Executive Remuneration, Corporate Governance, and Stakeholders

This report delves into the critical relationship between executive remuneration and corporate governance, specifically within the Australian context. It examines the successful application of executive remuneration plans, emphasizing the role of corporate governance in ensuring transparency and aligning the interests of executives and stakeholders. The report analyzes the impact of the Corporation Act 2001 and the Australian Securities and Investment Commission (ASIC) guidelines, particularly Regulatory Guide 49, on structuring remuneration packages. It highlights the importance of ethical practices, the balance between shareholder returns and executive compensation, and the consequences of inefficient corporate governance. The report also explores the factors contributing to the success or failure of corporate strategies and the role of corporate governance in safeguarding investor interests. Recommendations include the logical structuring of remuneration, adherence to regulations, and the crucial role of corporate governance in maintaining investor confidence. The report concludes by underscoring the need for transparent and legitimate remuneration plans to prevent ambiguity and ensure stakeholder satisfaction.

CORPORATE GOVERNANCE
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Table of Contents
Introduction................................................................................................................................................3
Research Questions under review..................................................................................................................3
Successful application of Executive remuneration plan by corporate.......................................................3
Inefficient corporate governance for unsuccessful corporate....................................................................6
Conclusion.....................................................................................................................................................7
Recommendations..........................................................................................................................................8
References:.....................................................................................................................................................9
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Introduction
Executive remuneration and corporate governance are two sides of corporate management. One
side belongs to the justification of the remuneration promised to the CEO and executives by the
corporate and other side demands the justification of that remuneration to the stakeholders of the
corporate. High level of remuneration always has the threat of reducing the distributable profit
for the stakeholders and at the same time the executives and CEOs may have the tendency to
project their performance by any means to justify their remuneration. The CEO and executive
remunerations always comprise of long-term and short term benefits with distinctive division of
heads which include profit sharing and regular cash salary. Profit sharing may be in the form of
disbursement through share allocation or by cash1. It is always debatable if the area of corporate
governance should get involved in this area to prove transparency and justification of the
remuneration allocated to CEO and executives for the stakeholders2. This report will emphasize
on this specific issue in perspective of Australia with the application of different legislative
application implied by Corporation Act, 2001 and Australian Securities and Investment
Commission with the guidance provided for the corporate to practice the same in order to ensure
and save common interest of the stakeholders of the company and the future prospect of the
corporate3.
Research Questions under review
Successful application of Executive remuneration plan by corporate
This issue is raised with the basic questions of the authority of employment of the CEO and
executives and the need of their employment; the way the CEO and executives add value to the
1 Asic, Corporate governance - Executive remuneration, 2016
2 Asx, Corporate Governance Principles and Recommendations with 2010 Amendments, 2007
3 Peter Rampling, CEO and executive director remuneration practice and corporate financial performance: a
comparison of practices in the USA, UK and Australia, 2015
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organization; and the role of corporate governance for structuring the remuneration of the
management including CEO and executives.
The employment of CEO is done by the corporate management and other executives are also
appointed by the management. These appointments are made in order to ensure business growth
of the corporate with subsequent enhancement of profit. It is to be kept in mind that the owners
of the corporate are the shareholders and they just need proper return on their investments.
The CEO and other executives are responsible for the policy making of the organization with
subsequent execution of those policies through different corporate strategies which are based
upon the objective, vision and mission of the corporate. These activities are marked with
different time period- short and long term for the corporate. Through successful implications of
the strategies, the top level management of the corporate consisting of CEO and other executives
are held responsible for the business growth and profit enhancement which is beneficiary for the
shareholders of the corporate4.
Corporate governance is fixed by the board for ethical practices of the corporate. The corporate
fixes governance procedure in order to make transparent and ethical approach to the business of
the corporate. This governance procedure is applicable for the all levels of internal stakeholders
of the company. When the CEO and other executives are held responsible for the performance of
the corporate within the fixed line of demarcation clarified by the corporate governance, it is also
ensured that the coveted output is expected by the management of the company for which the
CEO and other executives are remunerated. Being the management of the corporate, the CEO
and other executives have no such power to fix their own remuneration and this is to be fixed as
per the corporate governance policy of the organization5.
4 Tim Lester, Joanna Yoon, Hogan Lovells, Corporate governance and directors' duties in Australia: overview, 2017
5 Andreas Schoenemann, Executive remuneration in New Zealand and Australia, 2004
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In case of fixation of remuneration of CEO and other executives, different authorities are
responsible to put the benchmark and the limitation, which are looking after the corporate affairs
of the country. In case of Australia, Australian Securities and Investment Commission fixes the
guideline of remuneration through their guideline Regulatory Guide 49 which is named as
Employee Inventive Schemes published in November, 2015. This Guide emphasizes on the
issues of different criteria of remuneration and incentive scheme which is endorsed by
Corporation Act, 2001 of Australia. The main areas covered by this guide are:
The authority who can offer- Any ASX listed companies or approved foreign entity
The probable recipient of offers - Full time employees, including directors-both of executive
non-executive cadre
Type of Financial products can be offered – Fully paid shares; certain depositary interests,
fully paid stapled securities with the entitlement of trading.
Specific structure to be used under the relief of the authority- Trusts, Contribution Plans, or
certain type of loan arrangements.
The basic and general conditions of that relief allowed- Pre-conditions as fixed by ASIC
related to the eligibility of the financial products offered6.
This guide has provided the above conditions under section B to F for listed bodies which are
corporate.
Salient features of RG 49 are as follows:
 RG 49.1-Incentive scheme promotes the concept of ownership of the employee
 RG 49.2-Financial instruments may be offered to the employees to create the situation of
financial benefit to the employees for the objective based deliverance.
 RG 49.4- The objective of this scheme is to promote the concept of interdependence
between the employer and employee.
 RG 49.5- Conditional relief is allowed by this policy when the clause of RG 49.4 is
complied as per guideline.
6 Tim Sheehy, Regulation of director and executive remuneration in Australia, 2009
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 RG 49.8- Disclosure of financial instruments is to be made under Ch 6D for securities
and Ch 7 of Corporation Act in order to make the investors aware of the offering to the
employees.
 RG 49.13- Certain prohibitions are applied in s 734, 1018 and 1018B related to
advertisement of financial offer and s736, 992A and 992AA generally known as hawking
provisions related to sales of financial instruments created through unsolicited contract
with investors, etc7.
With the above guideline as per ASIC RG 49, it is clear to understand the basic criteria to offer
the remuneration to the CEO and the executives in different forms which are endorsed by the
Corporation Act 2001 of Australia.
The organizations which are following the above guideline can be considered as successful
towards implementation of their compensation plans to the employees with the satisfaction of the
investors or stakeholders.
Organizations have dual objectives- to have a satisfied group of investors and retention of able
management through CEO and executives. In the global competitive situation, retention of
employees is big challenge to the organizations and they have to manage this area with the
prefixed guideline by the corporate authorities. The main objectives of the organizations are to
mobilize wealth through their performance and none other than strong management can ensure
this with their expertise for which they should be satisfactorily remunerated. The organization
able to maintain such balance can make their investors happy and retain their deserved
employees. In this aspect, corporate governance has to play a vital role to ensure proper and
transparent fixation of management remuneration in different way so that internal and external
stakeholders of the organization feel happy and satisfied for the interest of long-run success of
the corporate.
7 Asic, CP 218 Employee incentive schemes, 2013
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Inefficient corporate governance for unsuccessful corporate
Corporate governance should be flexible which is to depend upon changing scenario. It is not
expected that success is everlasting. Any reverse situation can generate unwanted repercussions
from different level of stakeholders including the investors. As they are investing for the
business of the company, they have all right to get their return on investment with reasonable
rate and any adverse situation can raise question about the success of the company. There may be
lesser profit or loss which can diminish the profit of the investors. They can feel unsecured
during such situation and can raise the question of the ability of the management who are paid
for their service. The general situation demands normal trend of business which may not prevail
due to some internal or external factors. Out of them, ability of management to comply with the
objective of the organization is big issue. Compliance of the objective of the organization is the
basic duty of the management and the non-compliance may lead to lesser profit or loss. The
remuneration plan of the executive may be raised as a big issue by the investors with subsequent
dissatisfaction by them. As the management remuneration plan is the decision of the
management, they have to own the responsibility of the non-performance of the organization.
The annual report of the corporate consisting of the corporate governance should be treated as
transparent and flexible in order to justify the actions initiated by the management in the field of
executive remuneration plan8.
Conclusion
The area of executive remuneration plan attracts eyes of the investors as they feel that they are
running the organization by their money. The organization is mainly run by the corporate
objective which is fixed by the management and the board. CEO and other executives are
instrumental in fixing those objectives and held responsible for implementation of successful
strategies to accomplish the objectives. For these activities, they are paid with remuneration
consisting of different fixed and variable modes of benefits. The annual report of the corporate is
8 Austlii, Corporate governance and executive remuneration: Rediscovering managerial positional conflict, 2004
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consisting of one part named corporate governance which ensures ethical and transparent
operation of the corporate. Moreover, corporate authorities like ASIC and Corporation Act, 2001
of Australia is the watch dogs to look after the compliance of different corporate activities out of
which executive remuneration is major part. As they are liable to answer to the investors, the
compliance of their rules and regulations are their area of observations with necessary actions.
Hence corporate governance and its applications are the prime issues on which these bodies are
working to safeguard the interest of the investors and their ultimate queries on any feature raised
on the issue of executive remuneration is to be answered by the management.
Recommendations
The recommendations in this domain are:
 Logical fixation of executive remuneration plan
 Divide the remuneration in fixed and variable
 Variable component should be passed on through financial products as per guideline
fixed by ASIC through RG 49
 Profit sharing should be made to the executives in such manner that it would not raise
any question of integrity on the part of the management
 Strict adherence of Corporation Act 2001 as per Australian Accounting Standard
Board is to be ensured
 Corporate governance should play major role in remuneration scheme of executives
with the clear guidelines fixed by the authorities
 At the end, the interest of the investors is to be safeguarded through corporate
governance which should comply with proper, transparent and legitimate
remuneration plan for the CEO and executives to ensure no scope of ambiguity for
the investors with resultant dissatisfaction.
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Bibliography
Asic. (2016, May 26). Corporate governance - Executive remuneration. Retrieved August 13, 2017, from
Asic: http://asic.gov.au/regulatory-resources/corporate-governance/executive-remuneration/
Asic. (2013, November 14). CP 218 Employee incentive schemes. Retrieved August 13, 2017, from Asic:
http://asic.gov.au/regulatory-resources/find-a-document/consultation-papers/cp-218-employee-incentive-
schemes/
Asic. (2015, November). Employee incentive schemes. Retrieved August 13, 2017, from Asic:
http://download.asic.gov.au/media/3450984/rg49-published-11-november-2015.pdf
Asx. (2007). Corporate Governance Principles and Recommendations with 2010 Amendments. Retrieved
August 13, 2017, from Asx:
http://www.asx.com.au/documents/asx-compliance/cg_principles_recommendations_with_2010_amendm
ents.pdf
Austlii. (2002). Corporate governance and executive remuneration: Rediscovering managerial positional
conflict. Retrieved August 13, 2017, from Austlii:
http://www.austlii.edu.au/au/journals/UNSWLawJl/2002/23.html
Lester, T., Yoon, J., & Lovells, H. (2017, January 01). Corporate governance and directors' duties in
Australia: overview. Retrieved August 13, 2017, from Thomsonreuters:
https://uk.practicallaw.thomsonreuters.com/1-502-9743?
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Rampling, P. (2015). CEO and executive director remuneration practice and corporate financial
performance: a comparison of practices in the USA, UK and Australia. Retrieved August 13, 2017, from
Scu: http://epubs.scu.edu.au/cgi/viewcontent.cgi?article=1475&context=theses
Schoenemann, A. (2004, September 04). Executive remuneration in New Zealand and Australia.
Retrieved August 13, 2017, from Victoria:
https://www.victoria.ac.nz/law/research/publications/vuwlr/prev-issues/vol-37-1/executive-
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