Comparing And Analyzing The Remuneration Approaches Of Saracen Mineral Holdings And Newcrest Mining Ltd
Remuneration Committees and Key Management Personnel
This paper is mainly purposed for analyzing and comparing the methods or approaches of remuneration used by Saracen Mineral Holdings Limited and Newcrest Mining Ltd. In this report, an analysis of how well the approaches of each company worked in encouraging higher performance by the executive teams is given. In addition, this report considers whether or not this performance translated to higher performance of the companies.
- Remuneration Committee and Its Membership
- Saracen Mineral Holdings Limited
According to the 2018 annual report of Saracen Mineral Holdings Limited, the remuneration committee of the company for the financial year 2018 were Geoffrey Clifford, Raleigh Finlayson, Mark Connelly, Martin Reed, Roric Smith and Samantha Tough. The Key Management Personnel (KMP) during the financial year 2018 were Morgan Ball, Simon Jessop, Daniel Howe, William Irvin and Marianne Dravnieks.
According to the 2017 annual report of Newcrest Mining Ltd, the company had the following directors in its remuneration committee:
- Sandeep Biswas, CEO.
- Gerard Bond, CFO.
- Melanie Allibon, EGM.
- Craig Jetson, EGM.
- Craig Jones, EGM.
- Ian Kemish, EGM.
- Francesca Lee, EGM.
- Michael Nossal, CDO.
- Philip Stephenson, EGM.
- Bonikro, EGM.
Saracen Mineral Holdings Limited
For Saracen Mineral Holdings Limited, the base or fixed salary for the Managing Director and other executives for financial year 2018 was $700,000. The maximum STI that the Executive could receive during the financial year 2018 ranged between 20% and 40% of TFR and the maximum LTI was 40% of TFR. The TFR consists of base pay and benefits, which include superannuation. The STI includes cash payments which are a specified target of FR percentage, while the LTI are mainly composed of performance rights (Macintosh and Quattrone 2010, pp. 77).
Figure 1: SAR’s Remuneration Framework of Executive Team
The following are the three components of the FY2018 executive remuneration framework of SAR.
Figure 2: Components of SAR’s Remuneration framework
Newcrest Mining Ltd
For Newcrest Mining Ltd, the Short Term Incentive (STI) outcomes of executives for during the financial year ending 2017 were kept in the range of fifty-seven percent (57%) to sixty-nine percent (69%) of their potential maximum allowed. The table below shows the remunerations awarded to the executive team of Newcrest mining Ltd for the financial year 2017.
Figure 3: Remuneration Summary of Newcrest Executive team and KMP
Below is a summary of the remuneration framework of Newcrest’s executive team during FY2017.
Figure 4: Summary of the remuneration framework of Newcrest’s executive team
Saracen Mineral Holdings Limited
Saracen Mineral Holdings Limited uses operating as well as non-operating Key Performance Indicators (KPI) as a performance measure of determining or forming a basis as to which the company assesses the levels of future remuneration for its executive teams and Key Management Personnel (KMP) (Gopal 2009, pp. 35). The company mostly aligns its set KPIs of KMP to the intrinsic business performance of the group (Kuppapally 2008, pp. 56). The following is a summary of the key performance metrics of SAR for the financial year 2018.
Figure 5: SAR’s key performance metrics
Newcrest Mining Ltd
Newcrest Mining Ltd used several performance measures. For instance, the company uses outcomes based on Return on Capital Employed (ROCE), comparative cost reduction and Relative Total Shareholder Return (TSR) as well, for its Long term Incentives (LTI). However, the company uses outcomes based on a combination of business performance and personal measures for its Short-Term Incentives (Horngren 2009, pp. 29). Through its LTIs, the company encourages its executive team to put more focus and attention on key drivers of performance underpinning the strategies and objectives of the company to deliver a long term growth in the value of their shareholders (Gitman, Juchau and Flanagan 2015, pp. 75). More information is provided below.
Remuneration Frameworks of Saracen Mineral Holdings and Newcrest Mining Ltd
Figure 6: Summary of Newcrest Mining Ltd key performance metrics
Saracen Mineral Holdings Limited
The performance linked remuneration approach used by Saracen Mineral Holdings in rewarding its executive teams motivated them to achieve higher performance, which led to improved performance of the group company in general (Gitman, Juchau & Flanagan 2015, pp. 10). Although the company does not have a history of dividends paid to its shareholders during the financial year ended 2018, its share price is currently at $1.855, which is a competitive price as compared to its peers in the industry (Saracen Mineral Holdings Limited 2018, pp. 38).
With regard to its business growth, the company has recorded an improved and expanded production that has made an active contribution in led to realization of more revenue through its positive gold price environment, as well as its declining costs. This enormous business growth has been significantly attributed to great motivation resulting from the attractive remuneration packages rewarded to its executive team and Key Management Personnel (KMP) (Weygandt, Kimmel and Kieso 2015, pp. 21). More information is given below.
Figure 7: SAR’s Company Performance Versus Executive pay summary
Newcrest mining Ltd
This remuneration approach for Newcrest Mining Ltd is believed to have encouraged its executive teams in achieving higher performance. For instance, the company achieved Total Shareholder Return (TSR) of one third of its Long Term Incentive grants. Additionally, the company has maintained positive free cash flows in all its operating sites during the financial year ending 2017. This indicates that the company has an improved overall performance (Newcrest Mining Ltd. 2017, pp. 77).
During the financial year 2017, Newcrest Mining Ltd achieved a number of pleasing financial results including a significant improvement in safety performance and strong cash flow generation (Hilton and Platt 2013, pp. 41). The company realized a profit amounting to $308 million for the fiscal year 2017, and its free cash flows amounted to $739 million for the year then ended. Below is the summary of Newcrest Mining Ltd performance during FY2017.
Figure 8: Performance of Newcrest Mining Ltd versus its Executives’ pay
Conclusion
As discussed above, it can be concluded that the remuneration methods or approaches used by Newcrest Mining Ltd and Saracen Mineral Holdings Limited are quite similar but slightly different. For instance, with regard to Saracen Mineral Holdings Limited, the base or fixed salary for the Managing Director and other executives for financial year 2017 was $700,000. The maximum STI that the Executive could receive during the financial year 2017 ranged between 20% and 40% of TFR and the maximum LTI was 40% of TFR. The TFR consists of base pay and benefits, which include superannuation. The STI includes cash payments which are a specified target of FR percentage, while the LTI are mainly composed of performance rights. On the other hand, Newcrest Mining Ltd had the Short Term Incentive (STI) outcomes of executives for during the financial year ending 2017 were kept in the range of fifty-seven percent (57%) to sixty-nine percent (69%) of their potential maximum allowed.
Furthermore, Saracen Mineral Holdings Limited uses operating as well as non-operating Key Performance Indicators (KPI) as a performance measure of determining or forming a basis as to which the company assesses the levels of future remuneration for its executive teams and Key Management Personnel (KMP). The company mostly aligns its set KPIs of KMP to the intrinsic business performance of the group. For instance, the company evaluates performance against the annual budget and safety as well as health measures. The remuneration committee has the right to assess remuneration of the executive team depending upon the outcomes of their reviews on annual performance of each executive and KMP, in addition to other relevant factors. However, Newcrest Mining Ltd used several performance measures. For instance, the company uses outcomes based on Return on Capital Employed (ROCE), comparative cost reduction and Relative Total Shareholder Return (TSR) as well, for its Long term Incentives (LTI).
References
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.
Hilton, R.W. and Platt, D.E., 2013. Managerial accounting: creating value in a dynamic business environment. McGraw-Hill Education.
Horngren, C.T., 2009. Cost accounting: A managerial emphasis, 13/e. Pearson Education India.
Kuppapally, J.J., 2008. Accounting for managers. PHI Learning Pvt. Ltd.
Macintosh, N.B. and Quattrone, P., 2010. Management accounting and control systems: An organizational and sociological approach. John Wiley & Sons.
Newcrest Mining Ltd., 2017. Newcrest Mining Limited annual report 2017.
Saracen Mineral Holdings, 2018. Saracen Mineral Holdings Limited annual report 2018.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John Wiley & Sons.