Executive Remuneration and Performance Measurement at ANZ Limited: A Critical Analysis

This report examines the remuneration policies and performance measurement systems of ANZ Limited, a leading Australian financial institution. It analyzes the relationship between executive pay and shareholder value, exploring the company's use of both financial and non-financial performance measures. The report also investigates the transparency of ANZ's disclosure practices and assesses whether its management control systems are effectively delivering results for shareholders. By examining the company's recent annual reports, academic literature, and financial news sources, this report provides a comprehensive analysis of ANZ's executive remuneration and performance measurement practices.

1144 FINANCE

Executive Criteria
The report is based on the ANZ Limited with respect to the remuneration that is being provided
to the Executives and directors of the company. There have been instances that the shareholder
value has declined but still the remuneration to the directors and executives has increased. There
is inclusion of the criteria for providing the Short-term incentive and long term incentive that are
being provided to the executives of the company as in this case the performances as well as some
qualitative factors are key components for the calculation of the incentives. There is assessment
of the performance of the company through the various tools and techniques such as the return
on equity, Return on investment, EPS etc. There is analysis of the remuneration with respect to
the share price of the company and whether there is inverse relation between them. There is also
measurement of the ways through which the performance is measured along with the goals and
objectives of the organisation which is to provide the maximum value to the shareholders. The
research is also being conducted on the basis of the different articles along with the comparison
of the performance.

Table of Contents
Executive Criteria..........................................................................................................................2
Introduction....................................................................................................................................5
LO (a) LO (b).................................................................................................................................6
1...................................................................................................................................................6
2...................................................................................................................................................7
3...................................................................................................................................................8
4...................................................................................................................................................9
5.................................................................................................................................................10
LO ( C)..........................................................................................................................................11
1.................................................................................................................................................11
2.................................................................................................................................................12
3.................................................................................................................................................13
4.................................................................................................................................................14
5.................................................................................................................................................17
6.................................................................................................................................................18
7.................................................................................................................................................19
8.................................................................................................................................................20
9.................................................................................................................................................21

Summary of the findings.............................................................................................................22
References.....................................................................................................................................23

Introduction
There is the inclusion of the detailed remuneration policies that are being followed by the ANZ
limited. The Components of the remuneration policy are also stated in the report for determining
how the calculation is being done for the executives. The criteria and eligibility for the short-
term incentive and long-term incentives are also being included in the report. The performance
measures quantitative as well as qualitative are provided to understand the remuneration
provided by the committee. The changes in the remuneration policy of the company are also
being stated and the factors that have led the company to reconsider the remuneration of the
executives. The calculations of different ratios are also being conducted for the measurement of
the performance along with the relation between the remuneration paid to the employees and the
performance. There is the inclusion of detailed process of the remuneration that is being
provided to the directors and executives of the company.

LO (a) LO (b)
1. Details for remuneration committee and its membership.
The remuneration of the directors and executive is based on the performance of the company.
The performance is measured on the basis of the targets and long-term goals that are achieved by
the organization annually. The remuneration report covers the Non-executive directors, Non-
Executive Director (Former) as well as the Chief executive officer (CEO) and Disclosed
Executives – Current (ANZ, 2018). Remuneration provided is based on the fixed and variable
framework designed by the board in which the variable is based on the performance that is
achieved. The performance is assessed by the board of members of the company. It can be seen
that the performance of the company increased with the adoption of the strategies leading to
better and efficient capitalization. There was also the effective management of the cost which
resulted in the better portfolio and returns. The achievement of the performance individually as
well as a whole group led to the changes in the remuneration of the Directors and executives.
The average remuneration was about 96% for the year 2017. The non-achievement of the target
to provide the return to the shareholder led to the cancellation of the rights that were provided in
the year 2013 after the testing in the year 2016 (ANZ, 2018).

2. Allocation of Executive Remuneration (Fixed pay/STIs/LTIs)
The Executive remuneration is kept motivated in order to retain them. The consumers are being
supported by the effective and efficient performance of the company. There is a specific reward
for the performance and the efficiency of the executives. The components of the remuneration
are fixed and variable. The Variable incentive that is being provided can be in terms of Cash,
Deferred Shares and Performance rights. There is the inclusion of the remuneration that is being
awarded in the year and the actually received. The Targets provided to the executives are such
that can be achieved based on which there is a measurement of the performance. The risk is
considered for the calculation of the remuneration that is being provided to the executives also
aligning with the behavior done as per the norms of the company (ANZ, 2018). The company
also look forward to the requirement of the shareholders as well as the Total Shareholder return
and the economic profit that is being earned by the company. The objectives that are being
provided by the company are determined by the group performance for the determination of the
revenue. There is weight provided for the distribution of the remuneration which includes the
Risk, Financial and discipline, Customer and people and reputation. The Year 2017 showed a
good result which shows future prospect as good and achievable.
The company has an arrangement for the short-term incentives that are being provided to the
executives. The eligibility is based on the participation taken by the executives. The amount
exceeding the AUD 100,000 half of it is received as the deferred shares to the executives. The
deferred shares received by the executives are provided evenly over the next 2 years from the
date of granting them. The Long-term incentives are provided to the selected Executives only
and granted as 100% grant shares and condition having to be deferred evenly for the three years
from the grant date (ANZ, 2018).

3. This could be used to consider the use of or weightings of Financial Performance
measures such as EPS/ROI/ROE versus non-financial measures such as balanced
scorecards etc.)
The financial performance can be determined with the help of the techniques such as the
calculation of the ratios whereas qualitative measures such as the achievement of the goals and
strategies determined by the targets provided.
The results determined through the ratios calculated of the company are as follows:-
Ratio Calculation
Particular Amount (2017) Amount (2016)
Net Profit 6,421 5,720
Total Investment 2,248 4,272
Current assets 5112 5021
Current Liabilities 8350 8865
Shareholders equity 59,075 57,927
Net Income 14,872 15,095
EPS Ratio 220.1 197.4
Return on Investment 286 134
Return on Earnings 0.25 0.26
Current Ratio 0.61 0.57
Net Profit Ratio %s 43.18 37.89
It can be determined with the help of the ratios that the performances of the company have
become better. There is an increase in the net profit ratio of the company from 37.89 in the year
2016 to 43.18 in the year 2017. The Return on investment of the company has also increased
from 134 to 286 along with an increase in EPS from 134 to 286. It can be determined that the
company has performed in an effective way. The current ratio of the company has increased
which is still an acceptable position as the Ideal ratio is 2:1.
The company is also focused on the qualitative aspect such as the achievement of the targets.
The average variable remuneration accounted for 96% of the overall target which is very much
satisfactory. Also, The company looks forward to the behavior that is being conducted with the
customers through which the performance can be determined.

4. Report any changes in Executive Remuneration Reporting – 2016 versus 2017
The change in the remuneration is based on the performance that is being achieved by the
company. For the current year, there are no changes in the fixed remuneration of the CEO’s as
well as Disclosed Executive. The new appointments which are made have less than the prior
incumbent. There are some disclosed executives of whom there is no change in the remuneration
since the Year 2014 (ANZ, 2018). The remuneration provided is based on the strategy and goals
of the organization. In 2016 there was a review of the remuneration of the CEO and disclosed
Executives based on various factors such as the market price, market condition, and shareholder
feedback and advisors etc. so that the goals can be achieved of the organization. It was decided
that there should be changes in the variable framework of remuneration for the disclosed
executives as well as the delivery of this remuneration. There was a change of variable
remuneration to 200% of their fixed remuneration and result in an increase in risk from 63% to
67% (ANZ, 2018). In case of the Disclosed executives, there is only single VR Framework
which consists of a mix the short term as well as the long-term rewards and shares deferred for
over four years after the rights tested after three years.

5. Company performance (Total Shareholder Value) versus executive pay. (This could
compare the change in company share price AND dividends or Earnings per Share versus
executive pay – e.g. Company share price is going up and pay is coming down – or visa-
versa?)
The executives are paid strictly on the basis of the performance and the goals that are being
achieved. There is a scheme of the fixed and variable remuneration. It can be seen that the pay is
based on the profit and other factors that are being achieved by the company. The better is the
performance better is the remuneration made to the executives and the other members. The
incentive is also tested after the 3 years and then the deferred is made after the 4 years equally.
There was cancellation of the incentive that was declared during the year 2017 which were tested
in the year 2016 (ANZ, 2018). There was fluctuation in the share price of the company in the last
few years which has led to some strategic changes for the better performance of the company. It
can be stated that it is not so that the share prices are increasing and the pay is coming down. The
growth of the company has also led to changes in the remuneration policy of the company of
variable component to 200% which shows the company concern over the remuneration along
with the achievement of the shareholder value (ANZ, 2018). The company is focused on creating
value for the shareholders and provide efficient returns in alignment with the remuneration.

LO ( C)
1. Research the Academic Literature using EBSCOHOST and/or other Academic Search
Engines and discover academic articles discussing methods of measuring Executive
Performance. (Note in the USA, remuneration is referred to as Executive Compensation so
you may wish to substitute this term in your searches.)
There are various ways to determine the performance of the board members of the company
which can be identified as the conducting of surveys and other questionnaires. The other ways
through which it can be measured are collecting comments, tracking of goals, and completion of
the directives. The performance of the Executive management can be measured with the help of
the results of targets that were provided to them. It can be measured with reporting and attending
of the programs. The measurement of the goals and objectives must also be achieved by the
executives Fedpartnership, 2013. There must be the achievement of the qualitative aspect also
such as the customer relationship and management. The quantitative performance can be
measured with the help of the calculation of the ratios such as the current ratio and return on
equity etc. The value to the shareholder as well as the return provided is also the parameter for
the measurement of the ratios. There was a rise in the profitability of the company and an
increase in the earning per share of the company Fedpartnership, 2013.

2. Research and discover the corporate goals of each of the companies reviewed. (Review
the Chairman and CEO’s Statements in the Annual Report and the Corporate Website for
this information.)
The goals of the organization are to be updated with respect to the technological changes that
arrive as there have been many and regular changes in it. There has been an increase in the
profitability as well as growth in the retail as well as commercial business in Australia and New
Zealand which is a good prospect for the company. The other objective of the company is to
build the trust of the community by being more transparent and establishing the committee which
was lost due to mistakes that were done. The company is looking forward to achieving the goals
and objectives so that they are able to provide value to the shareholders (ANZ, 2018). The goal
was to change as per the requirement of the factors that can affect the business of the company.
There was selling of the investment that was not fruitful. There is reshaping of the business by
the company for the better returns. The company is focussed to make the process simpler and
fairer along with the innovation in the services provided. They are also looking forward to
creating a culture that can support the strategy of the company and facilitate the achievement of
goals that are being established.

3. Research and discover how the senior managers are having their performance assessed.
The CEO and top 5-10 executives will usually be listed.
In the business, there are senior managers who are involved in all the processes and so it is
required that their performance shall be properly evaluated. This is because on the basis of this
only the success of the company is dependent. All the members of the board are as follows
(ANZ, 2018) :
Chairman (Non-Executive): David Gonski, AC
Non-Executive Director (Independent): John Macfarlane
Non-Executive Director (Independent): Ilana Atlas
Non-Executive Director (Independent): Jane Halton, AO, PSM
Non-Executive Director (Independent): Graeme Liebelt X
Non-Executive Director (Independent): Paula Dwyer
Non-Executive Director (Independent): Lee Hsien Yang
CEO (Executive): Shayne Elliott
The performance of the company in relation to them is assessed at the end of the period. In this,
the performance is analyzed on the basis of the targets which are set and progress which is made
so that the strategic goals can be achieved in long run. The performance of the manager can
assess at the year-end. All the targets are taken and then the comparison is made so that it can be
identified that they are attained or not by the members in an effective manner.

4. Discover the performance of the company from a shareholder’s perspective by reviewing
growth (or decline) in the company’s share price and dividends paid. (Use a copy of the
share price chart for the past 3 years)
It is important for the shareholders that the prices of the shares are increasing and they are fewer
fluctuations in the same. The increase in the share price with regular dividend can be concerned
as positive for the shareholders.
The Share price of the ANZ Bank can be seen very much fluctuating with a huge dip in the year
2015 which can affect the shareholders thinking regarding the company. There was the regular
distribution of the dividends by the company which was a satisfactory position (Reuters, 2018).
Date Share Price
(A$) Dividend
1/1/2015 32.090
2/1/2015 33.000
3/1/2015 35.360
4/1/2015 36.320
5/1/2015 33.860 3.550
6/1/2015 32.980
7/1/2015 32.350
8/1/2015 32.740
9/1/2015 27.700
10/1/201
5 27.250
11/1/201
5 27.160 0.950
12/1/201
5 27.060
1/1/2016 27.870
2/1/2016 24.480
3/1/2016 22.420
4/1/2016 23.140
5/1/2016 24.020 4.020
6/1/2016 25.120
7/1/2016 24.260
8/1/2016 25.840
9/1/2016 26.740
10/1/201 27.710

6
11/1/201
6 27.760 0.800
12/1/201
6 28.480
1/1/2017 30.450
2/1/2017 29.300
3/1/2017 30.800
4/1/2017 31.720
5/1/2017 32.750 3.580
6/1/2017 28.010
7/1/2017 28.710
8/1/2017 29.630
9/1/2017 29.600
10/1/201
7 29.740
11/1/201
7 30.090 3.560
12/1/201
7 28.620
1/1/2018 28.630

0.000
5.000
10.000
15.000
20.000
25.000
30.000
35.000
40.000
32.090
33.000
35.360
36.32033.860
32.98032.35032.740
27.70027.250
27.160
27.060
27.870
24.480
22.42023.140
24.020
25.120
24.260
25.840
26.740
27.710
27.760
28.48030.450
29.300
30.800
31.720
32.750
28.010
28.71029.630
29.600
29.740
30.090
28.620
28.630
Share Price (A$)
Share Price
(A$)
The share prices of the company are not stable which is not a satisfactory position for the
shareholders. The company is able to provide the dividend to the shareholders regularly as stated
in the above table which helps to maintain the trust of the shareholders.

5. Research commentary on the company’s performance (see newspaper and other
reputable financial information sources – all MUST be referenced) and document (cut and
paste as referenced materials (use JPEG images of screen grabs/scans etc.) a few (no more
than THREE!) to enter into your report.
According to Pwc, (2016) it could be seen that the impact of the financial crisis could be seen in
the performance of the organization. The return on equity of the company declined by a margin
of 127 basis points resulting in 13.75%. There was also decline in bps you by 118 points and oh
by 29bps. There was some growth also in the credit is 5.4% p.a. There was growth in the year
2015 at the annual rate of 9.1%. There were steps taken in order to maintain the net interest
margin in the pricing policy of the company. It can be summarised that there was a downfall in
the cash earnings, return on equity, net interest margin but increase in the combined common
equity, bad debts expenses, and expenses to income ratio (Pwc, 2016).
According to KPMG, (2017), the growth of the companies in terms of lending become slow at
the starting of the year but increased after the midyear. The effects of the government policy
were also mixed at the moment that affected the business. There was a decrease in the margin of
the sector along with a decrease in the impairment due to change in the criteria which was a
positive thing. There was a decline in the confidence business index of the ANZ Limited to -38
in the month of December. The company has the highest net income metric being net income of
$3.08 billion.

6. Reflect and COMPARE the information given in the most recent year’s annual reports
to that given 3 years prior. You should focus on whether there is an increasing level of
disclosure for your allocated company, or the same amount and/or a decline in
transparency. Thoroughly report your findings and present your comparisons.
It can be stated with the help of the report that there is adequate disclosure in the annual report of
the company. There is disclosure as per the APS 330 Pillar III disclosure. The fair value of
expenses is being determined through the calculation of the Volume Weighted Average Price.
There is disclosure of the 5 highest paid executives in the annual report of the company being the
disclosed executive and group executive. There is proper disclosure keeping in view the
requirement of APS 330 in disclosure section of the annual report (ANZ, 2018). There is a
payment made with respect to the premiums which are added benefit for the directors and
employees of the company. There is non-disclosure of the amount that is being insured and
premium paid as per the norms of the insurance company. The company is looking forward to
making the financial note disclosure as simple as possible so that they are easily understood by
the shareholders of the company. The preparation of the financial statement is in accordance with
the Australian Accounting standard board, Corporation Act 2001, and International reporting
standards (IFRS). The disclosure of the Insurance contracts was on the basis of AASB 4
Insurance Contracts, AASB 1023 General Insurance contracts and AASB 1038 Life insurance
contracts which will be replaced by AASB 17 (ANZ, 2018).

7. Your group should write up your findings AND conclude if your company is being truly
transparent and if it is producing a ‘good’ result for the shareholders. In essence, you are
concluding whether you believe their management control systems are working
The company is performing inadequate manner and the results are produced in such manner
which is beneficial for shareholders. This can be said as an increase of 18% has been
experienced in 2017 in terms of the cash profits which are made. By this, the proper balance is
created and aimed at becoming a centralised and efficient bank. The company is being
transparent as there are proper cost management discipline and risk management. The variable
remuneration of the company is 96% of the targets and this is a good achievement and this has
been provided in the report which ensures that proper transparency is maintained (ANZ, 2018). It
can further be proved as the HR committee is having access to the financial and risk control
persons and by this, all the disclosures will be made appropriately and true picture will be
presented by the board to all the shareholders. The NED’s were there in a board that looks after
risk as well as HR committee. All the contracts are made appropriately in which the disclosures
of all the policies related to the executives is provided which ensures that nothing is hidden in the
company.

8. The GROUP should then write up a comparison (analyse, compare, AND contrast
approaches) for each of the year’s results.
It can be seen that there is a decline in the interest income of the company in comparison to the
previous year 2016 but the net operating income of the company has increased with a huge
margin from $3146m to $3601m (ANZ, 2018). The slow pace at the beginning of the year, as
well as the strengthening of the ways for providing the profit, has affected the interest income in
a negative way but it is beneficial too as it helped to maintain a good Asset Ratio. The company
did revaluation in the prices which led to increase the profit before tax. The treatment of the
impairment expenses helped in the writing of the assets at the fair value. There was a decline in
the credit impairment charges resulting in an increased profit before tax. The profit before tax
increased from $8178m to $9627m along with an increase in the profit of the year from $5720m
to $6421m (ANZ, 2018). The profit attributable to the shareholders also increased which is a
positive sign for the shareholders from 197.4 to 220.1 and dividend being per ordinary share to
be 160 cents. The shareholder equity increased from 28,765 to 29,088 along with the increase in
the retained earnings of the company.

9. Finally, draw conclusions on whether the company’s performance measurement systems
are producing results for the shareholders. (Note – there may be more than one conclusion,
e.g. The company is producing higher share price growth, or perhaps higher brand
awareness, or repairing past errors and rebuilding value or producing both better financial
returns AND dividends etc.)
It can be concluded that the performance of the company with respect to the shareholder is
satisfactory. The company is able to provided a dividend to the shareholders of the company
which is a positive approach. The company has recently lost the trust of the community which
they are looking forward to achieving the same by providing transparency in the process that is
being carried out. The company wanted to achieve the goals and objectives so that the
shareholder value can be increased and good returns can be provided. The company is also
following all the disclosure policies with respect to the remuneration of the executives,
preparation of the financial statements as per the proper standards and guidelines that by the
governing authorities (ANZ, 2018). The share price of the company has been very much
fluctuating which increases the risk of the shareholders but the company is looking forward to
implementing the strategies which not only helps in achieving the goals and objective but also
provide higher returns to the shareholders. There was a high dip in the share price of the
company but it was recovered by the company and the share price increased. The financial
returns of the company are satisfactory as there is an increase in the net profit of the company
along with the earning per share.

Summary of the findings
The findings of the above report are that there are two components of the remuneration that is
fixed as well as the variable component. The quantitative measure such as the achievement of the
targets and goals and objective as well as the qualitative measures such as the behavior in
accordance with the company norms are equally important for the purpose of the variable
remuneration. It can be seen that the dip in the share price of the company and the remuneration
of the executives are linked as it is based on the better performance and achievement of the
targets that are provided by the company. It can be determined that the performance of the
company is suitable with the increase in the net profit of the company along with the
management of the cost-effective strategies which helped in being more stable and balanced. The
future of the company looks positive and effective with the adoption of the strategies.

References
 ANZ, 2018. Annual Report. ANZ. [Online]. Also available at
http://shareholder.anz.com/annual-report-annual-review. Accessed on [08-05-2018]
 Arkan, T., 2016. The importance of financial ratios in predicting stock price trends: A
case study in emerging markets. Finanse. Rynki Finansowe, Ubezpieczenia, (1), p.79.
 Fedpartnership, 2013. Measuring Performance: Board and Executive Management.
Fedpartnership. [Online]. Also available at https://www.fedpartnership.gov/bank-life-
cycle/grow-shareholder-value/measuring-performance_board-and-mgmt. Accessed on
[08-05-2018]
 KPMG, 2017. Financial institutions Performance Survey Review of 2017. KPMG.
[Online]. Also available at
https://home.kpmg.com/content/dam/kpmg/nz/pdf/February/FIPS_banks_2017_int_v4.pd
f. Accessed on [08-05-2018]
 Pwc, 2016. Banking Matters. Pwc. [Online]. Also available at
https://www.pwc.com.au/publications/assets/major-banks-analysis-11-nov-2016.pdf.
Accessed on [08-05-2018]
 Reuters, 2018. Australia and New Zealand Banking Group Ltd (ANZ.AX). Reuters.
[Online]. Also available at https://www.reuters.com/finance/stocks/chart/ANZ.AX.
Accessed on [08-05-2018]