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Analysis of Remuneration Method Used

   

Added on  2021-05-31

13 Pages2885 Words78 Views
Running head: ACCOUNTINGAccountingUniversity NameStudent NameAuthors’ Note

2AUDITINGTable of ContentsIntroduction:...............................................................................................................................4Discussion:.................................................................................................................................5Review of literature:...................................................................................................................5Company review:.......................................................................................................................6Summary of findings:.................................................................................................................8Analysis of remuneration method used:.....................................................................................8Recommendation:....................................................................................................................12Conclusion:..............................................................................................................................12References lists:.......................................................................................................................14

3AUDITINGIntroduction:The report is prepared for evaluating the performance of executives and remunerationin public companies. Research on this particular topic is conducted by reviewing the literatureon the method used for measuring the performance of management. The purpose of report isto analyze the available information on literature review on the several methods used bypublic companies to calculate the performance pay. In addition to this, research is alsoconducted on the annual report of chosen organition for reviewing the managementperformance measures used. Chosen organization for analyzing the method used forremuneration is National Australia Bank (NAB) that is one of the largest financial institutionsoperating in Australia in terms of earning generated, market capitalization and total numberof customers served (Armstrong and Taylor 2014). The method used for computing long termincentive and short term incentive for measuring the performance used by NAB are evaluatedby reviewing the annual report of organization. Discussion:Review of literature:Short term incentives are referred to as incentive schemes where the payments aredone in cash such as gain share, profit share, bonus scheme and commission and themeasurement period is around one year. Some of the methods that are used by organization inplan of short term incentives are bonus scheme, gain sharing scheme and profit sharingscheme. The nature of these performance criteria can be qualitative, quantitative, financialand non financial. The plan of profit sharing helps employees to become acquainted withprofit margin and focus on bottom line. A portion of pre tax profit is put by organization thatis distributed among employees. A larger percentage of profits are received by employeeswith higher percentage profits (Demerouti et al. 2014). However, such type of plan results in

4AUDITINGhigher labour cost in event of better performance of organization and lower labour cost whenorganization is facing economic downturn. The long term incentive (LTI) plans are often based on options and stock. In suchplants, the rights of executive to obtain stocks or exercise or receive options are associatedwith measure of performance. Executives are granted with options or stock when the targetvalues are achieved by executives for the specified measure of performance. Operations oflong tem incentive plans are done especially for executives as an incentive for improvingincentive. Furthermore, it also provides the opportunity to reduce the fixed costs. Theschemes that is generally used by organization bonus linked to long term performance forencouraging focus on long term goals (Pepper and Gore 2015). It also involves share optionplans for promoting the convergence of interest of executives and stakeholders. LTI areoffered to incentives for increasing long term focus of organization and thereby aligning theinterest of shareholder of companies and interest of executives. The LTI is faced with thechallenge is associated with the extent to which it is felt by employees that their performanceare associated with the level of reward. The link between LTI and individual performancemay be regarded potentially weaker than other form of compensation as such plan aregenerally limited to higher level of employees who arguably directly impact the performanceof firms (Beer et al. 2015). Moreover, employees who are provided with LTI are not able toderive immediate value as it generally has restriction on cash. Organization can also make use of some non financial measure for measuring theperformance of employees. Some of the non financial measures involve development ofworkforce, customer satisfaction, product quality, employee satisfaction, productivity andefficiency. The length of long term inventive plan varies from one year to six years(Friedman 2017).

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