A Comprehensive Report on Westpac Bank's Executive Performance and Pay

This report provides a detailed analysis of executive remuneration at Westpac, one of Australia's 'big four' banks. It begins with an introduction to the concept of executive compensation and the importance of performance evaluation. The report then reviews the existing literature on executive performance and remuneration in public companies, including the effectiveness of control systems within organizations. A significant portion of the report is dedicated to a company review of Westpac, including the composition and responsibilities of its remuneration committee, the allocation of executive remuneration, and the mix of performance measures used (financial and non-financial). It examines key financial measures such as earnings per share, return on investment, and return on equity, along with non-financial measures like the balanced scorecard. The report also discusses changes in executive remuneration reporting and compares company performance with executive pay. The findings summarize Westpac's remuneration policy and its impact on performance. The analysis section reviews the remuneration methods used and their effectiveness. Finally, the report concludes with recommendations for Westpac, such as adding a table in the annual report disclosing key pay elements and providing detailed information on employment contracts, and it emphasizes the importance of considering material factors when setting pay policy, particularly shareholder views. References to academic papers and the Westpac website are included.

MANAGERIAL
ACCOUNTING
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1. Introduction:
• Compensation or payment
received for services is
remuneration
• Development of literature review
on executive performance and
remuneration of Westpac, one of
the big four banks of Australia
• Review from the perspectives of
its remuneration committee,
allocation of remuneration, use of
performance measures, changes in
remuneration reporting and
company pay against executive
pay

2. Review of topic and
review of literature:
2.1 Executive performance
evaluation and remuneration in
public companies:
• Better described procedure
evaluates the previous
performance to develop future
targets
• Extending support to the
remuneration committee for
undertaking suitable decisions to
set effective strategic goals, future
compensation and employment.

2. Review of topic and
review of literature
(Continued):
2.2 Effectiveness of control
systems within companies:
• With the help of control systems, an
organisation could fulfil its objectives
by adhering to the internal, legal and
regulatory standards.
• Data could be obtained timely;
however, there needs to be
processing of various kinds of
financial information leading to
delays.

3. Company reviews:
3.1 Details of remuneration committee
and its membership:
• Four members are present in the
remuneration committee of Westpac and they
are independent, non-executive directors
• The remuneration committee is entitled to
review and recommend the board in relation
to the remuneration policy
• The committee is accountable to review and
recommend the individual remuneration
levels of the key personnel of the bank.
• The committee is accountable to held four
meetings in a particular financial year or
more based on the internal and external
circumstances.

3. Company reviews
(Continued):
3.2 Allocation of executive
remuneration:
• Fixed remuneration could be explained as
the overall annual compensation that an
individual receives for the services
rendered to the organisation
• In case of Westpac, fixed remuneration
takes into consideration the complexity
and size of the role, individual
responsibilities, competence and
experience
• This type of remuneration is set
depending on the pertinent benchmarks
within the financial services sector of
Australia

3. Company reviews
(Continued):
3.3 Mix of performance measures
used:
• Financial and non-financial measures
• Financial measures:
Earnings per share:
• The earnings per share of Westpac have
fallen from $2.55 in 2015 to $2.25 in 2016;
however, the increase is significant to
$2.38 in 2017.
• In case of Wesfarmers, due to the
generation of higher net income in 2017, it
has managed to provide adequate returns
to the shareholders.
2017 2016 2015
2.10
2.15
2.20
2.25
2.30
2.35
2.40
2.45
2.50
2.55
2.60
2.38
2.25
2.55
Earning Price
Per Share
Westpac

3. Company reviews
(Continued):
3.3 Mix of performance measures
used (continued):
Return on investment:
• Return on investment of Westpac has
fallen from 0.99% in 2015 to 0.89% in
2016; however, the increase is significant
to 0.94% in 2017.
• For Westpac, even though there is
increase in this particular ratio, it is
significantly lower due to the cutthroat
competition from the other three big banks
operating in the financial services sector of
Australia.
2017 2016 2015
0.82%
0.84%
0.86%
0.88%
0.90%
0.92%
0.94%
0.96%
0.98%
1.00%
0.94%
0.89%
0.99%
Return On
Investment
Westpac

3. Company reviews
(Continued):
3.3 Mix of performance measures
used (Continued):
Return on equity:
• The return on equity of Westpac has
fallen from 13.04% in 2015 to 12.81% in
2016; however, the increase is significant
to 25.09% in 2017.
• In case of Westpac, increase could be
observed due to rise in net income, which
has helped the bank in generating
adequate returns to be distributed to its
stockholders.
2017 2016 2015
11.50%
12.00%
12.50%
13.00%
13.50%
14.00%
14.50%
15.00%
15.50%
13.04%
12.81%
15.09%
Return On
Equity
Westpac

3. Company reviews
(Continued):
3.3 Mix of performance measures used
(Continued):
• Non-financial measure (Balanced scorecard):
Financial perspective:
• Involvement in high return activities and raising
profits
Customer perspective:
• Adequate fund is kept for research and
development to obtain increased customer
knowledge
Internal processes perspective:
• Westpac cross-sells its products and services due
to the presence of proactive employees in the bank
Learning and growth perspective:
• Allocates resources in the areas claiming to offer
the maximum profitability

3. Company reviews
(Continued):
3.4 Changes in executive remuneration
reporting:
• In 2016, the total shareholder return of the LTI plan
of Westpac for the past three years has been 15.2%,
while in 2017; the return has been 11.791%.
• The STI outcomes of the group have accomplished
95% of target in 2016, which have fallen by 11%
compared to the previous year. On the other hand,
the STI outcomes have achieved 109% of the target
in 2017, which is increased by 14% in contrast to
2016.

3. Company reviews
(Continued):
3.5 Company performance versus
executive pay:
• Despite the fall in price/earnings ratio in
2017, the remuneration of the Managing
Director and Chief Executive Officer along with
the current executives of the group has
increased over the year.
• Despite the increase in net income in 2017,
the dividend payout ratio has fallen in order to
pay higher remuneration to the executive
members of the bank.
2017 2016 2015
11.00
11.50
12.00
12.50
13.00
13.50
14.00
14.50
13.01
14.09
12.10
Price/Earnings
Ratio
Westpac
2017 2016 2015
68%
70%
72%
74%
76%
78%
80%
82%
84%
86%
79%
84%
73%
Dividend
Payout Ratio
Westpac