Review of NAB's Executive Remuneration Strategy

Running head: ADVANCE FINANCIAL ACCOUNTING
Advance financial accounting
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1ADVANCE FINANCIAL ACCOUNTING
Table of Contents
1. Introduction..............................................................................................................................2
2. Theory and literature review....................................................................................................2
3. Discussion and analysis............................................................................................................5
i. Review of NAB’s executive remuneration strategy.............................................................5
i. Analysis of remuneration principles.....................................................................................7
4. Recommendation to CFO.........................................................................................................7
Reference and bibliography.............................................................................................................8

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1. Introduction
As the largest business bank of Australia, National Australian Bank (NAB) works with
large, medium and small scale business enterprises. The bank serves more than 90,00,000
customers with the employees of more than 30,000 at more than 900 location of New Zealand,
Australia and all over the world. The bank provide funds to some of most important
infrastructure of Australian communities including roads, hospitals and schools and the bank
performs its duties in innovative, inclusive and responsible way (Nab.com.au, 2019). Main
objective of the report is to carry out the comprehensive review for the remuneration strategy of
NAB. It will highlight the requirement of corporate governance and framework and will identify
issues with the company’s compensation package. The report will further analyse whether the
remuneration principle of the entity for the year ended 2018 will help to resolve the agency
conflicts among the shareholders and executives. Finally recommendation will be provided to
CFO to help avoiding the expected 2nd strike in 2019 (Duong & Evans, 2015).
2. Theory and literature review
Australian securities exchange corporate governance council was formed in the year 2002
and is chaired by ASX group. The corporate governance laid down the recommendation and
principles as follows –
 Principle 1 for laying solid foundation for oversight as well as management
 Principle 2 for the structure of board (Asx.com.au, 2019).
 Principle 3 for promoting ethical as well as responsible decision making
 Principle 4 for safeguarding integrity in the financial reporting

3ADVANCE FINANCIAL ACCOUNTING
 Principle 5 for making balanced as well as timely disclosures
 Principle 6 for respecting the rights of the shareholders
 Principle 7 for recognising and managing risk and
 Principle 8 for remunerate fairly as well as responsibly (Asx.com.au, 2019).
As per the requirement of principle 8 the entities shall assure the composition and level of
the remuneration is reasonable and sufficient and the relationship with performance is clear.
Further, the remuneration committee shall be structured in such way that it majorly consist of the
independent directors, chaired by the independent chair, has minimum 3 members (Asx.com.au,
2019).
Shareholders provide their capital to the entity in exchange of the contractual claim on
entity’s assets and income. Further, they delegate the discretion to the corporate management for
making decisions regarding how to employ the capital and hot to supervise other contracts of the
entity. In this context, shareholders are the principals and the managers are considered as their
agents. In any kind of relationship where the interests of agent and principal are not same it will
lead to agency costs (Stewart, Stanford & Hardy, 2018). 2 components are there in agency costs
– (i) cost of divergence among actual decision of the agent and the decision that will maximise
the welfare of the principal (ii) costs those are incurred by parties in efforts for constraining the
divergence (Nab.com.au, 2019). Component of residua loss for the corporate agency cost are
measured through examining the level to which management fails in maximising the firm’s
shares market value. The area of executive compensation where it is not able to fully align the
interests of shareholders and managers, agency costs will not be reduced. On the other hand, the
properly designed package for executive compensation creates the possibility for reducing the