Remuneration and Performance Measurement at MYOB Ltd

This report examines the remuneration and performance measurement practices at MYOB Ltd. It discusses the impact of performance on ethical behavior and evaluates the effectiveness of financial and non-financial measures in achieving desired outcomes. The report provides insights into the methods, policies, and regulations followed by MYOB Ltd.

MANAGERIAL ACCOUNTING
2019

MYOB Ltd
Executive Summary
The current report is based on remuneration and measurement of performance measurement.
To conduct the study, MYOB Limited has been selected that is listed on the ASX. The report
critically observes the methods, policies and regulations followed by MYOB. The
measurement practices have been studied in the report together with a strong emphasis on the
remuneration report. The report initiates with an introduction followed by the effect of
performance on the ethical behaviour of the organization. Further, the performance measure
of the company has been adequately highlighted.
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Contents
Introduction...........................................................................................................................................3
a) Effect of performance system on the ethical behaviour and culture of the organization................3
b) Performance measure that has the maximum motivational impact................................................5
c) Evaluation of financial & non-financial measures in achieving desired outcomes........................8
Conclusion...........................................................................................................................................11
References...........................................................................................................................................12
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Introduction
The pay of the employee should be ascertained in tune with the performance, knowledge,
skills, as well as traits. Employees that are efficient and consist of better capabilities are
provided performance related pay job format. The formats are provided so that the
performance can be elevated to a greater height. It is noted that most of the organization
utilizes the concept of performance related pay job format so that the employees are
appraised and this leads to more incentives. The main participant of ethical culture is
employees’ perceptions of organizational justice. The following report will shed light on the
employees’ perceptions of organizational justice of a particular HR instrument and its impact
on employees’ ethical/unethical behavior.
a) Effect of performance system on the ethical behaviour and culture of the
organization
The employees of an organization must perform ethically. An interviewer must recruit
employees on the basis of their ethical behavior which can be assessed by means of various
aptitude and personality tests. The management of an organization must perform ethically in
the first place so that the employees get inspired and inculcate the essence of ethics (Peirson
et. al, 2015). The juniors draw huge inspiration from the senior management of an
organization and consider them their role models. Therefore, the activities of the management
are most likely to influence the activities of the team members. The senior management must
instil ethics in its employees by imparting frequent training on a code of conducts,
behavioural guidelines and essence of appropriate decision making so that they can
distinguish between right and wrong, fair and unfair, truth and lies, and so on. Health and
public safety domains are the ones where ethics play a very important role. These domains
run on a number of legally enforced ethical rules which can only work with the assistance of
the ethical culture of an organization (Phillip, Richardson & Michael, 2012). Ethical culture
is a bit complicated in nature and there are multiple factors that influence the same. The
employees must perform in a manner that assists an organization in achieving competitive
advantage and accomplish its long term goals. Performance management helps so as to
ensure that the employees are delivering in the best interest of an organization. The
performance of the juniors is managed by the managers of an organization. Therefore, this
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calls for the need for formulation of such performance management measures that resonate
with the requirements of the policies and functioning of an organization so that the goals of
the same are achieved.
In order to analyze and understand the employees’ experiences and perceptions of
performance management and appraisal system, it is essential for the research to be
performed further (Phua, Abernethy & Lillis, 2011). This will help in building a
comprehensive performance system. The long term success or failure of an organization can
be determined by means of its performance management and performance management
practices (Drury, 2011). There shall be no active participation from employees in the
performance management measures if they don’t believe in it. This shall ultimately impact
organizational performance and productivity. In short, it can be said that the concept of
performance management is good and beneficial for all such organizations where the
employees’ performance is directly related to its overall performance. Human Resource
Management practices are of great help for any organization in developing a profound
management system along with making improvements in its employees’ performance and
overall performance (Edelman & Larkin, 2015).
Work.com is a digital performance management tool which was first taken up by MYOB. It
is the first company in New Zealand to do so. Work.com is an enterprise-wide system which
is designed by salesforce.com specifically for the organizations. Work.com allows the
personnel to celebrate individual and team successes, share and align goals, track individual
and team goals, offer frequent evaluations and feedback. It is believed by Tim Reed, CEO of
MYOB that the implementation of Work.com in the company is encouraged by all the
employees and it has worked in the best interest of the same. The overall employees of
MYOB are delighted with the installation of Work.com and have welcomed the same with
open hands. Unlike earlier when the installation of the tool was not there, it is now
comparatively much easier to track performance and accomplish goals not just on an
individual level but to a large extent team level as well (MYOB, 2018). Work.com is a tool
that also offers a social forum for the employees to interact with one another and share
valuable feedback and ideas. This ultimately helps employees to develop better relationships
and coordinate effectively with one another and achieve not just individual and team goals
but organizational goals as well.
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Prior to the installation of Work.com, the team was not able to share as much feedback as
they are able to do now. Also, now the employees are aware of how significant individual and
team goals are so as to achieve organizational goals (MYOB, 2018). The CEO of the
company believes in the power of transparency as it makes a lot easier to work with different
people across multiple projects. The CEO believes that Work.com has also allowed the
company to achieve such goals that seemed impossible at one point in time. As per Reed, the
plans and ideas have now converted into actions which cannot just be tagged but dated as
well. He believes that individuals can become more productive if they are aware of all such
dated plans and ideas of the company.
Work.com has reduced the process of paperwork and has made everything more convenient
and transparent now by means of formulating electronic work. This has saved a lot of time
and costs as well. If estimates are to be believed then the organization might save not less
than 20,000 pieces of paper every year. The company works on three levels- work, learning
and career and revolves around the basics of- specific, measurable, attainable, realistic and
timely collectively known as SMART. As per Reed, everyone who is a part of the team may
it be seniors or juniors, all must move together in the same direction (MYOB, 2018). Not
only the seniors but also the juniors are required to be aware of their individual and mutual
goals and must perform towards achieving the same. All these goals will collectively allow
an organization to accomplish its overall goals.
Human Resource Management has a very significant function in the management of an
organization. The most popular topic in Human Resource Management is a performance
management system. An organization must systematically plan, manage, recognize and
reward the performances. This will uplift the productivity of an organization and shall
ultimately boost the revenues earned by the same (Gerrish, 2015). There must be the
implementation of such strategies so as to identify, motivate, evaluate, measure, recognize
and reward the employees of an organization as they are the most valuable resources for the
same. Hence, employee performance is highly influenced by the means of implementing a
performance management system.
b) Performance measure that has the maximum motivational impact
The first company in New Zealand to install Work.com in its system is MYOB. Work.com is
designed by salesforce.com particularly for the workplace. It is a digital performance
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management tool that allows employees to share and apportion tasks and goals, account not
just individual but overall team’s performance, celebrate successes and share necessary
evaluations and feedback. Sharing valuable feedbacks with respect to performance has its
own significance. When the feedbacks are shared then there are always probabilities for
improvement to take place in not just individual and team performance but overall
organizational performance as well. Performance measure on an individual level is a
connection between one’s own behavior and the entity’s goals while performance measure on
an organizational level is a connection between its decision making and overall goals
(Gregoire, Corbett & McMullen, 2011).
Measuring performance is the basis of improvement in performance. Unless the parameters
of performance are not measured it is impossible for the same to have any scope of
improvement. Therefore, the measurement of performance is the foremost step in its
improvement. Measurement of performance should be done in a way so as to achieve
favorable results for there are numerous chances of unfavorable results arising out of the
same (Douma & Hein, 2013). Therefore, managers must take the consequences of
measurement into notice before its implementation and thereby use it appropriately in the
desirable situation so that the chances of positive outcomes arising out of the same are high.
The significance of performance measurement and its implementation must be accepted and
supported by both the seniors and the juniors of an organization. The senior personnel in
MYOB are well aware of its long term organizational goals and the juniors of the same to are
aware of the actions that are required in order to make constructive decisions. The senior
personnel must experiment with basic measures initially and then develop the same with
time. It is still easy to collect and analyze data while interpretation of results and taking
constructive decisions based on the same is very difficult (MYOB, 2018). For proper
installation and use of performance measurement tool an organization must know what to
measure, how to use measurement and how such measures can be linked with other aspects of
organizational performance (Vanderbeck, 2013). Therefore, the personnel is required to be
given appropriate training on measurement so that the reporting, reviewing and improving
can be systematically done.
The performance measurement framework installed by an organization must be transparent
and easier for the users to understand. It must be installed in a manner so that it derives
positive results and supports in the fulfillment of organizational long term goals. Digital use
of performance management has allowed the employees to communicate with one another
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effectively. It is of great utility for the management as the same can interact with its
employees, creditors, investors, and customers very easily. The performance of an
organization towards achieving its goals and objectives is ultimately decided by its customers
and investors. In this regard, it is the duty and responsibility of the management and the
employees of the company to perform accordingly keeping in mind the significance of their
individual and team goals towards the accomplishment of overall organizational goals
(Grohsjean, Kober & Zucchini, 2016). Therefore, the success of an organization is highly
dependent on not just the insiders but outsiders of an organization as well.
The significance of the measurement of results is huge for an organization. Therefore, the
same must be known and supported by all the employees in general. A brilliant organization
is one that makes sure every single employee is aware of his responsibilities and works
together so as to accomplish the overall goals of the same. With the help of performance
measurement, one can not only compile data but also offer a basis for decision making as
well. Performance measures are for organizations where all its levels are engaged in
providing timely, relevant and concise information so as to make effective decisions in order
to fulfill overall organizational goals (Kotabe, Jiang & Murray, 2011). There must be reward
and recognition programmes in every organization so as to celebrate the performance of the
dedicated employees and reward them accordingly. Not rewarding the performance of
dedicated employees shall make them unwilling to deliver over a period of time. Recognizing
and rewarding the performance of such dedicated employees that are an asset to the
organization is the best way of keeping their morale high and boosted.
Rewards and recognition are one of the brilliant performance management measures for any
organization. This not only boosts the morale of dedicated employees but also inspires other
employees to excel in their performance deliveries so that one day they might also be
acknowledged with the same in front of their colleagues (Larry & Christopher, 2012). Such
dedication in employees will ultimately help in the fulfillment of organizational goals.
c) Evaluation of financial & non-financial measures in achieving desired outcomes
An organization comprises of mainly three layers of management i.e. Top level Management,
Middle-Level Management, and Lower Level management. While the Top level Management
is responsible for planning and setting up goals and targets for the company. The Middle
level & Lower level management is responsible to execute the policies set up the Top Level
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and achieve the targets set up by them. The success of the company depends upon how the
later levels of management have performed and achieved their targets (Lilly, Duffy &
Wipawayangkool, 2016). In case the targets and policies are well executed, the company is
sure to grow and develop. Over the years, management and governance of the company have
evolved and now has taken greater importance. So to measure and understand the working
and operational efficiency of the working force, the management has resorted to measuring
the performance which is called Performance Measurement and the systems and controls
used to measure and record it are called performance Measurement Systems. The success of
any company is its shareholder's confidence in them. The shareholders will always want its
company to be fair in business practices and always try to adopt the best operational
measures to be the market leaders.
Apart from the Financial Performance of the company, Performance management systems
include both financial & Non Financial measures. However, to get the desired results from
the employees there has to be a good and rewarding remuneration system. Greater the
employee's reward system in place, the greater shall be a participating role in achieving
company objective (Lu et. al, 2017). One of the company objectives is to maximize
shareholders returns. So to achieve it, there should be a very comprehensive remuneration
structure.
MYOB has created a Remuneration and Nomination committee to create a rewarding and
motivating remuneration. This is a great initiative taken by the company to ensure that its
workforce keeps intact and grows along with the company. The company regularly reviews
its salary & incentive plans and has introduced a Unique Incentive Plan (UIP) in early 2018
for the best interest of its employees & its stakeholders. The shareholders were also made to
understand the feasibility & working of the Incentive Plan despite the concerns of the
shareholders. Another initiative taken by the Company is to hire Remuneration Advisors
time to time to know and implement current best industry initiatives in regards to regulatory
requirements & other practices prevalent.
The Company has designed its remuneration structure in such a way that its key management
personnel rewards are aligned with the best interest of its shareholders. For instance, the
salary has been divided into fixed and a variable part where the Fixed salary denotes the
industry standards whereas the variable salary is aligned to the fulfillment of some sort of
targets set up for the employees (MYOB, 2018). The variable salary includes cash and equity
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MYOB Ltd
participation so as it involves the employees fully to the objectives of the company. The
company, employees and the shareholders all grow in case of fulfillment of the targets of the
company (Merchant, 2012). Market Benchmarking is also done every two years to ensure the
best rewarding policies for its senior workforces. The entire company is aligned with the
targets achieving of the company. The company has its performance measurement systems in
place to derive its results.
The two metrics selected to measure company performance and make Unified Incentive Plan
awards are:
Figure 1 Metrics to measure the company performance
(MYOB, 2018)
As per the above diagram, it shows that the company shall use the following two above
shown parameters to decide performance. The first one says EBITDA less Capex and the
second one says about the market share of the company as compared to the whole industry.
For instance in the case of Telecom Industry, market share of a particular company and its
growth or decreasing share.
The company through its Board sets up challenging but realistic performance targets which
can be attainable. This target performance level is then floated to its employees. A 100%
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achievement of this target gives 100% incentive while achieving more than 100% targets
increase the incentive to 200% incentive (MYOB, 2018). A diagram below explains the
above formula.
Figure 2 Performance targets
The company follows due diligence to challenging targets for its employees which is backed
by suitable reward policies. The company gives due credit to the performance standards that
would be associated with possible results to ensure that the results would reflect the
contribution of the efforts of the entire team behind it. In case of any material vent which may
possibly affect the achieving of the targets of the company, the company is flexible to change
its targets accordingly (MYOB, 2018). The company constantly upgrades and reviews its
measures in place to follow the best practices and use benchmarking to be the best in the
business.
On account of Non - Financial measures in favor of shareholders interest shall be quality and
customer satisfaction, for ex: after-sales service. The workforce which is motivated and
suitably rewarded shall always try to achieve the quality of the product or the service and
always go for customer satisfaction (MYOB, 2018). The client satisfaction is of utmost
importance as it creates value addition and also builds the reputation of the company. The
shareholders are directly affected by the Non-financial performance measures as the
company`s market share also rises and also gives good credit ratings by credit agencies.
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Conclusion
So whatever be the performance measurement measures, the shareholders are always gained
by it. In case the performance goes down, the management can install some corrective
measures to rectify the position. By linking remuneration of the employees to achieving
management objectives, the management achieves dual benefits. Firstly the employees will
always have an incentive to achieve targets and at a time overachieve it. Secondly, when
employees are rewarded with equity in the company, the employees will also be greatly
benefited by an increase in shares value. Hence it is clear that by evaluation of Financial &
Non Financial measures we can achieve the desired outcomes which are favorable in the
interests of stakeholders including employees and shareholders.
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