CBA is one of the largest banks in Australia serving common public across the globe. The company reports the Remuneration as a message from the directors to the shareholders in their annual report each year and while doing this it takes care of the various reporting requirements set around the globe.
Being a bank the business of the company becomes more open to the public and hence the public disclosure of the remuneration policies, basis and the impact becomes very important for the stakeholders. As mentioned in the annual report the company follows performance based approach for the remuneration which is also dependent on certain success factors linked to stakeholders and customer satisfaction at large. The company had evaluated the performance as short term/long term goals based on which the executives are evaluated. (Sigler, 2011)
The remuneration outcome were on a positive side where Short term incentives were given based on the measurement of performance of the group. These measurement lead to some reductions in STI leading ti lower values compared to the last year results. The company has a separate Group Leadership Award plan (GRLP) to award the executives and these are the equity awards given which can be vested over the 4 year period.
There had been certain change in the remuneration policies in the current year where the management focused more on changes to performance measures to make it more robust and achieve long term superior performance from the executives group. Some changes that came up were:
- Individual Level Assessment of STI based on performance scorecards defining the individual outcomes and driving the goals of the management
- The GRLP will be linked to feedback from the community and the people which will form as one of the factors for measuring performance and would have the weightage of 25% in determination of the same.
Annual Report can be accessed here:
The team size of the executives include 11 Non - Executive directors, 11 group executives and a managing director which form the structure of the leaders of the company. There is a team set up which forms the remuneration committee and mainly made up of non-executive directors of the company which can be termed as independent directors of the company.
This committee is focused on the various regulatory reforms in the build of the remuneration structure, KPI’s for the various roles of the executives and best market practices along with monitory of the long term incentives of the group executives as well. (Yatim*, 2015)
The details of the remuneration policy which the company provides to the executives falls under three categories:
- Fixed Remuneration: This is already a prefixed amount which is being decided as a part of the employment of the executives and form the small components of the overall payouts. This is made of base remuneration and superannuation. This mainly includes cash salary and other salary sacrifice items. This is being decided by with the recommendations of the board and has an annual increment of around 0.9%. for the same roles executives
- Short term Incentive at Risk- Along with this fixed incentives the company is already proposing SIT where the target is equal to 100% of the fixed remuneration. This will be based on the balanced scorecard approach and the overall performance of the company as a whole. The eligible executives of STI get the amount of 50% in cash and balance is being deposited in the bank at normal deposit rates which will be forfeited in case of resignation by them. Thus deferred component is kept to manage the risks of the company as a whole
- Long Term Incentive at Risk- This is also awarded as a 100% of their fixed remuneration after evaluating the performances. These incentives haves a 4 years vesting period and are measured against Total Return that shareholders receive (TSR) and customer satisfaction performance hurdles. Each right that vests help the employees to get one share of CBA but the same cannot be sold and no dividend is received unless that rights vests.
- Sign off And Retention Awards- The sign off awards are mainly paid to the employees who are joining to compensate for the incentives already given during the year along with some retention awards which are paid as a part of retention of skills already at hand. These awards were not given in the current year.
The company had specifically called out that at risk components are purely based on performance against key financial and non-financial measures (Khalid, 2014)
Key Measures of Performance.
These incentives are all linked to the performance goals which can be defined as below:
In order to retain the high caliber executives these plans are linked to the goals and should be congruent to the goals that are defined over the period of time which mainly ten to protect the interest of the shareholders of the company
The company uses the balanced scorecard approach for adjudging the performance of the employees individually and also as a group in order to achieve the desired goals of the organization. This evaluation is done based on the financial and non-financial incentives along with some weightage to it. The executives who are managing the production are paid 40% based on financial outcomes and other executives managing support functions are paid 25% of the financial outcomes.
This financial benchmark to measure the performances of the financial nature is mainly the profits along with the risk of capital taken for getting those profits so mainly these risk adjusted profits are being used for the determination of the performance of the executives based on which STI is decided
The various performance indicators as used by the company are:
- Profits of the Group after tax adjusted with PACC and risk %
- Customer Satisfaction under Retail, Business, Institutional and Wealth. The above target was met in the current year.
- Technology Strategic Execution- This is one of the non - financial measure that the bank takes a step of for innovation and create of the design of the various services covering the security chain and competing with peers of their platforms.
- People- Management of the people with talent and leadership and developing them with the development of the human resource goals.
- Productivity- The group aims that the processes are simplified to achieve best results along with optimization of the costs of the company to achieve the target goals and also these savings can be invested into better plans and increase the benefits and values of the firm.
The company was able to pay 112% of the STI targets of the current year due to the achievement of the financial and non-financial measures than the desired levels. (Jensen, 2014)
As part of GRLP explained above the company tends to strengthen the long term goals as ell for which these LTI’s are being launched backed up by various performance linked measures.
This is purely based upon the Total Shareholder’s return the company is paying to shareholders and customer satisfaction hurdles of the company and the factors seems to be justified based on the nature of the incentives given by the company in this regards. The TSR forms the 75% of the performance award and Customer satisfaction forms 25% of the overall awards of the company given to the executives. The result of these measures during the year were
- 0% amount was vested against the Total Sharing Return method.
- 5% vesting happened under the customer satisfaction matrix
- At an overall level 20.3% of the overall award was vested by the executives in the current FY.
- These vesting was done over the performance over the 4 year period of these executives over the 4 year performance period of the employees. These review done should be helpful to performance hurdles and deliver value to executives and helpful to the performance of the company.
The GRLP reward rights are being granted over the four year performance period to the employees and this award has four features namely the instruments that can be vested in the future , the determination of the award to the executives who has rights for that and the measurement of the performance period of the company. These customer satisfaction is measured based on the various research parameters namely Roy Morgan research, DRM Financial Services and Wealth Insights service level report. (Gomez-mejia1, 2015)
These awards are subject to risk and compliance review of the board and is always at the discretion of the board to determine the outcomes of the corporate structuring event or the capital event. These rights are liable to expire at the end of the vesting period.
The company in the current FY had levied some additional hurdles on the performance named as People and Community and continuous evaluation of the executive performance over the two and three year period to ensure continuous feedback. (Deschenes, 2015)
There was a recent article where people were refraining for taking the shares of the company, the reason being
- Some regulations bringing a good amount of taxes in the name of Big Bank Tax
- The margins look a bit on a lower side in the current situation hence the caution flag is raised.
- Cycle effects- Where some factors tend to pull out the good results and post some seasonal items that would impact the results on an overall level.
Long term Return to Shareholders
As discussed above one of the parameters of the remuneration is shareholders return it can be seen by the dividends of the company and also the profits which are good levels of 30% in the current year but as the same were not distributed the total vesting was 0% in the current year and hence there were no results arising out of this. (McChaery, 2015)
Financial and Non - Financial Measures
The company had focused on the financial and the non - financial measures based on the respective group of the executives managing different level of work and hence needs the same to be addressed equally by the company and the same had been done by them and hence it needs a proper justification of the same. The overall health of the remuneration policy is well justified by the approach. (kang, 2015)
Goals Congruence & Policy Measurement.
The overall goals and congruence of the company is being managed by the measures set by the company to achieve its goals and the same is being managed by the policies set by the effectiveness board and the overall policies used to measure the employees of the company as a whole.
The policies displayed by the report of CBA shows a very transparent disclosure of the policies followed by the regular reviews of these and dependence on external factors strengthen the policy as well.
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.
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.