Executive Remuneration and Bank Culture

This assignment analyzes the influence of executive pay on Westpac's corporate culture. It delves into the bank's annual report to assess how performance-based incentives impact executive compensation, and examines media coverage regarding regulatory scrutiny and public perception of executive remuneration within the banking industry. The analysis considers the potential consequences of this dynamic on Westpac's overall conduct and culture.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
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Executive Summary
The current piece of work presents a thorough analysis of remuneration strategy in Australia
with special reference to the operations of the firm Westpac Banking Corporation (WBC).
This helps in gaining understanding regarding executive pay and remuneration and explores
different measures of performance. This segment presents details of the performance
measures that are utilized in the firm Westpac Banking Corporation (WBC) and appraises the
yardsticks and scorecards together with the utilization of different non-financial measures.
Thereafter, this study also reassesses the available company literature presented in the annual
report to study varied aspects of dimensions and methods used as yardsticks and scorecards
for analysis of executive pay. Thus, this study acquires several details about the dimensions
used. Furthermore, the study also presents media reports and perspectives of analysts to
investigate any kind of public discussion about the remuneration of the pertinent executive.

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Table of Contents
Introduction................................................................................................................................4
Review of topic:.........................................................................................................................4
Review of literature:...................................................................................................................5
Conclusion................................................................................................................................10
References................................................................................................................................11

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Introduction
The current study presents a thorough analysis of the remuneration report of the company
Westpac Banking Corporation (WBC) to gain understanding regarding executive pay and
remuneration. This segment presents details of the performance measures that are utilized and
evaluates the benchmarking and scorecards along with the use of different non-financial
measures. Moving further, this study also reviews the available literature on diverse aspects
of methods utilized for analysis of executive pay and acquires several details about the
dimensions used. Furthermore, the study also presents media reports and perspectives of
analysts to investigate any kind of public discussion about the remuneration of the pertinent
executive.
Review of topic:
The topic under consideration illustrates existing literature on remuneration of the company
Westpac Banking Corporation (WBC). Detailed review of the remuneration report reveals the
fact that remuneration strategy of the firm Westpac Banking Corporation (WBC) is designed
and developed to attract and at the same time retains talents. The management of the firm
follows a remuneration strategy aimed at retention of experienced, qualified members of the
board and policies to remunerate them properly. In essence, the remuneration policy of the
group supports the vision as well as strategy by means of requiring the design and
administration of remuneration to align with the customer and interests of shareholders.
WBC has a remuneration Committee that aids the board to satisfy the remuneration
accountabilities to diverse shareholders by monitoring the policies of the remuneration as
well as practices of the entire group, exercises of the external remuneration, market
expectations and regulatory necessities in Australia and globally.

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Review of literature:
Analysis of the company literature presenting remuneration report of the company Westpac
Banking Corporation shows that the performance of each segment is analysed and
enumerated with orientation to the manner risk is handled (Maas and Rosendaal 2016).
Additionally the outcomes are also expected to influence remuneration outcomes for
accountable workers. Both the board as well as the remuneration committee identifies the
scorecard approach at the time of accepting a range of complementary performance
objectives, may not help in absolute assessment of overall performance. The remuneration
committee therefore uses discretionary adjustments to the scoreboard outcomes for both the
CEO as well as group executives (Deschenes et al. 2015).
The Group balanced scoreboard uses different measures namely, economic profit, core
earnings growth, capital management and adherence to group risk appetite management. In
addition to this, the balanced scorecard also uses service resolution, growth highways, digital
transformation, people and sustainability as measures of performance (Safari et al. 2016).
The group stressed over the return over growth and necessities of capital together with the
credit risk weighted assets (Storey 2014). The dimension of economic profit that referred to
the underlying returns that generate value for company ‘shareholders have 30% weight and
assessment of performance is done by analysing the gap between target and achieved.
Similarly core growth in earnings indicated by the revenue growth and corresponding
expenses of the firm has 10% weight. The performance of the CEO is also evaluated by
analysing smooth delivery of consistent as well as sustainable growth in company’s core
earnings Westpac.com.au. (2018).

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Performance disciplines are also enumerated by examining management of capital that helps
in providing strong, stable as well as sustainable capital foundation based on which business
can grow. Declarations show that Capital as well as liquidity positions are well positioned to
satisfy novel necessities and it has 10% weight in analysing performance (Riaz et al. 2015).
Again, compliance to the risk appetite statement also helps in making certain that the
company can operate within the acceptable limit of risk tolerance (Gitman et al. 2015). This
dimension carries 10% weight in evaluating performance in terms of external risk, regulatory
as well as compliance environment Westpac.com.au. (2018).
In addition to this, service resolution also helps in placing customers at the core of everything
they perform and act as an effective measure of the performance in the scorecard. In addition
to this, building highways of growth can help in securing upcoming growth in specifically
earnings. This carries 10% weight in the scorecard for measurement of performance of CEO.
The measure of digital transformation can be considered to be a good measure that analyses
the solutions that estimate the requirements of the customers. WBC has attained productivity
savings by means of digitising actions and transactions, lessening manual actions and
enhancing e-statements. This segment also shows that the company upgraded the Cyber
security Coordination Centre for better detection to worldwide trends, novel call centre
framework that can materially enhance the experience of calling WBC (Westpac.com.au
(2018).
In addition to this, “the segment of people” in the scorecard bears the weight of 10% and is
used in analysing the environment that inspires then employees to perform to the best of the
capabilities and simultaneously drives the correct behaviour. The company has been declared
as the Dow Jones Sustainability Index’s most sustainable institute for 4th consecutive year.

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.
Table: Reward Structure

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(Source: Westpac.com.au 2018).
Table: Performance Scorecard
(Source: Westpac.com.au 2018).

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The total reward structure of the firm WBC shows performance along with governance as
well as risk adjustment overlay. The annual report replicates the fact that the performance is
necessarily examined by the firm’s board with orientation to the risk management strategies
of the group and its diverse divisions.
Table: Reward Structure
(Source: Westpac.com.au 2018).
Analysis of the reward structure shows that in variable reward section, both financial as well
as non-financial performance is in line with the strategy of WBC over the short as well as the
medium term period. In STI (short term incentive) economic profit, outcomes of customers,
people as well as sustainability are used as specific dimensions. Again, TSR is used as a
performance measure in long term incentive (LTI) of the variable reward structure of the
firm. Again, ROE intends to reward specific achievement of earned returns that is over and
above the capital cost whilst generating value of shareholders (Westpac.com.au 2018).

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Considerable work is undertaken on particularly conduct as well as culture with concentration
on strengthening conduct management throughout the group. The Media report shows that
the company is responding to the altering regulatory as well as industry landscape with
specific initiative on product remediation program, instituting Australian Bankers’
Association industry proposals and augmenting the remuneration framework. Again, an
article published in November 2017, from the Financial Review mentions that the bank
inquiry has the need to handle the way the banks disburses the executive pay and need to be
put under microscope.
Conclusion
According to the report, the main driver of the culture of the bank is the pay package of the
executives. Based on this, it can be said that the enhanced performance of the financial
performance of the Group and outstanding strategic advancement led to a increase in short
term incentives that is payable to chief management personnel during this year. Therefore the
Board needs to take into account that, on the whole, performance through out a wide range of
dimensions surpassed documented expectations. Therefore, it is important to take into
consideration the remuneration structure and the outcomes thereby gained from the pay
packages. Analysis of the annual report of the firm also replicates the fact that the long term
incentives of the firm also did not vest since the extending obstacles that was set by the board
at the time when the incentive were first declared during the year 2014 were not attained. As
such, these long term incentives might typically consist of one third of the remuneration of
the executive

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References
Deschenes, S., Boubacar, H., Rojas, M. and Morris, T., 2015. Is top-management
remuneration influenced by board characteristics?. International Journal of Accounting &
Information Management, 23(1), pp.60-79.
Edmonds, T.P., Edmonds, C.D., Tsay, B.Y. and Olds, P.R., 2016. Fundamental managerial
accounting concepts. McGraw-Hill Education.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Maas, K. and Rosendaal, S., 2016. Sustainability targets in executive remuneration: Targets,
time frame, country and sector specification. Business Strategy and the Environment, 25(6),
pp.390-401.
Riaz, Z., Ray, S. and Ray, P., 2015. The Synergistic Effect of State Regulation and Self-
Regulation on Disclosure Level of Director and Executive Remuneration in
Australia. Administration & Society, 47(6), pp.623-655.
Safari, M., Cooper, B.J. and Dellaportas, S., 2016. The influence of remuneration structures
on financial reporting quality: evidence from Australia. Australian Accounting Review, 26(1),
pp.66-75.
Storey, J., 2014. New Perspectives on Human Resource Management (Routledge Revivals).
Routledge.
Westpac.com.au. (2018). Annual reports | Westpac. [online] Available at:
https://www.westpac.com.au/about-westpac/investor-centre/financial-information/annual-
reports/ [Accessed 6 Jan. 2018].

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Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & Managerial Accounting.
John Wiley & Sons.