INTRODUCTIONThe present report aims to analyse remuneration and the way it is calculated and rewarded. Remuneration consists of the amount of money the employees are given depending on their roles, responsibilities and performance. On the other side it also works vice versa. The company performance is affected by the remuneration and in the specific by the incentives given, both short and long term.
This testifies the link between individual performance, in particular of the Executives, and company performance. In order to evaluate this aspect, companies use different kinds of measures and indicators, financial and non-financial, linked to the industry they operate in.A good remuneration policy eliminates the conflict between the shareholders and the management of the company and builds strong ties between them. The short and long term incentives applied to managers’ remuneration are used as motivational tools for good performance, which reflects on the company’s business success. This ensures growth and a higher return for the shareholders themselves. On the other side, ineffective remuneration policies may lead to bitter consequences affecting the performance of individuals and the group. If the incentives are not adequate, employees and Executives in particular are not motivated to put their effort in their job, not willing to keep their position.
This affects the overall company’s performance, as it causes a high turnover, bad relationships and working environment, etc.Because of the tight link between remuneration and performance explained above, this is a very important matter that needs to be disclosed by the company and included in the Annual Report, which is meant for shareholders and the public. The analysis of the remuneration policies, considered in the broader company financial report, allows to investigate whether they are effective or not.LITERATURE REVIEWExecutive Remuneration can be in any form of salary, wages, cash incentives, non-cash incentives, and shares and so on. They should be determined in such a way that it encourages beneficiaries to think strategically. According to the performance and the responsibility of the Executives, it will attract as well as motivate them to operate as per required by the company. Executive remuneration is defined by the management’s attitude towards risk, the management’s motivation in the light of remuneration and those pieces of information by which the performance of the manager can be accessed through the performance indicator of the company.
There are two basic tools of motivating executives, one is the financial motivation and the other is career orientation. Executives are rewarded on the basis of their performance. Rewards attract as well as motivate them to perform as required by the company. ANZ’s summary of remuneration principles are to attract, motivate and retain talent, support best risk of customer and sound risk management, rewards for performance and behaviour aligned with ANZ’s value, focus on both short and long term performance and value creation.
According to ASX corporate government principles and recommendation 2010, “There should be a clear relationship between the performance and remuneration and that policy underlying executive remuneration be understood by investors”. Most of the executive remuneration packages involve a balance between fixed and incentive pay. Companies should consider the components in formulating packages, including fixed remuneration, performance based remuneration, etc. Different aspects such as remuneration policies, measures, and methodology are used to determine the overall remuneration activity of the companies. Most of the research have shown that there is an interrelationship between the pay and the performance in any organization. The performance of employees directly affects the performance of the whole organization. Employees have to be motivated for the better performance of the company.
ANZ COMPANY REVIEWDue to its ASX 100 status, ANZ is required to publish its Annual Report for shareholders and the public. Because of the company growth and transparency provisions, the entire Report has been simplified, in order to enable the users to read and understand it. It includes a general view of the company’s business, composition, governance and strategy, focusing on the opportunities for the future to improve the use of resources and capital allocation. The part that is most important for this review is the Remuneration Report, which has also been consolidated and simplified and focuses on the performance measures, remuneration principles and composition.In 2017 ANZ has strengthened customer service and employees’ training and introduced a new scorecard system in retail branches, aimed at obtaining better outcomes for customers and shareholders. These changes echoed overall in an 18% increase in cash profit and 67.7% dividend payout ratio, testifying how the new strategy has been successful, even if slightly below the annual target.
The positive results reflect the good performance of the personnel working at ANZ, on both a group and individual level, branch and executive level. The rewards linked to said performance are the object of the Remuneration Report, in particular regarding the Executive Directors of the company. This specification is core to the report, as it is meant for shareholders, who certainly are interested in knowing how the capital is allocated.The CEO’s and Executive Directors’ remunerations are treated in details, specifying their composition as fixed and variable. The fixed component is predetermined by each contract and has not been changed in the past years (It has though been lowered for future new appointments). The variable component is sub-divided into three categories: cash, deferred shares and performance rights, and it is correlated to the performance.
The Executive Directors remuneration is divided into fixed and variable remuneration, which can reach up to 200% of the fixed and is a mix of short and long-term incentives. The CEO’s remuneration policy differs from the Executives, due to the diversity of roles, responsibilities and strategic objectives. It is the result of three components: fixed remuneration, annual variable remuneration and long-term variable remuneration (equally divided).COMPOSITION Fixed remunerationFixed remuneration is discussed and assessed by the Board based on multiple factors, such as market relativities, regulatory developments, market practices, each Executive’s qualification, experience, location and performance. Variable RemunerationVariable remuneration is based on ANZ Incentives Plan, which covers all employees, including Directors and CEO.
Because of its nature, the amounts rewarded change depending both on individual and external factors, such as the company’s economic profit. Like for fixed remuneration, also the variable is decided by the Board, following the suggestions by the Human Resources Committee.Variable remuneration is made up of: cash, deferred shares and performance rights. The cash component is awarded immediately, after the annual performance review. Deferred shares are distributed equally over four years. Performance rights are assigned three years after, as they align with the ANZ business planning cycle.
These are more complex and mostly linked to long-term performance assessments and benchmarking. In fact, the rights are calculated on the total shareholders’ return, consisting of: absolute return, which monitors the company’s positive growth, and relative return, that is positioned against other companies belonging to the same industry (both locally and globally).PERFORMANCE EVALUATIONIn order to implement an evaluation, the CEO and Executive Directors are given individual objectives at the beginning of the financial year, following on a scorecard approach under four measures: risk, financial and discipline, customers and reputation. The objectives, based on each person’s role and responsibilities, are mainly medium to long term and they need to align with the corporate strategies. At the end of the financial year, the Human Resources Committee weighs the performance against the objectives, ANZ values and compliance standards, also requesting feedback and inputs by the CEO, CFO, CRO and the Group General Manager Internal Audit. Once the assessment is completed, the Committee recommends remunerations for CEO and Executives based on their target performance and adjusts the amounts before the Board intervenes in the decision. The adjustments can also depend on external factors, such as guarding the financial soundness of the company.
ANALYSIS OF REMUNERATION METHODS USEDIn the ANZ Company remuneration framework, remuneration policy and principles are found to be given more importance for easy decision making. The performance period is currently allocated as a 3 years frame. For 2017, year starts from 22 November 2017 and ends at 21 November 2020.In addition, four measures i.
e. risk, financial discipline, customer, people and reputation were used in order to measure the performance of the executives and the company as a whole. Based on the report presented above a detailed analysis has been done to show whether the company’s approach worked effectively or ineffectively.NON-FINANCIAL MEASURES RiskRisk performance was evaluated as on target, contemplating performance against key risk markers and a general appraisal of risk management. All the members were informed about the company’s regulatory obligations and no breach of regulation, like anti-money laundering, was observed. Financial and disciplineSubstantial improvement in the group financial performance was spotted in 2016 and onwards.
According to the target, credit risk was minimized by reducing the capital usage. In addition, $46 billion were reduced within a period of two years on average. Also, the group expenditure was seen to lower to 9% year-on-year which resulted in improvement of profits of the company as a whole. The ROE (Return on equity) was high by 11.9%, indicating that the measures that company has applied worked absolutely fine and was effective. CustomersThe company launched the innovative applications like BladePayTM , Samsung Pay, FitbitTMPay to ensure customers an easy access to transactions. Their introduction aids in terms of customer satisfaction, which is the essential key for success on any business or organisation.
As a result, it helped to build a stronger relationship with the customers and increased the digital sales percentage too. Also, this improved market share. More precisely, people outside Australia bought shares and made some transactions and revenues were collected from international clients which is a sign of good omen to the company. Using these measures has been seen to be effective by the top level executives. Moreover, it shows that the performance of the executives has been appreciable. People and reputationIt is a challenging task to lift productivity and ways working styles to earn reputation in the banking and finance sector and the company set some target to improve it using different policies and strategies. The company targeted to diversify men at work setting and it was able to increase women participation in senior management and Executives board too. In addition, staff engagement in work was pushed to some extent and staff attrition was decreased.
FINANCIAL MEASURESFinancial performances has been measured in the period from 2013 to 2017 under different categories. The company’s profit seems to have been slightly increasing until 2015 and then declining in 2016, and finally expanding again in 2017. Similarly, return on equity (ROE) and cash profit both increased slightly until 2015 and then decline in 2016. But both of them raised again in 2017. The share price by the end of 30th September 2017 was $29.60. All these financial figures state that not only the performances of executives were higher but also it helped to uplift the company’s performance too.At the beginning of each year, the performance objectives were set for COE and Executives.
Once those targets were met, the variable remuneration awards were distributed. At the end of the year, the performance of the Executives is considered and the recommendations are made to Human Resources team by the COE.CONCLUSIONS AND RECOMMENDATIONThis report has given emphasis to the remuneration policies of ANZ Company, which have been provided to the executives of the company. The remuneration policies are mainly based on the Executives’ performances, their intelligence, skills and abilities, their position and their experience.
Further, from this company’s report it is clearly seen that the executives have given their good performance as rewards were provided to them through various means, which motivated them to give their best at their position.According to the report of ANZ company, the remuneration of the Executive directors was divided into two parts: fixed and variable and this was about to reach up to 200% of the fixes and it is the combination of both STI and LTI. Similarly, 2017 Annual Report shows that there is a high degree of satisfaction from customers and employees, which has directly or indirectly relation in increasing cash profit up to 18% and DPR to 67.7%. Likewise, group performance of ANZ has brought the company on the road of success. As per the 2016 report, financial performance of the group started to improve with substantial progress in implementing strategic significances including on – going expenses discipline resulting in decrease of operating cost from year to year. Therefore, the 2017 ANZ report demonstrates more clearly the success of group performance in achieving the qualitative result, strategies and policies.
Lastly, it means the group performance of Executive directors has ensured the company to achieve its goal along with the their individual goals, as they were provided remunerations in terms of fixed, variable, short term incentives, long term incentives. These were given in the form of salary, bonus, rewards, incentives, dividends, shares and other intrinsic and extrinsic rewards.