purpose of remuneration systems. It should LINK with the Introduction!

Your report must include a summary of the academic journal articles you have found and your subsequent research findings and include a full bibliography in the Harvard Anglia style.

Research requirements:

Industry and Companies will be allocated to each group during the ‘workshop/tutorials' in ‘week 6' held immediately after the Mid-Trimester Exam. Begin your research of the academic literature NOW searching EBSCOHOST and any other academic search engine (see the great resources made available through the KOI Library and website!) to find at least three to four articles for EACH group member.
Start reading and reviewing this literature immediately so you will be better informed when you are allocated your company for review!

The GROUP PRESENTION OVERVIEW

The Group Presentation will give the lecturer the opportunity to ask questions of each student to explain any points raised in their report that may require clarification and to demonstrate their higher level of critical evaluation of the topic and its application.

1. Student assessment:

Group report:

- The Group Report carries a subject weighting of 20 Marks.

- You must use a word processor to correctly format and complete the task.

- This is a mark awarded to the group however your individual mark may be adjusted up or down depending on the individual contribution to the report.

- Ensure the individual sections (company review) are labelled with each student's name and ID.

Oral presentation:

- Oral presentations will take place in Weeks 10-12 where the group will have an opportunity (no more than 15 minutes IN TOTAL for each GROUP) to further demonstrate their understanding of the entities and the work you have done in researching these entities. (Order of presentations will be decided by random ballot held in-class (lecture) on or before Week 9.)

- These 10 marks will be awarded by the tutor/assessor individually based on the presentation itself and the notes provided.

- All group members should be part of the presentation and typically, MS PowerPoint presentations are prepared and printed.

- "Outline" copies of the presentation should be given to the lecturer BEFORE the presentation begins to allow marking and note-taking to take place.

At the end of the presentation time, students may be questioned on various aspects of the Assignment including research methods and sources, information within the report and the presentation and about the organisation under review. All members should be able to demonstrate their contributions to the report at this time. Note that your Group Mark will be finalised AFTER the presentation as this will contribute to your demonstration of your understanding of the topic.

Attachment:- Task Specification.rar