Comparative Analysis of Remuneration Methods of Saracen Mineral Holdings and Newcrest Mining Ltd

The paper is mainly purposed for analyzing and comparing methods of remuneration used by Saracen Mineral Holdings Limited 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. The paper focusses on performance and remuneration measures for the two companies.

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Executive Summary
Recently, Australian public companies have been required to provide details regarding
remuneration of their senior executive teams and how the remuneration is determined. Every
board of any company which is public is mandated to establish a remuneration committee that
generally comprises of at least two members who are executive, from the board of the company,
and a chairperson. The remuneration committee has a primary role of determining and approving
the approaches as well as amount of remuneration awarded to the company’s executive team.
This includes the base salary and other benefits, the calculation approach as well as limits that
surround the Short-Term Incentives awarded, and the approach of calculating the Long-Term
Incentives as well.
The remuneration scheme details are published in the Remuneration Report within a
Company’s Annual Report and then voted on by shareholders at the AGM. If the remuneration is
voted down by a number of stockholders exceeding 25%, the Board must consider revising the
remuneration plan. If the shareholders still reject the revised plan, the position of the Board is
considered not acceptable to shareholders and must therefore resign from their positions.
For purpose of this assignment, two major publicly listed Australian corporations are
selected and their academic literature reviewed on methods used to evaluate executive
performance and the level of success that is considered to occur from using such methods both
from a shareholder return perspective and a management motivational perspective. These
companies are Saracen Mineral Holdings and Newcrest Mining Ltd.

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Introduction
The paper is mainly purposed for analyzing and comparing methods of remuneration
used by Saracen Mineral Holdings Limited 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. The paper focusses on performance and
remuneration measures for the two companies.
Company Review
a. Remuneration Committee and Its Membership
In accordance with the Saracen Mineral Holdings Limited 2018 annual report of, the
company’s remuneration committee for the financial year 2018 was composed of the following
directors and members:
i. Geoffrey Clifford (Non-Executive Chairman)
ii. Raleigh Finlayson (Managing Director-Executive)
iii. Mark Connelly (Non-Executive Director)
iv. Martin Reed (Non-Executive Director)
v. Samantha Tough
vi. Roric Smith
The company’s Key Management Personnel (KMP) for the year were:
i. Craig Bradshaw
ii. Gerard (Gerry) Kaczmarek

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iii. Morgan Ball
iv. Daniel Howe
v. William (Troy) Irvin
According to the 2018 annual report of Newcrest Mining Ltd, the company had the
following directors in its remuneration committee:
i. Sandeep Biswas, CEO.
ii. Gerard Bond, CFO.
iii. Melanie Allibon, EGM.
iv. Craig Jetson, EGM.
v. Craig Jones, EGM.
vi. Ian Kemish, EGM.
vii. Francesca Lee, EGM.
viii. Michael Nossal, CDO.
ix. Philip Stephenson, EGM.
x. Bonikro, EGM.
b. Allocation of Executive Remuneration (Fixed pay/STIs/LTIs)
For Saracen Mineral Holdings Limited, the base or fixed salary for the Managing
Director and other executives for financial year 2018 was $700,000. The maximum STI that
could be received by the Executive during financial year 2018 ranged between 25% and 40% of
Total Fixed Remuneration and the maximum LTI was 40% of TFR. The TFR consists of base
pay and benefits, which include superannuation. The STI includes cash payments which are a

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specified target of FR percentage, while the LTI are mainly composed of performance rights
(Horngren 2009, pp. 89).
For Newcrest Mining Ltd, the outcomes of STI of executives during the fiscal year
ending 2018 were kept in the range of fifty-seven percent (57%) to sixty-nine percent (69%) of
their potential maximum allowed (Kuppapally 2008, pp. 74).
c. Mix of Performance Measures Used
Saracen Mineral Holdings Limited uses operating as well as non-operating Key
Performance Indicators (KPI) as a performance measure of determining or forming a basis as to
which the company assesses the levels of future remuneration for its executive teams and Key
Management Personnel (KMP). The company mostly aligns its set KPIs of KMP to the intrinsic
business performance of the group. For instance, the company evaluates performance against the
annual budget and safety as well as health measures. The remuneration committee has the right
to assess remuneration of the executive team depending upon the outcomes of their reviews on
annual performance of each executive and KMP, in addition to other relevant factors (Gopal
2009, pp. 35).
Newcrest Mining Ltd used several performance measures. For instance, the company
uses outcomes based on ROCE, comparative cost reduction and TSR as well, for its Long term
Incentives (LTI). However, the company uses results that are determined by a combination of
business performance as well as personal measures for its Short-Term Incentives (STI). The
company rewards its executive team for their contributions in increasing the shareholder value
through achieving or exceeding their individual as well as company objectives. Through its LTIs,
the company encourages its executive team to put more focus and attention on key drivers of

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performance underpinning the strategies and objectives of the company to deliver a long term
growth in the value of their shareholders. Performance conditions of Newcrest Mining Ltd are
comprised of a combination of individual measures and business measures. A fixed threshold,
target and maximum targets are developed by the company for every measure for purposes of
driving high levels of business performance as well as performance per every person. The yearly
budget is usually used by a company for basing its target performance that the board of
remuneration establishes (Weygandt, Kimmel and Kieso 2015, pp. 85).
During the fiscal year 2018, the important elements of the measures of individual
performance for the executive team were established by the board of Remuneration for aligning
it with the company’s strategic objectives. The personal performance measures were selected for
recognizing the significant role played by the CEO in respect to individually advancing the
company’s strategic goals of improving as well as enhancing the safety and sustainability
performance of the Company, its operational performance, value and cash generation as well as
progressing its initiatives of growth. The measures of personal performance for other Executive
team members such as the KMP during the fiscal year 2018 focused much on areas of their
responsibility that in the case executives of operations comprised of safety, saving of costs
production and efficiency of operations. The company generally aligned its non-financial targets
to its main values, such as safety and key strategic goals as well as objectives of growth
(DRURY 2013, pp. 62).
d. Company Performance (Total Shareholder Value) Versus Executive Pay
For Saracen Mineral Holdings Limited, the group’s main objective is aligning the
remuneration of its executive team to its strategic objectives of business and goals, as well as

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creating and maximizing the shareholder wealth. According to its annual report for the financial
year 2017, the Group’s basic Earnings per share (EPS) increased from 3.26 cents in 2017
financial year to 3.52 cents during the financial year 2018. However, the share price dropped
from 1.44 cents to 1.17 during the financial years 2017 and 2018 respectively (Saracen Mineral
Holdings 2017, pp. 75).
The company’s TSR is calculated independently and it is placed at 192%, which is at the
seventy-fifth (75th) percentile of the identified peer groups used as benchmarks. This can be
attributed to vesting of third Tranche and fourth tranche performance rights of class A. The
company’s ore reserves increased significantly by approximately 27.9% over the period from
2014 to 2017. This is highly attributed to Tranche 3 and Tranche 4 performance rights of class B,
which were vested. Furthermore, the company’s share price is calculated to have recognized an
increase of 185% over this period from 2014 to 2018. This is due to issuance of Tranche 3 and
Tranche 4 performance rights of class C to its executive team and KMP (Saracen Mineral
Holdings 2018, pp. 29).
For Newcrest mining Ltd, the remuneration of its executive team and Key Management
Personnel (KMP) was highly correlated. The key operational and financial outcomes for the
company for the financial year 2018 are also discussed. For instance, the company realized a
profit of $308 million and there was a key improvement in its margin of EBITDA. The company
also recognized free cash flows amounting to $739 million, and experienced significant
reduction in its net debt. Additionally, the ratio of its net debt to EBITDA increased to 1.1 times.
Furthermore, there was a significant reduction in the company’s gearing to 16% (Newcrest
Mining Ltd 2018, pp. 78).

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e. Research Commentary on the Company’s Performance
i. Saracen Mineral Holdings Limited
The earnings of Saracen Mineral Holdings Limited from December 31, 2017 amounting
to AU$59.49 million has increased by approximately 81% in comparison to the previous
financial year 2017. Additionally, this particular growth rate of one year exceeds the annual
growth rate of the company for the last five years, which is approximately 21%. This is an
indication that the Saracen Mineral Holdings Limited is growing at an accelerated rate
(Macintosh & Quattrone 2010, pp. 34).
Figure 1: Comparison of SAR Performance with the Market performance
Over the fiscal years, Saracen Mineral Holdings Limited has improved its bottom line at
a more rate than its revenue through successful control of its costs and expenses. This led to a
significant expansion of its margin and profitability over the years. Reviewing its growth from an

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industry perspective, the Australian mining industry has grown its average revenues by double
figures (18%), during the previous one year. However, this growth rate was 8.70% during the
last five fiscal years (Macintosh & Quattrone 2010, pp. 34). This is illustrated below.
Figure 2: SAR's Earnings and Revenue History
However, in terms of returns on investments, the company has not made a good
investment of its equity. Due to this, the company had a ROE of 17.21%, which is below the
acceptable minimum ratio of 20%. However, Saracen Mineral Holdings Limited had a ROA of
13%, which exceeds that of the Australian mining industry (9.64%). Furthermore, the company
had a Return on capital of 18.4%, which is a significant increase from the previous three years
from 1.3% (Collier 2015, pp. 73).

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Figure 3: Comparison of SAR's Annual Growth Rates
ii. Newcrest Mining Ltd
The latest profits of Newcrest Mining Ltd for the last one year amounted to $308 million,
which is a drop of 7.23% from the previous financial year. The annualized value of Newcrest for
the last five years is ($679 Million). This is an indication that the company experienced a
significant drop in its earnings from the previous fiscal years (Abraham, Glynn and Murphy
2008, pp. 25). However, from a long term perspective, the earnings of the company have been
increasing at an average rate as shown below.

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Figure 4: NCM's Earnings and Revenue History
f. Summary of Findings
i. Saracen Mineral Holdings Limited
In accordance with its 2018 fiscal year annual report, the group company recognized a
net profit amounting to $28.4 million, before tax. This was an improvement of ten percent from
its previous fiscal year. This financial performance was inclusive of write downs involving non-
cash items amounting to approximately three million that related to disposal of one of its
subsidiaries, Red October. The revenue from sales during the year 2018 amounted to
approximately 423 million, which was an increment of fifty-three percent from that pf the
preceding fiscal year. The production of Gold also increased by forty-five percent from
approximately 188655 ounces during the preceding year. The sales of Gold during the fiscal year
2018 were approximately 266,555 ounces, which was recognized as a significant increase from
the previous fiscal year (Macintosh & Quattrone 2010, pp. 35).

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The gross revenue recognized by the group from its operations in mining during the fiscal
year 2018 was approximately fifty-one million dollars, after making deductions amounting to
approximately fourteen million dollars and seventy-four of depreciation expense as well as
amortization expense amounting to approximately thirty-three million for the financial year then
ended (Saracen Mineral Holdings 2018, pp. 29).
ii. Newcrest Mining Ltd
Short term incentive (STI) outcomes for Executive team and KMP of Newcrest Mining
Ltd during the fiscal year 2018 was between fifty-seven percent and sixty-nine percent of the
potential maximum limit. Just like its previous fiscal years, there are significant adjustments
made by the board of remuneration regarding the STI outcomes of the business due to impacts of
prices of commodities, exchange rates of foreign currency as well as other important items that
highly depended on the decision of the board as they were considered to have be out of their
control. With regard to the 2018 fiscal year, the adjustments were for these items that were not
controllable by the company’s management were made. There were adjustments that were also
made to the measure of the company’s cash flows with regard to the LTI (Newcrest Mining Ltd
2018, pp. 75).
Three of the nine executive team members of Newcrest Mining Ltd were granted an
improvement in their TFR during the fiscal year 2018. The CEO of the company was also
granted an improvement in TFR, and this was considered part of annual review on his pay,
resulting from benchmarks acquired from its peers in the industry. However, there were no salary
increments granted to non-executive managers or directors (Bhimani & Horngren 2008, pp. 15).

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The Remuneration Board of Newcrest Mining Ltd is highly committed to making sure
that the remuneration frameworks of the company are aligned to its strategy and performance. It
also ensures that high calibre staff are attracted, rewarded and retained, as well as driving
acceptable personal performance as well as Group performance as regards the financial interests
of both the firm and its stockholders (Collier 2015, pp. 74).
Analysis and Comparison of Remuneration Methods Used
a. Remuneration Methods of Saracen Mineral Holdings Limited
According to its 2018 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 2018, pp. 29).
According to the 2018 financial annual report for the company, Saracen Mineral
Holdings Limited recognized an increase of $2,497,000 in the financial year ending 2018. This
was a percentage increase of 9.65% (Saracen Mineral Holdings Limited 2018, pp. 76). Although
the company does not have a history of dividends paid to its shareholders during the financial
year ended 2018, 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 2018, 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).
b. 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 2018 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. 2018, 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 2018. This indicates that the company has an improved overall performance
(Newcrest Mining Ltd. 2018, pp. 74).
During the financial year 2018, Newcrest Mining Ltd achieved various interesting and
encouraging financial results such as key improvements in its performance of safety and
generation of cash flows which are consistent as well as various achievements regarding its

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operations, especially in relation to Cadia and Lihir. From its financial statements, it can be noted
that the company recognized significant amounts of free cash flows from all of its key operations
(Abraham, Glynn and Murphy 2008, pp. 23).
Conclusion (Overall Findings)
From the above discussion, it can be concluded that the remuneration methods or
approaches used by Newcrest Mining Ltd and Saracen Mineral Holdings Limited are quite
similar but slightly different. 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. On
the other hand, 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 above comparison indicates that Saracen Mineral Holdings Limited has a better
performance that Newcrest Mining Ltd. The company has produced the best results in terms of
shareholder returns and the best results in the short term as well as in the long term. For instance,
it has experienced significant improvements in its bottom line at a more rate than its revenue
through successful control of its costs and expenses. This has resulted into a significant
expansion of its margin and profitability over the years. A review of the company’s growth from
an industry perspective indicates that is among the best and overvalued companies in the
Australian mining industry.

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