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Discuss about the Corporate Governance And Corporate Performance.

The arrangement of the executive remuneration in the United States set up the path for the global financial crisis that occurred. It was under the remuneration policies that the leading companies decided to take on risks abruptly and thus not able to handle it and breaking down under the hardships of the risks being taken. Data collected from the article of 1990 show that the remuneration policy applied to the CEO’s of the companies belonging to the American Corporate did not depend on the performance which they delivered. The CEO’s of these companies were paid a massive amount for their so-called services which made them total civil servants without undertaking the company tasks. Negligence of the company’s work with no operations to expands and make the company reputed led to the collapse of the companies in the American Corporate and this disrupted the whole working and the structure of the U.S economical market.  Further, the problem was not only in America rather Australian companies has also been influenced. All the foundations of the collapse were related to the remuneration programs of the companies. It was in the 1990’s when the stock market also became related to the remuneration collapse program. It was seen that many CEO’s would attain the shares of the company on behalf of the remuneration offered and this got them motivated to increase the price of the stocks by showing faulty incomes rather than increasing the practical income of the company truly. It was seen that the Sarbanes-Oxley Act was the one which put a certain restriction on these loophole techniques but was unable to cover the stock related techniques. This all led to the increase in the expenses of the shareholders of the company without any proper information to them. These faulty schemes may attract the management because it would surely increase the price of the stocks in the market just by spending some unreasonable remuneration but it should also be kept in mind that these were the reasons which led to the collapse of the economical market and brought theft related modules and legally incorrect in it.           

Attention is to be paid by the management on the performance sector of the working population of the company and this can be done by individual analysis of each and every employee working in the company so as to ensure that if they are able to cater with the desires and expectations of the company. The atmosphere of the workplace, a field in which the business is being placed, and also the set of skill and the professionalism the employees maintain are some of the factors on which the evaluation of the performance depends.  

Management by Objectives

Graphics Rating Scales are used in companies in which the production unit has to be quick to produce and deliver goods which can be any beverage or food industry to be taken the example of. This scale has different levels of workplace responsibilities, performance levels and also a 1 to 5 scale to measure the perfection of the employee’s performance. This process is easy, simple and can be implemented quickly.

The MBO is a technique which is used in higher levels to set up some targets and then to list down points that have to be followed to achieve them. It is seen that the manager often communicates with the employees so as to set up some new targets while providing additional time to achieve the same. The performance is based on the number of targets achieved in a limited span of time. 

The forced ranking was made well know when the GE’s CEO Jack Welch was under action. He divided the performance class into three states. The top-level comprised 20% of the working staff with the middle level holding 70% and the lowest level having only 10%. This method compared the performance of the employee from the ones in their upper level rather than comparing it to their previous registered performance. This method was seen to create a very competitive and rough environment in the workplace. 

The directors of the retail food group limited presence in the remuneration report for the financial year 2017 of the company have stated the company’s remuneration policy and framework thus awarding the remuneration for this year. The remuneration report mentioned in the document relates to the report of the directors which states the information of the remuneration of the directors and other senior executive management of the Retail Food Group Limited for the year ended 30 June 2017 (RFG, 2017). The heading under which the details of each person mentioned above are key management personnel, remuneration policies, relationship present between the remuneration policies and the group performances, remunerations provided to the senior directors and the managers, loans to the managers and many other transactions with the managers and the directors of the firm (Ntongho, 2016).

The board finds it hard to achieve a long-term success and build a share value which will help it to attract and retain the workforce that has the capability to lead manage and serve the group in a manner which will help to improve the business and thus survive for a longer period in the competitive market (Parker et. al, 2011). The major objectives which have been set up by the group towards the remuneration policies are to motivate the executive and the non-executive workforces to have a goal of making the group achieve long-term growth and shareholder value to increase. The firm also believes to have short-term goals that will help them to attain the required performance and achievement of the main objectives. The firm has also tried to enforce new and improved remuneration strategies that can help to persuade the management personnel. The firm also seeks to have a better scope of the responsibilities, duties, and demands by the use of the remuneration policies that are profitable for the firm’s workforce in many possible ways. The board also uses several techniques to determine the remuneration packages for the nonexecutive directors. They choose the best people who can help them achieve the maximum profit in the industry. They also assess the individual performances of the workforce to set the goals and targets for the firm which is needed by them to achieve in the future (Parrino et. al, 2012). They also establish alternative equity schemes for their people.

Forced Ranking

Short-term incentives- The board of the company has ascertained the outcomes and targets of such STI after accounting for an external advice. Such policy has been set for every person working in the company based on both external and internal relativities. Moreover, it plays a key role in depicting both individual and business performance for the present year (RFG, 2017).

Fixed remuneration- Such remuneration is offered by the company as cash and cash benefits that also comprises of superannuation. Moreover, these are reviewed on an annual basis by the company based on a person’s performance, skills, expertise, and experience. Besides, for every position, there is a median fixed remuneration that is intended to be attained by the company within the financial services industry in the international markets wherein it functions.

Short-term incentives associated with cash- It is intended by the company that after a termination of every performance year, fifty percent of such STI must be paid as cash.

Short-term incentives associated to deferred equity- It is desirable for the company that it pays fifty percent of STI after the end of each performance year as performance rights and moreover, half of such performance rights are kept as deferred for a period of one-year vesting whereas the remaining tenure is for 2 years (RFG, 2017).

Long-term incentives- This framework of the company plays a key role in assisting the long-term goals of the company and performance rights based on the conditions of performance that is measured for over four years. Besides, these rights are failed to be exercised by the company during the tenure of performance.

There exists a remuneration committee inside the board of the group which helps it to make decisions on the issues relevant to the remuneration policies and practices that are in relation to the executive and the nonexecutive managers of the firm. The committee is also said to perform some tasks like the reviewing of the trends and the market practices which may affect the remuneration strategies. It also tries to make recommendations to the board to any matter relating to the remunerations matters of the group (RFG, 2017). It has also got the function of analyzing the working of the managers and then recommending the board about their remuneration strategies which have been framed after the analysis of all the factors that affect the working and the financial stability of the firm. It has been also told to the remuneration committee to maintain the use of policies like an annual review of the functions carried out by the workforce and their comparison with the data of the other companies in the same industry. They also have a policy which states that the company should reward the shareholders in the long-term growth (Jacobs, 2018).

Retail Food Group

The nonfinancial objectives of the firm are having a different basis on which they are determined.  They change with the position and responsibility and thus work in compliance with the regulatory controls of the corporate governance and the other factors which affect the performance of the firm in any related matter. The remuneration committee also seeks to have an assessment of data at the end of the year in which it will compare the data of the individuals with the key performance indicators which were set at the beginning of the year (Wood, 2011). No bonus is awarded to a person if he or she has not met with the completion of the objectives that were assigned. Also, the executive managing director has advice the remuneration committee to seek for the addressable from the board before allowing any bonus to the employees (Pash, 2018). The above-mentioned system was chosen by the remuneration committee because it helps the firm to have a clear look on the completion of the objective assessment of the employees and thus maintain a check on the individual performances of the employees within a firm.

It has been noticed that the group was indulged in the long-term incentive scheme under the Performance Rights plan and was thus approved by the directors in August 2015. The performance rights were given on 16th of July 2016 with respect to the functionality of the firm of upcoming four years. The company has also assigned several different performance managers who have the responsibility to check the performance rights. The plan has been designed to have a clear understanding that the returns are provided to the long-term shareholders (Needles & Powers, 2012).

That It was noticed in the financial year of 2017 that Retail food group is moving towards the completion of the objective of becoming the global leader in the food and beverage industry by the expansion of its root and the international reach. Chairman also stated that they had a network of about 2516 outlets which is spread among more than 81 international territories thus making the group having diverse reach over the global expansion. They have also invested in the coffee-roasting business and new commercial divisions which are helpful for the firm to generate profits and thus boost the future profile of the firm (Goergen, 2015).

The firm has experienced an increase in the profit by 12% underlying group EBITA to $123.5 million, derived from the revenues of %349.3 million thus letting to increase the profit 27$ from that of the previous year.  Their strategies of making the firm achieve global success by the use of the five pillars of the franchise, international deals, coffee & allied beverage, commercial M&A, is delivering results. Also, the chairman has announced that they have come up with a commercial division within their firm which will help the company to take into function all the activities which they have planned for the success which they plan to achieve in future (Mock et. al, 2013). The changes have already shown many positive results and thus have also contributed 10% or $11.8million to the underlying group earnings. The firm is also working to make its name renowned in the field of the coffee company by strengthening the market reputation and expanding the Retail food groups coffee business on an international scale. It has also been noticed that the firm has aligned the domestic and the international coffee strategies so that it can have full control over the prevailing coffee market by increasing the scope of the opportunities in the environment (Goergen, 2015).

Remuneration policy

They also have taken into consideration their need to enhance the franchise partner’s collective investments and also improve the functionality of the growing list of the wholesale clients who are present in the market. The firm believes that the growth and ambitions of the RFG depend upon the success of their franchise partners and thus if the partners tend to suffer a loss then the company will also fall and if the partners will have a profit then the company will also grow. Currently, it has been noticed that RFG has made a commitment to the enhancement of the organization-wide capability (English et. al, 2010). The company has also maintained an intelligence unit which is having the task of harnessing and evaluating the data to undertake predictive modeling techniques so as to support the network optimization and thus offer the customers valuable deals. It has also been taken into fact that the firm has partnered with the National Retail Association (NRA)in order to have a creative foundation program for RFG which will help to train all the franchise partners to gain access to proper training, online resources, and workplace advice. The company has also made several investments in the new customer engagement programs so as to stimulate the appetite of the customers (Wood, 2011).

Going by the share price movement of Retail Food Group in the past 3 years, it is noted that the share price projected ups and downs. Further, the downs happened to owe to the fact that the company had some accounting changes that resulted in slippage in the middle of the year 2017.  The operating lease was added to the balance sheet and hence, the downfall can be witnessed.  Such happening was not observed in the past years and as a result of such, the liabilities will increase (Pash, 2018). Such liabilities are present in the balance sheet and held off but not visible. Moreover, with the passage of time, the franchise business has become weak due to the fact that the revenue growth is lower in nature (Jacobs, 2018).  However, the shares are a good buy for the investors because it has strong cash flows to together with a strong track record and immense opportunities. When it comes to the long-term the company is bound to provide a strong value to the shareholders.

Further, gong by the overall history it can be observed that the company paid dividends every year. The annual dividend increased every year that signifies a strong increment in the company’s profitability.  A company pays dividend when there is an increment in the profit. Hence, the surge in the dividend indicates that the company has performed with effectiveness thereby leading to dividends (Peirson et. al, 2015).

Framework of remuneration

Balance scorecard is very much necessary to lay a profitable structure for the company in all ways. It also enhances the strategic plans and policies one is following. Hence it can be seen that to cope up with the changing time and to dominate the market, it is important to have a balanced scorecard. Targets can be made achievable if the balanced scorecard is set well.

Approach

Highlight

Financial

In what sense the stockholders are seen.

Internal

Manner in which the efficiency of operations can be enhanced?

Customer

The need of existing and new customers

Innovation & Learning

Ways to innovate and learn?

Aim

Evaluation

Indicator

Fixed Assets

Increment in the assets

Fixed Assets – addition of 10% in it

Revenues

Revenue increment

Revenue increment by  12%

Operating Profit

Decline in Operating Margin

Operating Profit from 8.5% to 3.3%


Boundaries within which the Retail Food Group operate is also be taken into view because the loss of market they are seeing which also degrades their performance and the revenue generated. Expenses should be cut out to increase profits which can be done by developing fixed assets (Peirson et. al, 2015).

Objective

Measurement

Key Performance Indicator

Customer loyalty

 enhancement

Data and resources kept safely of the old customers

Retaining around 80% of the customers those are existing

New customers

Building new database for gathering new customers

Having 500-1000 customers every month

Enhancing the end services

To attain a string service response and satisfy the customers.

Customer’s feedback and review.


It is seen that the Retail Food Group has acquired 8% of the total market shares at present and if the company wants to strengthen its footing and expand its boundaries then it will have to grab all the incoming opportunities. The revenue generated by the company comes from the customers it has and so the satisfaction of the customers must be at top priority (Petersen & Plenborg, 2012).  

There exist certain non-financial elements that can be held responsible for structuring the RFG’s foundations. The time has changed a lot and the whole world is being digitalized by moving from manually maintained hard copies to hard disks business. Technology has redefined the structure of almost everything. In reality, internal growth perspective is aligned with setting up of strong system and internal control. The above process enhances the output of RFG which will increase the performance rate and this also helps to eliminate any threats that are on the path to success (Retail food group, 2017). The above processes if followed, also reduces the losses suffered by the company if any. Technological software have reduced the work load as clearly seen but has increased the duty of the person responsible for that particular working section, so much more attention is expected to be paid. 

There is a different section in collection period of the debtors which is termed as KPI which is responsible for the positive presentation and behavior of the cash flows which certainly has its impact on the funds available to the RFG at times. Fund raising is very necessary for RFG which can be procured due to this factor easily. All the above processes if carried on successfully then the assets generated by the company and the profits will increase with raising standards of the management s well. 

Aim

Evaluation

KPI

Management system increment

Administration systems accountability

Report of workflow to be evaluated on a continuous basis

Collection of Debtors

Recovery phase from the debtors

Enhancing collection process to 90% in 30 days.

Aim

Evaluation

KPI

Efficiency of employees

Employees role and treatment

Customers reviews

Aspect of human resource

Sustainable performance

Receiving ISO certification

Technical aspects

Technical process

Value enhancement


Technology has been kept on developing and enhancing as the time is passing by. Adoption of these technical services has helped man to cope up with the speed of the changing situations with ease. It is necessary to get the employees of the RFG trained in such a way that they become familiar with the technology used and deliver satisfaction to the customers. Enhancing one's knowledge with time enables to deliver more and increase the skills and professionalism. This also provides an uprise in the confidence of the employees in the company. The customers have their faiths and confidence instilled in the employees of the company if they deliver their best which requires above criteria to do it (Clarke, 2010). Choosing of the staff with greater professionalism is a good choice but the add-on staffs which have some specific duties to accomplish can be a big bonus to the company as well. Though technology has taken over but it requires human work and resourcefulness for the company to flourish. The companies also have an option to retain the old employees for some experienced work (RFG, 2017).       

(Pash, 2018)

In relation to disclosures, it can be seen that the company has currently disclosed relevant information about its key audit matters that has been accounted by the auditors to frame the audit report. For example, provision for credit impairment has been accounted by the auditors as a key audit matter for better results. However, such audit matter has not been discussed or disclosed by the company in the year 2016 and 2015 respectively. This sheds light upon the improvement of disclosures on the company’s part. Furthermore, it can also be witnessed that the company has increased the quality of its disclosure in the year 2017 by not providing immaterial information to the stakeholders as it provided in the year 2015 and 2016 respectively (RFG, 2017). For example, additional and irrelevant details regarding the experiences and qualifications of company secretaries are disclosed in the 2015 and 2016 annual reports that are not disclosed in 2017.

The remuneration package of the Retail food group consists of the various types of the fixed and variable compensation components that affect the financial performance of the firm. The mixture of such components helps to determine the role of the individuals in a firm. Also, the firm allows the employees with many such remunerations of the noncash basis in return of the statutory obligations. The fixed compensation provided to the employees consists of the base compensation which is evaluated on the basis of the total cost and the Fringe benefit taxes that are related to the employee benefits or the superannuation funds that have been provided by the employer. The different levels of the remuneration are being analyzed by the remuneration committee using the processes that are related to the KPIs and the overall functionality of the group’s performance. Also, the firm provides remuneration to the employees if they get a promotion. The employees also receive a guaranteed superannuation contribution of 9.5% as stated by the government. It has also been noticed that some of the employees have opted to increase their payment towards the superannuation funds so that they may receive higher benefits in the future (RFG, 2017). The performance linked compensation which is provided to the employees constitutes of both the short and the long-term incentives that are designed in order to give the employees extra funds for the extra role that have been played by them in the completion of a specific task or objective (Vause, 2009). The short-term bonuses which are provided to the executives ate at-risk bonus as they are provided in the form of cash only but the long-term incentive is provided in the form of equity shares also as the power vested to the firm and the employees in the Company’s Performance Rights Plan (Vause, 2009). The decisions regarding the remuneration allowances are made on the basis of the past experiences of the firm. In the respect of the performance rights that have been guaranteed to the people there have been certain rules and criteria which are needed to be fulfilled. Every year the firm publishes certain key performance indicators for the certain key executives that help the firm to measure the performance of the group on the basis of the people, finance, customer, strategy and the risk measures (Hoffelder, 2012). These measures are chosen directly and thus the employees are rewarded on the basis of the strategy and performance. The group also tries to have a detailed study on the annual forecasting and the budget process. Hence, it can be commented that the board, therefore, thinks that it will be better to have an annual forecast and budget as it will help it to make relevant decisions based on the short-term performance condition (Kowalewski, 2016).

An employee’s salary, the chance of promotion in the future and also the level of professionalism and the set of skills can be evaluated from the performance that the employee is continuously delivering. Because of the evaluation of the above-mentioned facts and figures, it is important to set up a performance evaluation program or techniques which give a perfect output that one deserves and free from partiality. To evaluate the performance level, it is necessary to set up a standard so that the employees would get to know that what level of working is expected by the company officials.  Further, to concentrate on qualitative and quantitative results, evaluation of long-term and medium-term measures needs to be taken into consideration. Moreover, when it comes to the chief executive officer of the company and other executives being disclosed in nature, weights of measures on the performance scorecards of individuals are undertaken that can assist in reflecting their obligations and duties. For example, the CFO and the CEO of Retail Food group may pursue a powerful weightage upon the financial measures that reports around forty percent when compared to several other executives who are disclosed in nature. Moreover, the achievements validation and performance in contrast to the goals of the chief executive officer consists of the input from the CRO, CFO, etc that is followed by the HR Committee’s review. Besides, the executives who are disclosed in nature involve a review from such CEO and resources that are associated to the company’s financial performance of all significant segments involve a review from the CFO respectively (Goergen, 2015). Hence, it is the structure of the executive remuneration that plays a leading role in the performance of the companies.

Conclusion

The overall report provides a strong analysis into the functioning of the company. It can be witnessed from the remuneration report of the company that it exerts due emphasis on the framework, procedures, and policies of such remuneration. Further, the company offers remuneration to its executives like chief financial officer and the CEO for the following purposes. Firstly, the company intends to align the same with shareholders’ interests and business strategy respectively. This can be gauged by the company’s performance and the plans to extend the business in the coming future. The next purpose is to offer target remuneration competitive in nature. As per the discussion in the report, it is evident that the company has set the remuneration committee and the same has provided a strong framework to the company. Lastly, the company intends to award its superior performance and lastly, it intends to articulate the association betwixt the group and individual performances. The stakeholders are immensely benefitted as the company is reaping profits and has provided dividends to the shareholders. It is one of the measures to pass on the benefits to others. Hence, the long term view of the company remains intact and is a good buy for the investors.

References

Clarke, T. 2010.  International Corporate Governance. New York: Routledge, 2010.

English, L., Guthrie, J., Broadbent, J. and Laughlin, R. 2010. Performance audit of the operational stage of long term partnerships for the private sector provision of public services. Australian Accounting Review , [e-journal]. 20(1), pp. 64-75.   DOI: 10.1111/j.1835-2561.2010.00075.x

Goergen, M. 2015. International Corporate Governance. Prentice Hall

Hoffelder, K., 2012. New Audit Standard Encourages More Talking. Harvard Press.

Jacobs, S., 2018. Retail Food Group faces a downward spiral as analysts predict hundreds of stores could close. [online] Available at: https://www.businessinsider.com.au/retail-food-group-may-close-an-additional-460-stores-in-australia-2018-3 [Accessed 13 May 2018]

Kowalewski, O. 2016. Corporate governance and corporate performance: financial crisis. Management Research Review, [e-jounral]. 39(1), pp. 1494-1515. doi: 10.1108/MRR-12-2014-0287

Mock, T. J., Bedard, J., Coram, P., Davis, S., Espahbodi, R. and Warne, R. 2013. The audit reporting model: Current research synthesis and implications.  Auditing: A Journal of Practice and Theory, [e-journal]. 32, pp. 323-351. https://doi.org/10.2308/ajpt-50294

Needles, B.E. &  Powers, M. 2012. Principles of Financial Accounting. Financial Accounting Series: Cengage Learning.

Ntongho, R.A 2016. Culture and corporate governance convergence. International Journal of Law and Management, [e-jounrnal]. 58(5), pp. 523-544. doi: 10.1108/IJLMA-04-2015-0016

Parker, L.,  Guthrie, J. and Linacre, S. 2011. The relationship between academic accounting research and professional practice.  Accounting, Auditing & Accountability Journal, [e-journal].  24(1), pp. 5-14. https://media.accountingeducation.com/1304/Parkeraaaj24(1).pdf

Parrino, R, Kidwell, D. and Bates, T. 2012. Fundamentals of corporate finance. Hoboken, NJ: Wiley

Pash, C., 2018. Retail Food Group shares are being crushed.[online] Available at: https://www.businessinsider.com.au/retail-food-group-shares-fall-trading-2018-3 [Accessed 13 May 2018]

Peirson, G., Brown, R., Easton, S., Howard, P. and Pinder, S. 2015.  Business Finance. 12th ed. North Ryde: McGraw-Hill Australia.

Petersen, C. and Plenborg, T. 2012.  Financial statement analysis. Harlow, England: Financial Times/Prentice Hall.

Retail food group., 2017. Retail Food Group annual report and accounts 2017. [online]. Available at: https://rfg.com.au/wp-content/uploads/2018/02/RFGLAnnualReport2017.pdf [Accessed 13 May 2018]

Vause, B., 2009. Guide to Analysing Companies. Bloomberg Press

Wood, D A. 2011. The Effect of Using the Internal Audit Function as a Management Training Ground on the External Auditor's Reliance Decision. The Accounting Review, [e-journal].86(6), pp. 34-56.  https://doi.org/10.2308/accr-10136

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