Types of analysis related to remuneration

Discuss about the Literature Review of Tabcorp Holdings Limited.

Remuneration includes various types of payments received for services on employment including compensation which constitutes the bonuses, basic salary and economic benefits which are provided to the business executives and staffs at the time of their employment. The executive compensation mainly comprises of the financial compensation along with other non-financial rewards. The typical mixture comprises of call options on the stock of the company and perquisites which are ideally configured for taking into consideration government regulations and tax law. The different types of analysis associated to remuneration is recognized with diverse range of practices associated to remuneration and the policies which explains the various ways in which employees are compensated as per the reference market. The main intention of the study is developing a literature review that could be able to evaluate the executive performance along with remuneration for public listed companies across Australia. In order to establish a well-defined review of the objectives, “Tabcorp Holdings Limited” has been chosen for reporting purposes. The main aspects of the report will encompass the effectiveness of the present control system for the selected company and identify the approach for management performance along with the reward systems. The discourse of the study will be also elaborate on company’s approach in terms of encouraging high performance objectives by its executive team thereby analysing whether it has been able to uplift itself in terms of performance. The main recommendations of the report will be also provided with enhancing performance measures and reporting improvement as per remuneration reporting procedures(Guillenet al.2015).

In general, the remuneration reports depict that the performance evaluation of “Chief Executive Officers” is done on a yearly basis as per their overall performance and pay.As discussed by Li (2017), the most identified concern for the managers and CEOs show that the payment settings in several ways our mismatching in nature and the remuneration of CEO is higher than expectations. A benchmark for recording the remuneration of the CEOhas shown that the top management of different companies listed in ASX have not considered evaluating the performance of CEO. This is seen to be having a detrimental effect on the company thereby creating a parity among the pay of the executive and manager. These differences are also evaluated with the performance of the individuals rather than reward as per their own interest. It got gathered from more than 500 public listed companies are seen with inequality of pay without any performance measurement for the governance of the companies(Herringet al. 2014).

Performance evaluation of Chief Executive Officers

It has been further identified that there is a growing study which is relates to the executive compensation and corporate governance. These discourse states that most of it is included in the structure of ownership and characteristics of the board. Theoretically, the members of the board need to be independent which is designed to be positive for pay performance and shareholder satisfaction. It is also noteworthy that AASB released several executive disclosures pertaining to executive remuneration. The main amendments for the Corporations Act has been considered as per CLERP9 which has been further able to disclose various requirements for disclosing executive compensation and executive in addition to the shareholders through compensation report which is voted by shareholders for the public listed companies(Fernández Méndezet al.2017).

As stated by Van Dijket al.(2014), the performance process evaluation is considered to be particularly complex in nature as it needs to consider that achievements of CEO along with the targets and goals set for company which benefits the shareholders both in the long run and short-run. It needs to be further understood that the board committee is responsible for evaluating the short-run depictions as per previous performance of financial targets and behavioural aspects. In addition to this, the evaluation remuneration is based on three perspectives, where the CEO is accountable for evaluating the financial performance. The operative level is further seen to be held accountable for the customer satisfaction, improving the company portfolio, research and development activities(Afrifa and Adesina 2017). In the end they evaluations are able to depict the various decisions along with strategies formulated for long-term and also settlement of the same. It has been further understood that overtime the peer groups has been able to attain a significant benchmark in compared to all firms which is stable for long time and able to act as an escalator for executives which is used by the firms to bypass the performance measure that supports executive pay in terms of the peer groups(Ekdahl2014).

It needs to be understood that performance evaluation at executive level is not easy. The several considerations which goes into the performance analysis is mainly considered annually in most of the public listed companies. They evaluation of performance which may be better described as a way to evaluate previous performance is necessary for the board to set future targets which is conducive in taking decisions associated to the remuneration of the executives. In this consideration the effectiveness of the performance analysis is depicted with previous performance which is considered with the future targets and this will assist the remuneration committee in undertaking decisions pertaining to future compensation, employment and strategic goals. The goal setting factor has revealed that executive performance analysis may rely on continuing leadership development of the board which offers feedbacks concerning the areas in which the executives are assessed with innovative skills and performing better jobs. In the recent times, a massive remuneration growth has been depicted in terms of executives (Albertsen and Lueg  2014).

Executive compensation and corporate governance

The control systems significance for the business organization is considered with developing the strategic plans so that the business objectives can be accomplished as desired. Moreover, with the assistance of control systems a company is able to accomplish the various types of needs which require adherence to the legal regulatory standards and internal standards requirement. One of the main significant factor for effectiveness in the control system is depicted with quality of the information received. However, there needs to be updated information and accuracy incorporated within the control systems. Moreover, with the assistance of internal controls information can be procured in a more timely manner. However, the processing of these financial information needs to be done in such a way that they are not delayed by any means. Therefore, the significance of the control system is necessary for maintaining executive performance along with reward systems (Chang, Yu and Hung 2015).

As discussed by Jaafar and James (2014), the reward system for the executive comprises of several types of integrated policies and procedures which are brought into practice in order to reward its executive in alignment to the skin, competence, contribution as per the market worth. It needs to be understood that such a reward system is considered to maintain suitable level of benefits and being along with various types of reward system(Goh and Gupta 2016). The recognition of financial rewards is considered with fixed and variable pay along with benefits to employee pertaining to overall remuneration. The various elements of the executive remuneration are also identified with non-financial rewards which is discerned with recognition, responsibility, achievements and praise. These are considered with individual growth and management systems performance. There are major ways in which the system of reward comprises of procedures for measuring the personal contribution and job values within the jobs along with a range of benefits provided to the employee. Such benefits include market-rate and job analyses based on performance management. Some of the other empirical research has stated that there are certain performance rewards which motivates the employees to work to their best of their ability and retain as the best employee with identifying the rewarding system as part of their contribution. Some of the major issues faced by the managers during the reward management and performance evaluation is recognized with getting out the performance management which is more logical to both implied and employees along with attainment of organizational goals (Dawid, Harting and Van Der Hoog 2018).

Performance evaluation at the executive level

The remuneration philosophy of Tabcorp Holdings has revealed that it aims to extract, motivate and retain individuals with high-calibre throughout the organization by following a competitive and consistent business objective which are normally accepted as a good market practice. The key principles under the remuneration has revealed generating“long-term shareholder value”, driving performance, ensuring market competitiveness and driving the right behaviour. In reference to“creating long-term shareholder value” the company aims to reward the executives by taking the individual’s performance which are aligned with the business objectives (Doran et al. 2014).

The review of remuneration framework by Tabcorp Holdings has revealed that the executives and senior management is profoundlyrelied on variable performance which is connected to the segregation of the remuneration at risk and fixed remuneration. The “at-risk” remuneration is relied on the different types of achievements of the executives targeted with creating long-term sustained shareholder value. This is further evaluated in terms of delivering performance rights restricted with shares and cash. In addition to this, the fixed remuneration is set with the market “competitive and commensurate with the incumbent’s skills, experience and job responsibilities”. The review of group’s remuneration framework has been able to recommend to the board for appropriate remuneration arrangements made for the KMP including MD and CEO (Kanapathippillai, Johl and Wines 2016).

The detailed explanation of the different types of remuneration offered by the company is depicted below as follows:

The remuneration philosophy adopted by the company ensures that it is self-administered by those employees who are motivated from inside rather than expecting any reward such as bonus our gifts. This is evident with some of the non-financial intrinsic remuneration rewards such as, recognition of employee achievements with the growth of the organization. The important discourse on such a reward system is included with the procedures for measuring personal contributions, job values along with “level of employee benefits” which includes the job analysis and “market-rate evaluation” and “performance management”(Khalid and Rehman 2014).

These are depicted to be externally administered and takes into consideration the financial aspects of remuneration. The different types of reward systems include financial rewards such as fixed and variable pay which to gather comprises of the overall remuneration. Tabcorp considers recognizing the efforts of a hard-working employee and promotes extrinsic rewards with various types of long-term incentive plan, cash compensation, grant for options and retirement packages (Kirsten and Du Toit 2018). The different types of process of remuneration present in Tabcorp’s remuneration report comprises of:

Control systems significance

Tabcorp ensures that the total remuneration, which is a sum of “fixed and variable remuneration”is “competitive, reasonable, fair” and comprises of “extensive market benchmarking” regularly undertaken against “wide range of relevant organizations”. It needs to be understood that the target reward mix is comprised of a split between on target variable remuneration and fixed remuneration. It needs to be for the discerned that the target reward mix for the CEO & MD is stated with a total of 67% of at-risk performance and 50% equity based(Lee and Isa 2015).

The fixed remuneration for the executive KMP comprises of statutory superannuation contributions, cash salary and several types of other benefits which they may be elected to receive on sacrificing salary such as additional contributions made to superannuation pertaining motor vehicle novated leases. In addition to this, the executive KMP remuneration takes into account the skills, knowledge and experience which is required to perform a magnitude of responsibilities in an efficient manner. The comprehensive benchmarking exercise is seen to be undertaken by various types of the “Executive KMP (including the MD & CEO) remuneration structures” which are compared to be incumbent with the roles of other organizations for ensuring that the group is competitive in attracting, retaining and rewarding crucial talent. On 30 June 2017, the company was placed between “70th and 80th largest organisations listed on the ASX” as per market capitalization. The benchmarking remuneration levels to the organization has been ranked between 50 to 100 on the ASX in terms of market capitalization. The main strategy of fixed remuneration at the market median is applicable to those executive KMP who are performing appropriate as per their roles. A higher or lower “fixed remuneration level” may be provided depending on the complexity of incumbent’s skills and experience, performance levels and various types of requirements of groups retention policies(Leong et al. 2015).

The STI of the company is designated to reward the employees for achievement by the group, individual performance and business unit over a period of 12 months which are seen to be in alignment with the group’s long-term corporate planning thereby creating long-term shareholder value. It is worth noting that the eligibility of participating in the STI plan is depicted with mid-level managers, senior managers along with “Senior Executive Leadership Team (including Executive KMP)”. It needs to be discerned that “reduced or no STI awards” are applicable in case the group is not able to meet its financial targets. The pool of STI is seen to be governed by groups funding multiplier which is responsible for setting the pool and “dependent on the Group’s NPAT before non-recurring items performance”. The conduction of STI award is identified as it three-step process which includes set the STI pool (considered with group funding multiplier), setting the divisional of multipliers and setting of individual performance multipliers (Maas and Rosendaal 2016).

Reward system for the executive

It needs to be noted that the LTI of Tabcorp is intended to reward it “senior management team” for contributing to create long-term shareholder value in retaining important talent within the organization. The company reviews LTI annually and ensures that the business objectives continue to reward shareholder value and is competitive in appealing and retaining high-performing executives. The purpose of LTI plan is to drive long-term performance for the business thereby creating shareholder value and aligning senior management and shareholder interest to retain high-performing and skilled senior managers (Moosa 2017). It has been for the discerned that “MD and CEO of the company has an on-target opportunity of LTI of 100%” of the total fixed remuneration. In addition to this, the executive KMP is discerned to be having an on target “LTI” opportunity of 50% fixed remuneration. It is also understood that both MD and CEO have the opportunity to own up to two times on the on-target opportunity for outperformance. However, the outperformance shall be realized only if Tabcorp achieves the top quartile returns from the shareholder (Melis, Gaia and Carta 2015).

The restricted shares may be issued to the various types of senior managers as incentive after that appointment. This includes new employee joining in Tabcorp, employee retention or internal promotion. These are particularly considered as ordinary shares of the company which acts as a retainingprocedure and are subject to restriction of up to three years. In addition to this, the “senior managers” may also issue the “Performance Rights upon appointment”. These are considered as instruments which are issued as part of LTI and subject to hurdles and vesting conditions (Parmenter 2015).

It has been further depicted that the participants in the various types of incentive plans including both “STI and LTI” are limited from hedging the unvested performance rights and total value of restricted shares. Such parties are not allowed to enter derivative management with respect to equity instruments granted as part of this plans. It is to be further noted that they could instruments which are granted under such incentive plans can only be listed in the name of participant and considered to be non-tradable as per the share registered and that “cannot be traded or transferred” to other party until such trading restriction has expired.

These policies apply to all the members of “senior executive leadership team counting executive KMP” and CEO. This remuneration policy purposesare to ensure that there is sufficient degree of alignment among the executive’s remuneration in shares of the company through equity ownership. It needs to be further understood that the MD & CEO are required to hold equivalent amount of the times that “annual fixed remuneration” invested in shares of the company. Among these two investments one time is observed as annual fixed remuneration and the remainder of “Senior Executive Leadership Team, including other Executive KMP”. It needs to be further understood that “minimum shareholding must be achieved within five years from 1 July 2016 (for existing executives)” (Provasi and Riva 2016).

Remuneration philosophy of Tabcorp Holdings

The overall findings on the methods implemented for remuneration states that Tabcorp is “deemed to be effective” in bringing improved performance both for the company as well as its KMP executives. The overall depictions have been able to state that Tabcorp has distributed the payment of remuneration information pertaining to various types of long-term, short-term and retention-based schemes. Based on the depictions of current remuneration for executive KMP it is discerned that executive director David Attenborough (CEO and managing director) received a salary and fees of $ 1205384 in 2017 compared to $ 1080692 in 2016. The total cash bonus received by the CEO and MD of Tabcorp is depicted to be 495000 in 2016 along with accrued leave benefits of $ 36320 in 2016 compared to $ 79812 and 2017. In addition to this, the superannuation benefits have been depicted to be $ 1304812and 2017 compared to $ 1631320 in 2016. The restricted shares of the company are depicted to be $ 305376 and 2017 and $382377 in 2016. It has been further discerned that current executives such as chief financial officer Damien Johnston received remuneration of $ 662980 and 2017 compared to $ 648839 in 2016. The chief operating officer of the company Craig Nugent is depicted to receive $ 68149 in 2017 compared to $ 672567 in 2016. Additionally, Craig Nugent was entitled to a cash bonus amount into $ 187718 in 2016. The total amount of long-term incentives of the chief operating officer includes $ 14528 in 2017 versus $ 24234 in 2016. The remuneration package of some of the nonexecutive directors of the company is depicted to be $ 100000 for Paula Dwyer, $ 54,166 for Elmer Funke Kupper and $ 91,949 for Zygmunt Switkowski.

The depictions of the “annual report of Tabcorp” has been able to suggest that 2017 had been an excellent year for the company and its associated shareholders. Some of the main rationale for such a statement has been identified with “creating long-term shareholder value, driving performance, ensuring market competitiveness and driving the right behaviours”. It needs to be further understood that the fixed remuneration increases their provided different considerations for budgets, economic indicators, market benchmarks, rules and responsibility and complexity as the encumbrance performance. In addition to this, the actual increase of remuneration of MD and CEO is discerned to be 13.6% and average increase of executive KMP excluding MD & CEO is discerned to be 1.9%. The total fixed remuneration of executive KMP is identified with 50% of fixed remuneration with maximum of two times target opportunity. The LTI test date for the company is further depicted as 18 September 2016 for the 2013 LTI grant. In addition to this, the location of the performance rights the explained to the MD and CEO followed with the approval of shareholder in the annual general meeting conducted in 2016. In this meeting, a maximum of 501002 performance rights there seem to be allocated. This comprised of a maximum of 401570 performance rights. It needs to be further understood that LTI test date is set on 16 September 2017 which is fixed with the 2014 LTI grant. Vesting on this grant is dilutive to the performance of the company in respect to peer group over a three-year performance period (Razaliet al. 2018).

Review of Tabcorp Holdings’ remuneration framework

Despite of the significant benefits provided to the executive KMP remuneration and CEO and MD remuneration, the company suffers from decreasing share price during the last three years. It has been discerned that in 2015 the share price was $ 4.55 per share which increased to $ 4.57 per share in 2016 but drastically reduced to $ 4.37 in 2017. Henceforth, it needs to be understood that despite of increasing financial performance in most of the areas and improving remuneration systems, the company has not been able to position itself in a better way when it comes to stock market performance(Shields et al. 2015).

The important evaluations made from the remuneration report of Tabcorp has been able to suggest that there are certain effective endorsements which are provided to the company in terms of enhancing its reporting and broadening the scope of performance measures. The main recommendations are listed below as follows:

• Tabcorp needs to attend performance measurement by considering the information which are based factually and more emphasis on monitoring the outcomes which are implied in assessment of “short-term incentives and long-term incentives”.
• It needs to be understood that the company should focus on analysing the reporting performance areas which would consider more number of non-financial performance measure for intrinsic measures. During reporting Tabcorp needs to always consider as per raw input of information.
• The companies recommended to encompass all the factors for operations ranging from the concepts of distribution and addressing the lifecycle of the business. Some of the main inclusions to the report needs to be made with the consideration of employee health and safety, social responsibility and consideration of security factors.
• Significant emphasis needs to be put related to the fundamental risk areas pertaining to anticipated outcomes of the business, leadership and risk management strategies.

Conclusion

Some of the main findings on the report based on company review has stated that executives and senior management is heavily focused on variable performance which is linked to the segregation of the remuneration at risk and fixed remuneration. The at-risk remuneration is relied on the different types of achievements of the executives targeted with creating long-term sustained shareholder value. This is further evaluated in terms of delivering performance rights restricted with shares and cash. In addition to this, the fixed remuneration is set with the market “competitive and commensurate with the incumbent’s skills, experience and job responsibilities”. The report has identified intrinsic rewards inform of rewards such as, recognition of employee achievements with the growth of the organization.Extrinsic Rewards are further seen to include financial rewards such as fixed and variable pay which to gather comprises of the overall remuneration. Tabcorp considers recognizing the efforts of a hard-working employee and promotes extrinsic rewards with various types of long-term incentive plan, cash compensation, grant for options and retirement packages. Some of the main form of extrinsic rewards has been identified with Target Reward Mix, Fixed Remuneration, Short-Term Incentives (Variable), Long-Term Incentives (Variable), Appointment or Retention Incentives (Variable), Policy Prohibiting Hedging (Variable) and Executives Shareholding Policy (Variable). The main findings on the methods implemented for remuneration states that Tabcorp is considered to be fruitful in delivering improved performance both for the company as well as its KMP executives. The overall depictions have been able to state that Tabcorp has distributed the payment of remuneration information pertaining to various types of long-term, short-term and retention-based schemes. Based on the depictions of current remuneration for executive KMP it is discerned that executive director David Attenborough (CEO and managing director) received a salary and fees of $ 1205384 in 2017 compared to $ 1080692 in 2016. The total cash bonus received by the CEO and MD of Tabcorp is depicted to be 495000 in 2016 along with accrued leave benefits of $ 36320 in 2016 compared to $ 79812 and 2017. The fixed immigration increases their provided different considerations for “budgets, economic indicators, market benchmarks”, rules and responsibility and complexity as the encumbrance performance. In addition to this, the actual increase of extermination of MD and CEO is discerned to be 13.6% and average increase of executive KMP excluding MD & CEO is discerned to be 1.9%.

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