BFA605 Sem 1 2020: Executive Remuneration Report Analysis

This report provides an analysis of executive remuneration in Australia, focusing on the key issues of quantum, trust, and alignment. It explores the factors influencing executive compensation, including salary, incentives, and benefits, and emphasizes the importance of a well-structured remuneration format that aligns with organizational goals. The report discusses the perspectives of various stakeholders, including shareholders, government, and customers, highlighting the need for transparency and justification in remuneration practices. A case study of Sonic Healthcare Limited is presented, evaluating its executive remuneration performance through board and committee assessments, as well as key executive evaluations. The report concludes by emphasizing the need for a standardized model for executive remuneration in Australia, considering factors such as economy, customers, resource, and risk management to ensure productive and effective results.

To,
The Editor
Date: 30.03.2020
Subject: [Reporting Model of Executive Remuneration in Australia.]
Respected Sir,
Executive Remuneration in Australia has been the main focus in corporate sector of the
country for the year 2018. The royal Commission into Misconduct in the Banking, Financial
Service Industry, Superannuation and the findings of APRAs prudential inquiry into CBA has
provided with the highlights on remuneration to be the key driver for encouraging the pursuit
of short term financial gain at the expense of the long term interests important stakeholders
health of business and productive corporate culture (Lee, 2009, pp. 243). The three
significant issues identified includes quantum, trust and alignment. An organisation requires
to consider accurate and perfect frame up of executive remuneration format in order to make
the decisions and actions much more enhancing and productive for long term. The swings in
executive remunerations in Australian corporate sector reveals the requirement of a steady
format or framework which could provide remunerations with proper reasoning and logic.
The six significant factors of executive remuneration that is salary, annual incentives, long
term incentives benefits and perquisite needs to be managed appropriately for maintaining the
highs and lows in it.
Executive Remuneration reveals the package which are designed for the leaders, executive
level employees, and senior management including the benefits which they could explore or
gain such as salaries, perks, incentives, insurances, etc. As per Rahayu et al. (2019, pp. 40), a
well-structured executive remuneration carries a direct link with the organisation’s objectives
and goals. Connecting with the goals and objectives of the organisation helps in rewarding

the executives of the organisation in an appropriate manner as they are the ones who
contributes to the long term success of the company. A company carrying a well-structured
remuneration format provides a justified and logical rewards for each of its executives for
their significant contribution in the success of the company. Each stakeholder, internal as
well as external, should be able to explore the reason behind each remuneration given to the
specific executives. This logical and fair distribution or allocation of rewards maintains the
dignity and integrity of the company.
According to Teixeira et al. (2018, pp. 2479), an executive remuneration should include
information for its shareholders in complete detail as the shareholders have an aspect of
acknowledging the allocation of remuneration is being done fairly or not as this attracts
incentives and rewards which impacts the value of the company in which they have been
investing. The money invested by the shareholders are being appropriately being used or not
is the concern of each shareholder and thus, allocation or distribution of each rewards should
be fairly justified. Shareholders satisfaction with the executive remuneration structure is an
essential requirement for a company to gain future investments. This view is supported by
Brocklehurst et al. (2020), with an additional stakeholder requirement, that is of the
government. Investors should be accurately informed about each allocation of remuneration
as this provides them with a platform to analyse the future growth of the company.
Government on the other hand should be provided with a standardised detail on executive
remuneration and focus should be on the contribution that the company would make to the
growth of the economy. Government should be informed about the benefits that the society
would gain through the company’s growth and the contribution of executives should be
provided along with the remunerations. As stated by Teixeira et al. (2018, pp. 2480),
government is interested in maintenance of law and order along with the growth scope of the
country which could be enhanced by the respective organisations. Organisations which gain

government subsidies, require a detailed information on the remunerations and this should be
provided with clear explanation by the organisation. The activity of the executive should be
provided with results gained through their plans. The new strategies provided by the
executives which were productive and enhancing in nature for the organisation should be
stated in detail as this justifies the remunerations.
According to Rahayu et al. (2019, pp. 46), the short and long term contribution of each
executive should be stated accurately in the remunerations for the customers as this helps in
providing them with the future planning of the company. The customers demand goods and
services which are beneficial for their up-liftment and thus, the executives who could work in
this aspect needs to be provided with high remunerations. A well-structured executive
remuneration should include something for everyone (all stakeholders of the company).
 Detail on strategies implied and results gained by each executive
 Long term and short term benefits gained through each strategy
 Contribution to society
 Future plans of growth and development
 Future organisation objective
 Enhancement in market position
 Economic Value to be added in future along with past records
These features of executive remuneration could help each of its stakeholders in gaining an
insight into the working and planning of the organisation.
Sonic Healthcare Limited is an Australian company which provides pathology, laboratory
services and radiology services since 1993. Executive remuneration performance evaluation
of the company is done through four specific categories which includes the board and its
committees, managing director and finance director, key executives and equity incentive

plans. The company assesses its executives through these four categories where the board and
its committee assesses their own performance through cross checking their actions and
decisions against Board Charter. The board and its committee provides a clear picture of
meeting their targets through the board charter and this provides the shareholders and
government with an accurate information on their workings. The activity and performance of
each broad member gets revealed which justifies the remunerations located to them. This
matches up the above created model of executive remuneration
Secondly, the board checks on the performance of the managing director and the finance
director through some specific benchmarks such as economic results gained, objectives met,
resource management, medical leadership, risk management and many other factors. This
acknowledgement and detailed analysis helps the board in stating the remunerations in a
justified and authentic manner (Sonichealthcare.com, 2020). The ethical practice gets
executed well through this exercise. This matches up the above mentioned report on
remuneration modelling, but the contribution to society is not considered in the company’s
plan. Though minor loophole exists in the concerned company’s remuneration but as per
Rankin (2010, pp. 250), any remuneration evaluation model which includes economy,
customers, resource and risk management, that builds up the major concerns of remuneration.
Thus the framework of the Sonic Heath Care remuneration is quite productive and accurate in
nature. The evaluation of the executives on an annual basis against business and personal
objectives adds on to the specification and fair scale of remuneration practice in the
concerned organisation. The company also carries two plans for equity based remuneration
which makes the organisation fair enough for its allocated remunerations in each section.
Categorisation of remuneration provided the company with a clear list but the details on
stakeholder specific remuneration details are not available which could confuse specific
stakeholders and thus, it could be ineffective.

Stakeholders has be observed to be the primary part of an organisation and their satisfaction
should be the main concern for attaining success. This view has been reflected in the
executive remuneration activity too. An organisation is built up of various stakeholders and
their views and aspects should always be kept on priority for gaining acceleration in its
working and attaining a high position in the market. Executive remuneration seems to be a
minor part of an organisation from a consumer’s perspective but from the view of
government, investors, and other significant stakeholders, it is one of the crucial and
enhancing considerations. Sonic Health Care Limited is observed to have an accurate
remuneration structure but it requires some filtrations for gaining more productive and
effective results. Australia has experienced wide swings in executive remunerations and this
has been managed through some effective considerations. Though the swings has been
managed well by the country, it requires to frame up a specific model for remuneration which
could help in standardising the action.
Thanking You,
Name
Date: 30.03.2020

References
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