Managerial Accounting: Remuneration Approaches

This paper analyzes and compares the remuneration approaches used by Saracen Mineral Holdings and Newcrest Mining Ltd. in terms of their effectiveness in encouraging higher performance by executive teams and translating to higher company performance.

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MANAGERIAL ACCOUNTING (REMUNERATION APPROACHES)
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Introduction
The main purpose of this paper is to analyze and compare methods of remuneration used
by Saracen Mineral Holdings and Newcrest Mining Ltd. In this report, an analysis of how well
the approaches of each company worked in encouraging higher performance by the executive
teams is given. In addition, this report considers whether or not this performance translated to
higher performance of the companies.
Remuneration Approach of Saracen Mineral Holdings
According to its 2017 financial year annual report, Saracen Mineral Holdings has a
remuneration target positioning which is set at the 50th percentile against the market. The
company’s STI is set at a maximum of twenty-five percent (25%) for its Chief Executive Officer
(CEO), and at forty-two percent (42%) for other Key Management Personnel (KMP) of the
company. The company achieved a hundred percent (100%) of its Long Term Incentive (LTI)
targets that had been set for the past three financial years (Saracen Mineral Holdings 2017, pp.
29).
The company mainly uses performance linked approaches of remuneration such as Long
Term Incentives and Short Term Incentives. For instance, in its Long Term Incentive
remuneration approach, Saracen Mineral Holdings rewards its executive employees and key
management personnel using performance payments and equity payments, for exceedingly
meeting their set targets and objectives. The company also uses other short term incentives such
as cash payments for remunerating its staff (Hilton & Platt 2013, pp. 23). These incentives are
meant for rewarding the key management personnel of the company in order to motivate them in

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achieving their individual as well as group targets, thus enhancing achievement of organizational
success (Bussin 2014, pp. 14).
The performance linked remuneration approach used by Saracen Mineral Holdings in
rewarding its executive teams motivated them to achieve higher performance, which led to
improved performance of the group company in general (Gitman, Juchau & Flanagan 2015, pp.
10). The company achieved a Total Shareholder Return (TSR) of 832%, which gave it the first
place in its peer group. This is primarily attributed to its attractive remuneration methods and
incentives (Saracen Mineral Holdings Limited 2017, pp. 29).
According to the 2017 financial annual report for the company, Saracen Mineral
Holdings Limited recognized an increase of $2,497,000 in the financial year ending 2017. This
was a percentage increase of 9.65% (Saracen Mineral Holdings Limited 2017, pp. 76). Although
the company does not have a history of dividends paid to its shareholders during the financial
year ended 2017, its share price is currently at $1.855, which is a competitive price as compared
to its peers in the industry. These significant improvements in the profits, share price and
dividends paid by the company can be associated with competitive rewards and remuneration
incentives given to its executive team for upon achievement of organizational excellence
(Saracen Mineral Holdings Limited 2017, pp. 2).
Regarding its business growth, Saracen Mineral Holdings Limited has been focusing
mainly on increasing generation of profits and cash (Hill, Jones & Schilling 2014, pp. 9). The
company has recorded an improved and expanded production that has made an active
contribution in led to realization of more revenue through its positive gold price environment, as
well as its declining costs. This enormous business growth has been significantly attributed to

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great motivation resulting from the attractive remuneration packages rewarded to its executive
team and Key Management Personnel (KMP) (Parrino, Kidwell & Bates 2011, pp. 12).
Remuneration Approach of Newcrest Mining Ltd
The remuneration method of Newcrest Mining Ltd is quite similar to that of Saracen
Mineral Holdings. However, there are significant differences in the trends of the approaches used
in the two companies. For instance, the Short Term Incentive (STI) outcomes of executives for
Newcrest Mining Ltd during the financial year ending 2017 were kept in the range of fifty-seven
percent (57%) to sixty-nine percent (69%) of their potential maximum allowed. Additionally,
during the year 2017, the company increased the Total Fixed Remuneration (TFR) to three of its
nine executive team members. According to the remuneration report of the company, the Chief
Executive Officer (CEO) received Increased TFR that resulted from annual review of his salary,
which was consequential to remuneration benchmarks of his salary against the market practices
for this role (Newcrest Mining Ltd. 2017, pp. 74).
This remuneration approach for Newcrest Mining Ltd is believed to have encouraged its
executive teams in achieving higher performance. For instance, the company achieved Total
Shareholder Return (TSR) of one third of its Long Term Incentive grants. Additionally, the
company has maintained positive free cash flows in all its operating sites during the financial
year ending 2017. This indicates that the company has an improved overall performance
(Newcrest Mining Ltd. 2017, pp. 74).
In conclusion, as discussed above, the methods or approaches of remuneration used by
the two companies are quite similar but slightly different.

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References
Bussin, M., 2014. Remuneration and Talent Management: Strategic compensation approaches
for attracting, retaining and engaging talent. Knowres Publishing.
Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated
approach. Cengage Learning.
Hilton, R.W. and Platt, D.E., 2013. Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Newcrest Mining Ltd., 2017. Newcrest Mining Limited annual report 2017.
Parrino, R., Kidwell, D.S. and Bates, T., 2011. Fundamentals of corporate finance. John Wiley
& Sons.
Saracen Mineral Holdings, 2017. Saracen Mineral Holdings Limited annual report 2017.
Saracen Mineral Holdings Limited, 2017. Retrieved from
https://www.investsmart.com.au/shares/asx-sar/saracen-mineral-holdings-limited