Methods to Evaluate Executive Performance: Seek Group vs Ambition Group

This report analyzes the different methods used by public companies to evaluate executive performance and set remuneration. It compares the methods used by Seek Group and Ambition Group in the commercial and professional services industry. The report also reviews the corporate goals, performance assessment of senior executives, allocation of executive remuneration, and performance from a shareholder's perspective.

Seek Company
T218 Group assignment task
Specification: ACC702 PG – Managerial Accounting
Name of the Author-
University Name-

Table of Contents
EXECUTIVE SUMMARY........................................................................................................3
INTRODUCTION......................................................................................................................3
REVIEW OF TOPIC AND REVIEW OF LITERATURE........................................................3
Company review........................................................................................................................5
CORPORATE GOALS..............................................................................................................6
ASSESMENT OF PERFORMANCCE OF SENIOR EXECUTIVE........................................6
ALLOCATION OF EXECUTIVE REMUNERATION...........................................................8
PERFORMANCE FROM A SHAREHOLDER’S PERSPECTIVE:........................................9
COMPANY EPRFORMANCE VERSUS EXECUTIVE PAY................................................9
SUMMARY OF FINDINGS...................................................................................................10
ANALYSIS AND COMPARISON OF REMUNERATION METHODS USED..................10
CONCLUSION........................................................................................................................11
REFERNCES...........................................................................................................................11
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EXECUTIVE SUMMARY
The report focuses on the dealing with the different methods which public company
uses to evaluate the executive performance. There areVarious methods like the balanced
scorecard, management by objectives, human asset accounting, and the graphic rating are
discussed. An analysis is made of the methods used by the two companies in the line of
commercial and professional services, namely the Seek Group and the Ambition Group. The
analysis have shown that the balanced score card method used by the Seek Group had
provided long lasting and sustainable company growth. Whereas the management by
objective method used by the Ambition group has failed to achieve good results and is unable
to revive the company from declining growth.
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INTRODUCTION
The current report studies the different methods available to the company to evaluate
the performance of the executives. The success provided by these different methods in terms
of shareholder return and management motivation perspective is also studied. The corporate
goals of the company under discussion i.e. Seek Group are researched with the help of the
statements of chairman and CEO. The same is done for the competitive company named
Ambition Group. Both the companies are in the industry of commercial and professional
services. The initial section details the various options available to the company to evaluate
the managerial performance and set remunerations. After this, the review of company is
made, that includes the details of remuneration committee, membership, executive
remuneration allocation, etc. are analysed. A conclusion is made as to whether the company’s
performance is being improved because of the remuneration programme. A comparison
relating to the remuneration policies of both the companies and the success attained is made.
The best method among the both is mentioned thereafter. The conclusion is placed at the end
of the report. It mentions the company that has undertaken the best policy and how it has
helped the business to achieve success. This report has been prepared on the basis of the
financial details, annual report and remuneration report of Company.
REVIEW OF TOPIC AND REVIEW OF LITERATURE
All the organisations of Australia that are publically listed need to form a
remuneration committee. The role of this committee is to formulate strategies to evaluate the
performance of the executives of the company and at the same time set the basis for
remuneration. The various methods are being used by these remuneration committees to
measure the performance of the executives. These are mentioned as follows:
 THE BALANCED SCORECARD: This method tried to evaluate the performance by
bringing a balance in different components. The company’s performance is analysed on the
basis of four different components. If there seems any improvement in the overall
performance based on these components, the managers are appraised with better incentives.
Else, any declining performance sets the executives’ bonus at stake. The different
perspectives among which a balance is strived to be achieved include:
o Financial perspective: The main growth area as assumed here is that of profit made and the
market share captured. The performance is assumed to have improved, if both these
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components show an improvement. It is analyzed that company has improved its business
performance by increasing its overall turnover and profitability at large. However, company
o Learning and innovation perspective: this perspective emphasises the need of the organisation
to add value by adding innovation and improvement. It has increased its profit by average
12% since last three years.
o Customer perspective: Herein, the measurement of the level of satisfaction among customers
is observed. It is used to analysis the value, social structure and belief of the clients with the
offered goods and services in market.
o Internal business perspective: this is all about the focus on those internal operations through
which the customers’ needs coud be satiated (Zizlavsky, 2014).
This method proves to be successful because of its ability to measure an employee’s
performance from an overall perspective and not from a single area. Herein, the best part is
the alignment of the achievement of organisational goals with the executive performance.
This stands as a motivation for the management. At the same time it helps in increasing the
profit level that stands as an improvement in the shareholder value (Cooper, Ezzamel, and
Qu, 2017).
 HUMAN ASSET ACCOUNTING METHOD: this method is 90% related to profitability of
the company. The termination or promotion of the employee directly depends on the factors
related to that individual performance itself. These performance criteria include the revenue
contribution by that executive, or the number of customers satisfied by him, or the sales lead
generated by him. A complete track of the employee performance is required to be
maintained (Stanko, Zeller, and Melina, 2014).
This method tends to be successful in motivating the executive because his performance is
directly linked to the incentives that he will be getting. However, the shareholder value is also
improved as the increased revenue means increased profits and hence increased returns
(Pucci, Simoni, and Zanni, 2015).
 MANAGEMENT BY OBJECTIVE: in this method, goals are already set up for every
executive and a track is made as to what is eventually achieved by him. The goals are set in
accordance with the organisational goals (Uduji, 2013).
This proves to be successful in motivating employees because the executive is already aware
of the returns expected from him. So he will be motivated to perform as best as he can.
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Further due to his improved performance the profitability shall increase and that shall lead to
a raise in the shareholder return.
 GRAPHIC RATING SCALES: this method involves rating of the customers by using a scale
from 1 to 5. The rating is to done on different grounds including the job duties of the
executive and the related performance standards. This method is relatively judgemental and
depends on the judgement of the work’s supervisor (Aggarwal, and Thakur, 2013).
The executives get employed to perform better by this method as they are always intended to
improve their ratings and gain an edge ahead than the rest executives. And this competition to
get a better rating helps in increasing the ultimate wealth and return for shareholders
(Mwema, and Gachunga, 2014).
Company review
The table presented below is all about the review of remuneration report made for the
company assigned i.e. Seek Group. Further, the details for the same grounds are also laid for
the chosen competitor company, Ambition Group. This is used to analysis the amount of
compensation given to employees and how company has been aligning the interest of the
employees with the organization development.
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SEEK GROUP AMBITION GROUP
CORPORATE
GOALS
The company is keen to
continually bring innovation in
the service provision. The goal is
to achieve high end results even
when markets are low growth
oriented. Long term value is
sought to be created from the
present day investments.
Increasing the market share is the
top most priority at current date.
Along with profit generation, the
society welfare from the day to
day business activities is in the
priority line. This has aligned the
interest of the employees with the
organization’s development
(Crowther, 2018).
The company’s financial insights
have reported several declines as
compared from the previous
financial year. The revenue, net
income, earnings attributable to
members and the EBITDA have
all declined. This is a major
concern, and the company at has
for the coming financial years
made a goal to improvise the
operations to do away the current
losses. The company has worked
on adding new clients to boost
the revenue for the coming
financial year 2018. Company
has focused on achieving the
corporate objectives with the
organization stakeholder’s
development (Hooghiemstra,
Kuang, and Qin, 2017).
ASSESMENT OF
PERFORMANCC
E OF SENIOR
EXECUTIVE
A R Bassat is the CEO of the
group and G I Roberts is the
group CFO. Looking at the
remuneration report of the
company, it appears that the group
is following the BALANCE
SCORECARD METHOD to
evaluate the performance
(Hansen, and Schaltegger, 2016).
The company’s remuneration
Nick Waterworth is the CEO of
the group and Laurent Toussaint
is the CFO. For the Ambition
group, only the CEO is executive
personnel. As analysed from the
remuneration report of the
company, the method used by the
company to measure the
performance of the executive
seems to be the
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structure is based on the company
performance. The challenges that
the executives face in the day to
day business activities are
measured by the effort they take
to achieve the desired results. The
performance is to be measured for
long term basis. The company has
integrated the executive
performance with the overall
return to the shareholders. Every
increase in the return that the
shareholders get shall raise the
remuneration bar for the
executives. A performance hurdle
is set in the remuneration report
which is must to be met if the
executive want to avail the long
term incentive criteria. The
performance is evaluated in terms
of the change in share price. The
bonus and incentives plans are
given to employees on the basis of
performance and outcomes given
to organization.
MANAGEMENT BY
EXECUTIVE METHOD. On an
annual basis, a criteria is laid in
agreement with the executive.
This criterion is based on the
performance of the relevant
operational division, for which
the executive is accountable and
it align the interest of the
executives and their rewards with
the accomplishment of the set
targets and goals.
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ALLOCATION OF
EXECUTIVE
REMUNERATION
FIXED PAY: the fixed pay
comprises of the base salary and
the superannuation amount. This
amount cannot exceed 50% of the
total remuneration. This is the
base amount that is provided with
an intention to keep employees
motivated to work even in the
challenging circumstances.
SHORT TERM INCENTIVES:
there are no STIs provided to the
executives. However, instead of
them the 25% of total
remuneration is paid in the form
of equity rights. The qualifying
period for these shares is 12
months and further lock in period
is set as 12 months too. This
makes the trade restricted for a
total of 24 months.
LONG TERM INCENTIVES:
25% remaining remuneration is
paid in form of LTIs. It is again
equity based, but the vesting
period here is of three years with
further lock-in time of 12 months.
The total restricted tenure
amounts to four years hence.
FIXED PAY: the company is
paying a fixed base to the
executive CEO for his role as the
key managerial personnel. The
Fixed pay is part of the basics
given to CEO for his work.
SHORT TERM INCENTIVES:
the short term incentives are
based on the performance of the
executives. These comprise of
the short term bonuses and non-
cash benefits. This incentive
plans and given benefits are
based on the performance of
company.
LONG TERM INCENTIVES:
The long term incentives
comprise of the Ambition
Employee Share Incentive Plan.
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PERFORMANCE
FROM A
SHAREHOLDER’
S PERSPECTIVE:
The analysis for the
growth or decline
that company as
witnessed from the
point of view of the
shareholders is
presented by the use
of the share price
chart for the past
three financial years.
The dividend paid by the
company has increased from $140
million (approx.) to $189 million
(approx.). This dividend payment
includes the bonus and employee
stock option given to executive
(Pelger, 2016).
The dividend paid by the
company has remained almost
same for these financials years.
The amount reported is
$672,000. It reflects that with the
increase in the benefit company
has also increased the overall
benefits for its stakeholders (Rao,
and Tilt, 2016).
COMPANY
EPRFORMANCE
VERSUS
EXECUTIVE PAY
The share price of the company
has risen from $14.06 in for
financial year 2015 to $ 16.91 for
financial year 2017. Growth is
reported in the basic earnings per
share from $56.3 in financial year
2015 to $ 63.5 in financial year
2017. This growth has
significantly led to a rise in the
pay of the executives as all the
payments are somehow linked to
the company performance. The
The company performance over
the three financial years ending
with financial year 2017 has
declined. The share price has
come down from $18 to $16.
This has resulted in a decline in
the basic earnings per share from
$1.71 to $0.52. The remuneration
or executive pay has followed the
same declining trend. The reason
is obvious that the performance
bonuses are eliminated or
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growth in the incentive scheme
and increased business payment
has reflected that it has focused on
increasing the overall outcomes
and efficiency in long run (Kent,
Kercher, and Routledge, 2018).
declined with the decreased
returns. Further the eligibility
criteria for the Ambition
Employee Share Incentive Plan
are also not fulfilled. These
incentive plans and undertaken
strategic approach provide the
increased motivation to its
executives.
SUMMARY OF FINDINGS
The Seek Group has adopted an effective measure to evaluate the executive
performance and the basis of remuneration. The way remuneration is allocated highlights the
high end approach followed by the management to achieve results in terms of higher
company performance. The approach of the company’s remuneration programme is very
simple to understand both by the executives and the shareholders. It is a short and
summarised structure. The Seek group has adopted employee oriented remuneration pay
which motivates employees to push themselves for the best outcomes of the organization
(Hyndman, and McConville, 2016).
The basic components as discussed above include the basic pay, the superannuation
payment and the equity rights. The time the holder of the equity right has to wait in terms of
vesting period and the lock in period is also mentioned without any doubts. The approach
adopted had been highly effective in helping the company to attract the talented
professionals. This is also helpful in retaining and motivating them to perform better than
before. The base figure offered to the executives has been set at a level to encourage them to
work effectively and remain motivated in the challenging scenarios. It is the lead given to
keep them active throughout. The equity rights and superannuation payment is provided as
long term benefit plan for its employees which will increase the overall outcomes and
efficiency of company in long run (Doni, Gasperini, and Pavone., 2016).
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The long term incentives offered to the executives relate to the rewards that are
offered in the form of equity. The equity is the same as what is offered to the shareholders.
As a result, the executives in order to attain highest possible return need to perform in a
manner that adds wealth for the shareholders. The same wealth is created for them as they
also own that equity. The lock in period is long which promotes performance that yields
sustainable results. This stands as a motivator to continually improve the average share prices
(Dankova, Valeva, and Štrukelj, 2015).
There are no short term incentives; because the company feels the long term
organisational goals need a consistent approach. The short term incentives rest on the short
term performance based on short term goals. These goals are not consistent and hence
sometimes divert the executives from the main goals (Peng, and Röell, 2014).
ANALYSIS AND COMPARISON OF REMUNERATION METHODS USED
From the table presented above, the policies framed by both the Seek Group and the
Ambition Group have been analysed. The table itself is showing that the policies of Seek
Group have led the executives to perform in a manner that has encouraged an improvement in
company performance. The share price had shown a continual rise over the years. The
eventual rise is also observed in the earning per share of the company. The 50% portion of
total remuneration gets value from the way the company is performing. There is no
alternative available with the executives rather than the improvement of their respective
departments. This shall add to the value that company attains in the market and adds to the
overall wealth of the shareholders (Hoque, 2014). The table has shown that company has
improved its business performance by aligning the interest of the stakeholders with the
organization development.
However, the ambition group has adopted a target based remuneration plan. The
performance bonuses rest on the eligibility of attaining those targets. The share incentive
plans offered are based on the criteria of achievement of a certain level of earning per share.
The whole share incentive plan is already framed which highlights the vesting provisions
(Kerzner, and Kerzner, 2017). This will also result to increasing the overall outcomes and
increased business efficiency in long run.
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CONCLUSION
The whole report when analysed, undoubtedly votes Balanced Scorecard as the best
option to remunerate managers in an organisation. This can be seen from the case of Seek
Group wherein the multiple areas are to be considered for bestowing a rise in the executives’
pay. Seek group has in every manner adopted a better remuneration approach than the
competing Ambition Group. The financials of both the companies also depict the same crux.
The company’s performance in case of Ambition Group is declining year by year. Although
there are many possible reasons, but one of the most appropriate reason set is the lack of
motivation among the executives and the resultant poor company performance. Due to
declining trends the company is facing, the executives are also being paid less and that has in
some or the other manner demotivating them.
As far as Seek Group’s financials are sought. The company seems ever growing.
Every component that can measure company performance has shown an improvement. The
same has resulted in providing the executives with a higher pay. So there seems no method
better than balanced scorecard to evaluate and remunerate managers. Now in the end, it could
be inferred that Seek Group Company should adopt the balance score card approach as its
best method to evaluate and remunerate its employees.
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