Remuneration Report Analysis of Insurance Australia Group (IAG)

This report offers a comprehensive analysis of the Insurance Australia Group (IAG) remuneration report, focusing on the company's financial performance and executive compensation strategies. The analysis is based on IAG's annual reports from 2015-2016. The report examines key aspects of the remuneration structure, including fixed pay, short-term incentives (STI), and long-term incentives (LTI), specifically the Total Shareholders Return (TSR). The study also evaluates the role of the CEO in shareholding and decision-making regarding executive bonuses. It explores financial performance measures, equity rewards, and changes in share capital. The report concludes by highlighting the company's ability to manage tough market conditions and improve insurance profits. The report includes tables and figures from IAG's annual reports to support its analysis and findings.

Running head: REMUNERATION REPORT ANALYSIS OF INSURANCE AUSTRALIA
GROUP (IAG)
Remuneration Report Analysis of Insurance Australia Group (IAG)
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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Conclusion.......................................................................................................................................8
References........................................................................................................................................9
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Introduction
Insurance Australia Group Limited (IAG) is an Australia based multinational company operating
in the insurance sector. It possesses significant market credibility in the financial domain
(Insurance Australia Group Limited, 2014). The study therefore intends to develop a proper
remuneration report analysis of IAG taking certain specific points into consideration.
Discussion
The overall information about remuneration report as used in this study has been derived from
the annual reports of IAG published for the year 2015-2016. The People and Remuneration
Committee (PARC) declared that there will not be any increase in the fixed pay for the
company’s executive team except for the individuals who had their job roles changed. There was
a clear focus on the long term incentive (LTI) plan with an investment of 54% of the Total
Shareholders Return (TSR) (Insurance Australia Group Limited, 2016). The vestments of long
term incentive of the executive directors are common in the present scenario for the benefit of
the company but in this respect, the management should take the initiative to decide if the
directors are actually eligible to do so and if possible then the minimum time period for such
investment (Kershaw, 2012).
This was primarily due to the difficult market conditions experienced by the company. In
contrast to this, the short term incentive (STI) pay that can be achieved by the executive team
was found to be a maximum amount of 67% (Insurance Australia Group Limited, 2016). There
are several companies, whose dividends are re-invested in company shares with an intention to
increase the shareholder value. The TSR and the expected minimum return is compared and
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judged if there is an enhancement or reduction in the shareholder value (Compete to Win
Limited, n.d.).
Table 1: Financial Performance Measures of the Company
(Source: Insurance Australia Group Limited, 2016)
Table 2: Executive Members Belonging to IAG
(Source: Insurance Australia Group Limited, 2016)
The equity rewards of the executives are LTI, STI and fixed pay as depicted in figure 1.
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Figure 1: Equity Rewards of the Executives
(Source: Insurance Australia Group Limited, 2016)
The pay cash was observed to be two-third of the group CEO’s incentive which can be calculated
as 68% of the maximum amount. The deferred or non cash short term investment was only
continuation of the existing services of the company for next one to two years of time. The
annual report of 2016 portrays that no investing or financing transactions took place within the
financial year 2015-16. It further suggested that there is a weak market return for the company’s
equity as there is low contribution of investment income on the shareholder’s fund (Insurance
Australia Group Limited, 2016). The investment income from the shareholders fund is the right
of only the shareholders, who are the owner of the company. It is evident that the owners of the
company have to invest more of their surplus in order to reduce the instances of poor market
return for the company’s equity (Ariff & Iqbal, 2011).
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Table 3: Share capital of IAG (2015-2016)
(Source: Insurance Australia Group Limited, 2016)
A new Chief Executive Officer (CEO) was appointed for the company on 16th of November
2015. The role of CEO in the area of shareholding is considered as extremely essential as he
needs to accumulate and hold the ordinary shares of the company along with two times of their
base salary value. Besides, the performance responsibility of The CEO entails the decision-
making on the amount of short term incentive that is to be paid to the executive team (Insurance
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Australia Group Limited, 2016). The figure 2 below clearly depicts that no change was found in
the share capital from the year 2015 to 2016.
0
1000
2000
3000
4000
5000
6000
7000
8000
2015 2016
Share Capital ($ million)
Share Capital ($ million)
Figure 2: Change in Share Capital
The Annual report of IAG for the year 2016 clearly suggested that there is no cancellation of
executive bonus for the financial year ended in 2016. Executive bonus is a simple process
through which the company provides valued and additional employment benefits to its
employees (Marcinko, 2005). In-spite of the tough market condition the overall insurance profits
of IAG increased by approximately 7% during 2016 as compared to the previous financial year
(Insurance Australia Group Limited, 2016). This has been diagrammatically represented below:
1060
1080
1100
1120
1140
1160
1180
1200
2015 2016
Insurance Profits ($ million)
Insurance Profits ($
million)
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Figure 2: Overall insurance Profits
Conclusion
The annual reports of IAG provided valid information to analyze the remuneration report of the
company. The observation of annual reports clearly suggested that the business operations were
running in a stressful market condition. The company and its operation prove to be strong
enough to manage the tough market conditions, thereby effectively bringing about improvements
in the insurance profits for the year 2016.
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References
Ariff, M. & Iqbal, M 2011. The Foundations of Islamic banking: Theory, practice and education.
Edward Elgar Publishing., UK.
Compete to Win Limited No Date. Total shareholder returns (TSR) explained, Compete to Win,
viewed 6 September 2017, <http://www.competetowin.co.uk/know-how/finance/total-
shareholder-returns/> Insurance Australia Group Limited 2014. Our history. IAG [viewed 6
September 2017, <https://www.iag.com.au/about-us/who-we-are/our-history>
Insurance Australia Group Limited 2016. Annual Report 2016. IAG [viewed 6 September 2017,
<https://www.iag.com.au/sites/default/files/Documents/Results%20%26%20reports/IAGL
%20Annual%20Report%202016%20%28Full%20Report%29.pdf>.
Kershaw, D 2012. Company law in context: Text and materials, OUP Oxford, USA.
Marcinko, D. E., 2005. Insurance and risk management strategies for physicians and advisors,
Jones & Bartlett Learning, USA.
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