ACC702 Managerial Accounting- Insurance Companies In Australia

Analysis of the Remuneration System Along With Disclosure by Insurance Companies In Australia 

Measuring Executive Performance

We have often heard that the employees are the life blood of the business and they need to be kept and treated as an asset of the organization, but it is very important to recognize the hands behind the success of the organization, the people who use their skills and experience to take the business at heights and these are the managerial executives which run the show and take the required decisions at the required point of time. As the stakeholders can’t have a look in the day to day operations hence these executives act as their agents to run the business.

These executives have the power to decide the future of the business and are loaded with immense responsibilities towards the smooth running of the business. In order to compensate these efforts every company every company builds up executive compensation / remuneration policies so that they can be remunerated for their performance. These remuneration is composed of the financial as well as non- financial component and is a mixture of salaries, short term and long term incentives, stock options and other employee benefits as well. (Murphy., 1985)

Along with deciding of a remuneration policy for these executives there are various reporting and informatory requirements which the publically listed companies need to disclose as per the guidelines and corporate governance reporting purposes. These information provided to the stakeholder should be transparent and backed by from performance measurement initiatives. The controls should be set in the organization in such a manner that the reward systems might be linked to the performance of the executives and time to time evaluation helps to maintain the ex-factor in the team and deliver better strategic decisions and boosting the growth of the company as a whole. These controls help to develop trust in mind of stake holders and give them the confidence that their money in the right hands. (kang, 2015)

In context to Australia there had been a watchdog named as ASIC (Australian securities and Investment Corporation) is focused on improving disclosure for the remuneration arrangements that the companies have directors and executives. 

This report would focus on the various remuneration methods used by the companies and the disclosure of the same to the stakeholders of the company. In Australia there is an increased governance for the disclosure of the remuneration policies and how the companies frame it based on the votes of the shareholders as well. There are bodies called as Remuneration committee formed with independent members to evaluate the efficiency of the reports. The annual reports of the company and feedback there in would most probably decide the effectiveness of the remuneration system and how successful they are.

Analysis of the Remuneration Report of the Insurance sector in Australia

QBE Insurance Group

Annual Report can be accessed at https://www.group.qbe.com/sites/default/files/Default%20Media/2016%20Annual%20Report_0.pdf

QBE Insurance is one of the leaders in the insurance industry in Australia. The remuneration policies of the company are divided into two parts:

In the above provided report the details of all the top executives has been mentioned. All this executives are appointed as per the requirement and proper task has been allotted to each of them. During 2016 only Pat Regan was allotted extra responsibilities of CEO of the Australian and New Zealand office along with CFO responsibilities.

Overview of remuneration policy:-

QEB Insurance Company is one of the leading company in its field. It is well known for its services and work. It is further known for the performance level they maintain while execution of the plans. Their consistent performance is dependent on the efficiency of its man power. It is also known for the remuneration paid to its top executives. The details of the short term incentives and long term incentives are as follows:-

Short-Term Incentives: - The results of the STI outcomes are in a good position as their performances has been improving since 2013. The stability and proper management has provided them a firm control over their company that has led to them towards success. For the period of 2015 the CEO was provided a$130700 or about 50.00% share. The statutory return on the equity was fixed to 8.1%. Also necessary changes has been in the discount rate by learning from the previous year . The average STI awarded to executives other than CEo was61.1%, of which 33% was there right. (Gomez-mejia1, 2015)

Long-Term Incentives:- The long term incentive was fixed as per the target remuneration mix for the year 2016. Firstly in 2010 LTI were provided on the basis of the performance but this strategy was than changed.

Award Vesting:- Along with the incentives various awards are also provided which include the equity awards made under various programs. 

Performance based remuneration :-

Board of directors:- The chairman sees the performance of the board of director and his committee and verifies whether the performance is up to the mark or not

Senior Management:- The remuneration committee oversees the work of the senior management. In 2016, QEB used a balanced scorecard to rate the performance of each of the executive and on that basis only the remuneration was initiated.

Committee:- The QEB has a remuneration committee that meets quarterly and verifies the overall performance of the organization.

Remuneration policies and strategies:- in remuneration report the remuneration paid to all the executives as per their performance as=re mentioned in details. (Deschenes, 2015)

Impact of QEB’s performance on remuneration:-

North American Operations:- For the year 2016 the threshold was 3.3% against the target of 7.85 and superior was 13.3% that resulted into 6.8% performance which is 82.2% of achievement of target.

European Operations:- For the year 2016 the threshold was 6.56% against the target of 11.5% and superior was 16.5% that resulted into 12.7% performance which is 112.1% of achievement of target.

Australia and New Zealand Operations:- For the year 2016 the threshold was 9.7% against the target of 14.7% and superior was 19.7% that resulted into 11.7% performance which is 52.5% of achievement of target.

Measuring performance:-

Strategic management:- As per the facts this target of the organization was on target and required results were obtained.

Profitable growth and diversification:- This target was slightly below target as required results were not obtained in Latin America.

Leadership In core business:- This goal was also on target as an overall performance was provided.

World class talent and leadership:- this goal was slightly below the target as all the tasks were not completed as some were even under progress that led to slightly below target achievement (McChaery, 2015)

Analysis of AMB Insurance :-

AMP Insurance is a leading company in the insurance sector known for its work and consistent performance. The details of remuneration report of this firm are as follows:-

Executive remuneration structure:-

The remuneration structure is divided in two parts as follows:-

Fixed:- it is based on salary, superannuation and any salary sacrificed benefits. It considers the market value and criticality of role, qualification and experience.it also targets cash and superannuation and focuses on attracting and retaining the talent.

At risk:- It is further sub-divided in two parts that are-

Short term incentive:- it is provided as a reward to the strong and well performed individuals that are helpful in achieving the annual goals. The performance of the company is calculated as 65% against the financial and 35% against the strategic goals, i.e. 655 shares and 40% rights to AMP limited shares.

Long term incentive:- it is decided on the basis of return on AMP and total shareholder targets. 60% relative total shareholder return hurdle over three years and 40% return on equity in three years. The AMP limited shares are also subjected to 3 years of performance targets.

2016 remuneration outcomes:- 

In 2016 the AMP delivered a loss of $344 million in comparison to the profit of $972 million in 2015, it means a major loss to the shareholders.

In 2016 the fixed remuneration was $1900000 as compared to $1750000 In 2015.

In 2016 the cash short term incentive award was nil as compared to $1260000 in 2015

In 2016 the Deferred short term incentive was nil as compared to 840000$ in 2015. 

Short Term Performance and incentive outcomes:- 

• Underlying profit less capital charge(45%) which achieved below threshold result
• Cost to income ratio 5% which also earned below threshold result.
• Value creation which also achieved below threshold result.
• Net revenue AMP capital:- which achieved a threshold performance.

Long term incentive outcomes:- 

• 4 Jun 2015- It achieved a threshold of 15.3% against the maximum target that was achieved to 17.2%
• 2 Jun 2016 – During this period a threshold of 15.9% was achieved and maximum target of 18.0% was achieved.
• AMP’s five year performance:-
• Profit attribute to the shareholders in 2015 was $972m and in 2016 $344m.
• Underlying profit w=for same period was $1120m and $486m respectively.
• STI pool was $105m and $34m respectively during 2015 and 2016.
• LTI performance percentile was 50% and 31% respectively. 

Measuring performance:-

• Strategic management:- As per the facts this target of the organization was on target and required results were obtained.
• Profitable growth and diversification:- This target was slightly below target as required results were not obtained in Latin America.
• Leadership In core business:- This goal was also on target as an overall performance was provided.
• World class talent and leadership:- this goal was slightly below the target as all the tasks were not completed as some were even under progress that led to slightly below target achievement 

Operations of executive arrangements at AMP:-

Short term incentive:-

• 60% cash , 40% rights to AMP limited shares
• Individual performance is measured against the contribution of each individual in the task and work.
• The board determines the size of STI pools based on the performance of the STI scorecard taking into account the financial results and the position of the firm.

 Long term incentives:-

• It includes all the executives including the CEO.
• Under this the total grant value is calculated as follows:-

Total grant value/face value of an AMP share = total number of the rights to be allotted 

Executives employment contracts:-

• Length of the contract- For both the CEO and the executive it is open ended
• Notice period – for both the CEO and executive it is 12 months for AMP and 6 months by craig miller

Analysis of AMB Insurance:-

Annual Report can be accessed at https://files.shareholder.com/downloads/ABM/4443005591x0x927234/B201F98C-E2D5-4909-BED5-9A6C1A9C45A6/ABM_Industries_Annual_Report-Form_10K_Print.pdf

AMP Insurance is a leading company in the insurance sector known for its work and consistent performance. The details of remuneration report of this firm are as follows:-

 Current Executives:-

• Craig Miller
• Pauline Johnston.
• Robert Caprioli
• Craig Ryman
• Brian salter
• Adam tindall

 Current Non-Executives:-

• Catherine Brenner
• Patrica Akopiantz
• Holly Cramer.
• Geoff Roberts
• Mike Wilkins

 Former non executives;-

• Simon Mckeon
• Brian clark
• Paul Fegan
• John Palmer. 

Executive remuneration structure:-

The remuneration structure is divided in two parts as follows:-

• Fixed:- it is based on salary, superannuation and any salary sacrificed benefits. It considers the market value and criticality of role, qualification and experience.it also targets cash and superannuation and focuses on attracting and retaining the talent.
• At risk:- It is further sub-divided in two parts that are-
• Short term incentive:- it is provided as a reward to the strong and well performed individuals that are helpful in achieving the annual goals. The performance of the company is calculated as 65% against the financial and 35% against the strategic goals, i.e. 655 shares and 40% rights to AMP limited shares.

2016 remuneration outcomes:-

In 2016 the AMP delivered a loss of $344 million in comparison to the profit of $972 million in 2015, it means a major loss to the shareholders.

• In 2016 the fixed remuneration was $1900000 as compared to $1750000 In 2015.
• In 2016 the cash short term incentive award was nil as compared to $1260000 in 2015
• In 2016 the Deferred short term incentive was nil as compared to 840000$ in 2015. 

Short Term Performance and incentive outcomes:- 

• Underlying profit less capital charge(45%) which achieved below threshold result
• Cost to income ratio 5% which also earned below threshold result.
• Value creation which also achieved below threshold result.
• Net revenue AMP capital:- which achieved a threshold performance.

Long term incentive outcomes:- 

• 4 Jun 2015- It achieved a threshold of 15.3% against the maximum target that was achieved to 17.2%
• 2 Jun 2016 – During this period a threshold of 15.9% was achieved and maximum target of 18.0% was achieved.(Yatim*, 2015)

AMP’s five year performance:-

• Profit attribute to the shareholders in 2015 was $972m and in 2016 $344m.
• Underlying profit w=for same period was $1120m and $486m respectively.
• STI pool was $105m and $34m respectively during 2015 and 2016.
• LTI performance percentile was 50% and 31% respectively.

 Measuring performance:- 

• Strategic management:- As per the facts this target of the organization was on target and required results were obtained.
• Profitable growth and diversification:- This target was slightly below target as required results were not obtained in Latin America.
• Leadership In core business:- This goal was also on target as an overall performance was provided.
• World class talent and leadership:- this goal was slightly below the target as all the tasks were not completed as some were even under progress that led to slightly below target achievement

Operations of executive arrangements at AMP:- 

• Short term incentive:-
• 60% cash , 40% rights to AMP limited shares
• Individual performance is measured against the contribution of each individual in the task and work.
• The board determines the size of STI pools based on the performance of the STI scorecard taking into account the financial results and the position of the firm. 

Long term incentives:-

• It includes all the executives including the CEO.
• Under this the total grant value is calculated as follows:-

Total grant value/face value of an AMP share = total number of the rights to be allotted 

• Executives employment contracts:-
• Length of the contract- For both the CEO and the executive it is open ended
• Notice period – for both the CEO and executive it is 12 months for AMP and 6 months by craig miller

IAG Insurance Group

IAG Insurance is one of the leaders in the insurance industry in Australia. IAG is listed on the Australian Securities Exchange and is a constituent of the S&P/ASX 50 index. The main goal of IAG is to make people’s life safer with the help of innovation and technology. In November 2015, Peter Harmer was appointed as Group CEO and subsequently after a month he appointed his new Executive team.

Overview of Remuneration policy:

The entire Remuneration is broadly classified as Remuneration to Executive Directors and Remuneration to Non-Executive Directors. Remuneration to Non-Executive Director are paid on the basis of Board fees per Board meeting conducted during the entire financial year of the company, while Remuneration to Executive Directors are paid on a Balance ScoreCard basis. For the current year ended 2017, IAG has reviewed its Executive Remuneration Framework by incorporating NPS(Net Promoter Score) into Balance Score Card, a measure that focuses on Executives’ efforts on earning and sustaining loyal customers and vocal promoters of the business.

The Remuneration to Non-Executives Directors and Senior manager is paid as Fixed pay, Short Term Incentive and Long Term incentive. Remuneration structure is briefly outlined below-

• Fixed Pay is being measured based on position description based on the roles’ experience, skills, and internal relativities of the Executive team and market pay levels of similar external roles. By reference to peer groups including financial services companies listed on Australian Stock Exchange and companies of similar size to IAG, fixed pay is paid to executives. It is based on salary, superannuation and any salary sacrificed benefits. It considers the market value and criticality of role, qualification and experience.it also targets cash and superannuation and focuses on attracting and retaining the talent.
• Short term incentives are measured via Balance ScoreCard. This tool is used in order to measure the balance between rewarding the achievement of financial and non-financial targets. It is provided as a reward to the strong and well performed individuals that are helpful in achieving the annual goals. The performance of the company is calculated as 65% against the financial and 35% against the strategic goals, i.e. 655 shares and 40% rights to IAG limited shares
• Long term incentives are paid by measuring Total Shareholder Return and Return on Equity. Through the appreciation of the share price and dividends value, Total shareholder Return is measured; while Return on Equity reflects the profitability of IAG. It is decided on the basis of return on IAG and total shareholder targets. 60% relative total shareholder return hurdle over three years and 40% return on equity in three years. The IAG limited shares are also subjected to 3 years of performance targets.(Khalid, 2014) 

Remuneration Mix: 

The Remuneration paid to Executives comprises a mixed of Fixed pay and maximum potential at-risk remuneration. Maximum potential at risk remuneration is classified into long term and short term incentives. For the CEO of the company if we measure on overall 100% scorecard, then fixed remuneration comprises of twenty five percent, short term incentives in cash and deferred comprise of twenty five percent and twelve point five percent respectively, while long term incentives constitutes almost thirty seven percent. For the executive team members that also consist of Senior managers of the company if we measure on overall 100% scorecard, then fixed remuneration comprises of twenty nine percent, short term incentives in cash and deferred comprise of twenty three percent and eleven point six percent respectively, while long term incentives constitutes almost thirty seven percent. (Jensen, 2014)

Executive Remuneration Governance: 

The Board of IAG forms a People and Remuneration Committee through which it ensures that the group remuneration framework is aligned to the short and long term interests of IAG and its shareholders. The People and Remuneration Committee recommendation is independently considered before making executive remunerations decisions. This committee also advices Board on Contract terms of Executives, remuneration policy and non-executive directors remuneration. The Committee also engages external remuneration consultants in order to assist the Board in decision making for remuneration disbursements. The People and Remuneration Committee also approves certain policies that necessary in framing remuneration payment policies like equity based plans, target making positioning, framework of annual remuneration reporting etc. (Sigler, 2011)

Conclusion

The overall analysis shows that these companies are very much focused on the overall reporting’s standards and the best practices are being followed over the entire filed of resources and this shows the awareness in the public about the reports and reporting requirements of the stake holders. The overall reports shows all the companies report the remuneration in the best interest of the stakeholders of the organization.

Bibliography

Deschenes, S., 2015. s top-management remuneration influenced by board characteristics. International Journal of Accounting & Information Management,, pp. 60-79.

Gomez-mejia1, L. R., 2015. Managerial Control, Performance, and Executive Compensation. Academy of Managament Journal, pp. 1-1.

Jensen, M. C., 2014. Management compensation and the managerial labor market. Internation Institute of Economic, 1(1), pp. 3-9.

kang, L. S., 2015. How is managerial remuneration determined in India. Journal of Accounting in Emerging Economies, pp. 154-172.

Khalid, S., 2014. Imapct of Director Remuneration of FP of a firm. International Journal of Information, 6(1), pp. 1-1.

McChaery, J. A., 2015. Managerial Remuneration: The Indirect Pay-For-Performance Relation. Journal of Corporate Law Studies, pp. 317-332.

Murphy., K. J., 1985. Corporate performance and managerial remuneration: An empirical analysis. Elsevier, pp. 11-42.

Sigler, K. J., 2011. CEO Compensation and Company Performance. University of North Carolina Wilmington, Cameron School of Business, Wilmington, NC 28403, USA, 1-1(1), pp. 1-8.

Yatim*, P., 2015. DIRECTORS’ REMUNERATION AND CORPORATE GOVERNANCE IN. UKM-Graduate School of Business , Volume 2(1st), pp. 1-24.