A Study On Methods Of Evaluating Managerial Performance And Remuneration Strategies

Methods of Evaluating Managerial Performance

The current report studies the different methods available to the company to evaluate the performance of the executives. The success provided by these different methods in terms of shareholder return and management motivation perspective is also studied. The corporate goals of the company under discussion i.e. Seek Group are researched with the help of the statements of chairman and CEO. The same is done for the competitive company named Ambition Group. Both the companies are in the industry of commercial and professional services. The initial section details the various options available to the company to evaluate the managerial performance and set remunerations. After this, the review of company is made, that includes the details of remuneration committee, membership, executive remuneration allocation, etc. are analysed. A conclusion is made as to whether the company’s performance is being improved because of the remuneration programme. A comparison relating to the remuneration policies of both the companies and the success attained is made. The best method among the both is mentioned thereafter. The conclusion is placed at the end of the report. It mentions the company that has undertaken the best policy and how it has helped the business to achieve success. This report has been prepared on the basis of the financial details, annual report and remuneration report of Company.

All the organisations of Australia that are publically listed need to form a remuneration committee. The role of this committee is to formulate strategies to evaluate the performance of the executives of the company and at the same time set the basis for remuneration. The various methods are being used by these remuneration committees to measure the performance of the executives. These are mentioned as follows:

The Balanced Scorecard: This method tried to evaluate the performance by bringing a balance in different components. The company’s performance is analysed on the basis of four different components. If there seems any improvement in the overall performance based on these components, the managers are appraised with better incentives. Else, any declining performance sets the executives’ bonus at stake. The different perspectives among which a balance is strived to be achieved include:

Financial perspective: The main growth area as assumed here is that of profit made and the market share captured. The performance is assumed to have improved, if both these components show an improvement. It is analyzed that company has improved its business performance by increasing its overall turnover and profitability at large. However, company 

Balanced Scorecard

Learning and innovation perspective: this perspective emphasises the need of the organisation to add value by adding innovation and improvement. It has increased its profit by average 12% since last three years.

Customer perspective: Herein, the measurement of the level of satisfaction among customers is observed. It is used to analysis the value, social structure and belief of the clients with the offered goods and services in market.

Internal business perspective: this is all about the focus on those internal operations through which the customers’ needs coud be satiated (Zizlavsky, 2014).

This method proves to be successful because of its ability to measure an employee’s performance from an overall perspective and not from a single area. Herein, the best part is the alignment of the achievement of organisational goals with the executive performance. This stands as a motivation for the management. At the same time it helps in increasing the profit level that stands as an improvement in the shareholder value (Cooper, Ezzamel, and Qu, 2017).

Human Asset Accounting Method: this method is 90% related to profitability of the company. The termination or promotion of the employee directly depends on the factors related to that individual performance itself. These performance criteria include the revenue contribution by that executive, or the number of customers satisfied by him, or the sales lead generated by him. A complete track of the employee performance is required to be maintained (Stanko, Zeller, and Melina, 2014).

This method tends to be successful in motivating the executive because his performance is directly linked to the incentives that he will be getting. However, the shareholder value is also improved as the increased revenue means increased profits and hence increased returns (Pucci, Simoni, and Zanni, 2015).

Management By Objective: in this method, goals are already set up for every executive and a track is made as to what is eventually achieved by him. The goals are set in accordance with the organisational goals (Uduji, 2013).

This proves to be successful in motivating employees because the executive is already aware of the returns expected from him. So he will be motivated to perform as best as he can. Further due to his improved performance the profitability shall increase and that shall lead to a raise in the shareholder return. 

Graphic Rating Scales: this method involves rating of the customers by using a scale from 1 to 5. The rating is to done on different grounds including the job duties of the executive and the related performance standards. This method is relatively judgemental and depends on the judgement of the work’s supervisor (Aggarwal, and Thakur, 2013).

Human Asset Accounting

The executives get employed to perform better by this method as they are always intended to improve their ratings and gain an edge ahead than the rest executives. And this competition to get a better rating helps in increasing the ultimate wealth and return for shareholders (Mwema, and Gachunga, 2014).

The table presented below is all about the review of remuneration report made for the company assigned i.e. Seek Group. Further, the details for the same grounds are also laid for the chosen competitor company, Ambition Group. This is used to analysis the amount of compensation given to employees and how company has been aligning the interest of the employees with the organization development.

	SEEK GROUP	AMBITION GROUP
CORPORATE GOALS	The company is keen to continually bring innovation in the service provision. The goal is to achieve high end results even when markets are low growth oriented. Long term value is sought to be created from the present day investments. Increasing the market share is the top most priority at current date. Along with profit generation, the society welfare from the day to day business activities is in the priority line. This has aligned the interest of the employees with the organization’s development (Crowther, 2018).	The company’s financial insights have reported several declines as compared from the previous financial year. The revenue, net income, earnings attributable to members and the EBITDA have all declined. This is a major concern, and the company at has for the coming financial years made a goal to improvise the operations to do away the current losses. The company has worked on adding new clients to boost the revenue for the coming financial year 2018. Company has focused on achieving the corporate objectives with the organization stakeholder’s development (Hooghiemstra, Kuang, and Qin,  2017).
ASSESMENT OF PERFORMANCCE OF SENIOR EXECUTIVE	A R Bassat is the CEO of the group and G I Roberts is the group CFO. Looking at the remuneration report of the company, it appears that the group is following the balance scorecard method to evaluate the performance (Hansen, and Schaltegger, 2016). The company’s remuneration structure is based on the company performance. The challenges that the executives face in the day to day business activities are measured by the effort they take to achieve the desired results. The performance is to be measured for long term basis. The company has integrated the executive performance with the overall return to the shareholders. Every increase in the return that the shareholders get shall raise the remuneration bar for the executives. A performance hurdle is set in the remuneration report which is must to be met if the executive want to avail the long term incentive criteria. The performance is evaluated in terms of the change in share price.  The bonus and incentives plans are given to employees on the basis of performance and outcomes given to organization.	Nick Waterworth is the CEO of the group and Laurent Toussaint is the CFO. For the Ambition group, only the CEO is executive personnel. As analysed from the remuneration report of the company, the method used by the company to measure the performance of the executive seems to be the MANAGEMENT BY EXECUTIVE METHOD. On an annual basis, a criteria is laid in agreement with the executive. This criterion is based on the performance of the relevant operational division, for which the executive is accountable and it align the interest of the executives and their rewards with the accomplishment of the set targets and goals.
ALLOCATION OF EXECUTIVE REMUNERATION	FIXED PAY: the fixed pay comprises of the base salary and the superannuation amount. This amount cannot exceed 50% of the total remuneration. This is the base amount that is provided with an intention to keep employees motivated to work even in the challenging circumstances. SHORT TERM INCENTIVES: there are no STIs provided to the executives. However, instead of them the 25% of total remuneration is paid in the form of equity rights. The qualifying period for these shares is 12 months and further lock in period is set as 12 months too. This makes the trade restricted for a total of 24 months. LONG TERM INCENTIVES: 25% remaining remuneration is paid in form of LTIs. It is again equity based, but the vesting period here is of three years with further lock-in time of 12 months. The total restricted tenure amounts to four years hence.	FIXED PAY: the company is paying a fixed base to the executive CEO for his role as the key managerial personnel. The Fixed pay is part of the basics given to CEO for his work. SHORT TERM INCENTIVES: the short term incentives are based on the performance of the executives. These comprise of the short term bonuses and non-cash benefits. This incentive plans and given benefits are based on the performance of company. LONG TERM INCENTIVES: The long term incentives comprise of the Ambition Employee Share Incentive Plan.
PERFORMANCE FROM A SHAREHOLDER’S PERSPECTIVE: The analysis for the growth or decline that company as witnessed from the point of view of the shareholders is presented by the use of the share price chart for the past three financial years.	The dividend paid by the company has increased from $140 million (approx.) to $189 million (approx.). This dividend payment includes the bonus and employee stock option given to executive (Pelger, 2016).	The dividend paid by the company has remained almost same for these financials years. The amount reported is $672,000. It reflects that with the increase in the benefit company has also increased the overall benefits for its stakeholders (Rao, and Tilt, 2016).
COMPANY EPRFORMANCE VERSUS EXECUTIVE PAY	The share price of the company has risen from $14.06 in for financial year 2015 to $ 16.91 for financial year 2017. Growth is reported in the basic earnings per share from $56.3 in financial year 2015 to $ 63.5 in financial year 2017. This growth has significantly led to a rise in the pay of the executives as all the payments are somehow linked to the company performance. The growth in the incentive scheme and increased business payment has reflected that it has focused on increasing the overall outcomes and efficiency in long run (Kent, Kercher, and Routledge, 2018).	The company performance over the three financial years ending with financial year 2017 has declined. The share price has come down from $18 to $16. This has resulted in a decline in the basic earnings per share from $1.71 to $0.52. The remuneration or executive pay has followed the same declining trend. The reason is obvious that the performance bonuses are eliminated or declined with the decreased returns. Further the eligibility criteria for the Ambition Employee Share Incentive Plan are also not fulfilled. These incentive plans and undertaken strategic approach provide the increased motivation to its executives.

The Seek Group has adopted an effective measure to evaluate the executive performance and the basis of remuneration. The way remuneration is allocated highlights the high end approach followed by the management to achieve results in terms of higher company performance. The approach of the company’s remuneration programme is very simple to understand both by the executives and the shareholders. It is a short and summarised structure. The Seek group has adopted employee oriented remuneration pay which motivates employees to push themselves for the best outcomes of the organization (Hyndman, and McConville, 2016). 

The basic components as discussed above include the basic pay, the superannuation payment and the equity rights. The time the holder of the equity right has to wait in terms of vesting period and the lock in period is also mentioned without any doubts. The approach adopted had been highly effective in helping the company to attract the talented professionals. This is also helpful in retaining and motivating them to perform better than before. The base figure offered to the executives has been set at a level to encourage them to work effectively and remain motivated in the challenging scenarios. It is the lead given to keep them active throughout. The equity rights and superannuation payment is provided as long term benefit plan for its employees which will increase the overall outcomes and efficiency of company in long run (Doni, Gasperini, and Pavone., 2016). 

The long term incentives offered to the executives relate to the rewards that are offered in the form of equity. The equity is the same as what is offered to the shareholders. As a result, the executives in order to attain highest possible return need to perform in a manner that adds wealth for the shareholders. The same wealth is created for them as they also own that equity. The lock in period is long which promotes performance that yields sustainable results. This stands as a motivator to continually improve the average share prices (Dankova, Valeva, and Štrukelj, 2015).

Management By Objective

There are no short term incentives; because the company feels the long term organisational goals need a consistent approach. The short term incentives rest on the short term performance based on short term goals. These goals are not consistent and hence sometimes divert the executives from the main goals (Peng, and Röell, 2014).

From the table presented above, the policies framed by both the Seek Group and the Ambition Group have been analysed. The table itself is showing that the policies of Seek Group have led the executives to perform in a manner that has encouraged an improvement in company performance. The share price had shown a continual rise over the years. The eventual rise is also observed in the earning per share of the company. The 50% portion of total remuneration gets value from the way the company is performing. There is no alternative available with the executives rather than the improvement of their respective departments. This shall add to the value that company attains in the market and adds to the overall wealth of the shareholders (Hoque, 2014). The table has shown that company has improved its business performance by aligning the interest of the stakeholders with the organization development.

However, the ambition group has adopted a target based remuneration plan. The performance bonuses rest on the eligibility of attaining those targets. The share incentive plans offered are based on the criteria of achievement of a certain level of earning per share. The whole share incentive plan is already framed which highlights the vesting provisions (Kerzner, and Kerzner, 2017). This will also result to increasing the overall outcomes and increased business efficiency in long run. 

Conclusion

The whole report when analysed, undoubtedly votes Balanced Scorecard as the best option to remunerate managers in an organisation. This can be seen from the case of Seek Group wherein the multiple areas are to be considered for bestowing a rise in the executives’ pay. Seek group has in every manner adopted a better remuneration approach than the competing Ambition Group. The financials of both the companies also depict the same crux. The company’s performance in case of Ambition Group is declining year by year. Although there are many possible reasons, but one of the most appropriate reason set is the lack of motivation among the executives and the resultant poor company performance. Due to declining trends the company is facing, the executives are also being paid less and that has in some or the other manner demotivating them.

Graphic Rating Scales

As far as Seek Group’s financials are sought. The company seems ever growing. Every component that can measure company performance has shown an improvement. The same has resulted in providing the executives with a higher pay. So there seems no method better than balanced scorecard to evaluate and remunerate managers. Now in the end, it could be inferred that Seek Group Company should adopt the balance score card approach as its best method to evaluate and remunerate its employees. 

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