Report on Executive Pay for the Year 2016/2017

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Report on Executive Pay for the Year 2016/2017

1.0 Introduction

Executive compensation remains a major legal and ethical issue in corporate governance.
Australian government introduce the two strike rule through the Corporations Amendment
(Improving Accountability on Director and Executive Remuneration) Act 2011 which gives
shareholders power to dissolve the board if 25% of the shareholders twice vote against the
executive compensation. In 2016, Commonwealth Bank of Australia's (CBA) shareholders voted
sailed the first strike but the second strike failed in 2017 after 92% approval of the remuneration
report. The purpose of this report is to explore compensation packages paid to executives for the
financial year 2016 and 2017. The report will look at the factors that determine executive
compensation, theoretical explanation for increase in compensation, association between pay and
performance, and effect on corporate governance. The report then analyses ethical issues with
CEO compensation package in 2016 and the benefits of social performance criteria. The report
will also make recommendation on what the bank should do to avoid the 2016 situation.

Category:

Description

Length: 1,250 words (10% leeway)
Group or Individual: Individual
This assessment item assesses the following learning outcomes:
Knowledge and Technological Skills (KS)
1.1 Demonstrate and apply integrated discipline (including technical) knowledge
across the broad field of business with depth in one or more core business
disciplines
Higher Order Thinking (HO)
2.2 Exercise independent judgment and initiative in adapting and applying
knowledge and skills for effective planning, problem solving and decision making
in diverse contexts. Report on Executive Pay for the Year 2016/2017.
Be professional communicators in an intercultural context (PC)
3.1 Use information literacy skills, and communicate effectively and professionally
in written forms and using media appropriate for diverse purposes and contexts
QUT late assessment policy
We will not mark assessment submitted after the due date and time without a
pre-approved extension i.e. will receive a mark of zero. If special circumstances
prevent you from meeting the assessment submission deadline, you can apply for
an extension. If you don’t have an approved extension you should submit the work
you have completed by the submission deadline and it will be marked against the
assessment criteria. Report on Executive Pay for the Year 2016/2017.

AYB311 Ass 2 Research Paper Task Description Semester 1 2018 2
Submission process
Submit the Research Paper electronically via Turnitin on the AYB311 Blackboard
site under: Assessment/Assessment 2 Research Paper – 25%/Research report
submission. Report on Executive Pay for the Year 2016/2017.
Students who encounter a technical problem when making their final submission
through Turnitin should email their assignment before the submission deadline to
troy.yao@qut.edu.au
Plagiarism
This unit uses the Turnitin text matching tool in Blackboard. You can submit a draft
version of your assignment prior to submitting your final version to allow you to
view your Turnitin Matching Report and make any corrections in relation to
referencing and cited work. When you submit the final version of your assignment,
Turnitin will generate a final text matching report for the Unit Coordinator.
Please note that Turnitin is a software tool and you should not rely on it to detect
all plagiarism. You are responsible for knowing what does and does not constitute
plagiarism. The Unit Coordinator will use methods in addition to Turnitin to identify
plagiarism. You should be aware of the MOPP in relation to academic dishonesty
and plagiarism specifically http://www.mopp.qut.edu.au/C/C_05_03.jsp

Issue: Executive Remuneration

AYB311 Ass 2 Research Paper Task Description Semester 1 2018 3
Research Paper Background Information
Executive compensation has been a target for criticism by stakeholders and
academics since the global financial crisis. CEO compensation packages aim to
address the principle-agent problems. In theory, well-designed compensation
packages are often served as a means of aligning managers’ incentives with
shareholders’ wealth. For many years, academics, policymakers, and the media
have drawn attention to the high levels of pay awarded to Australian chief
executive officers (CEOs), questioning whether they are aligned with shareholder
interests. Report on Executive Pay for the Year 2016/2017.
Australia introduced new legislation, Corporations Amendment (Improving
Accountability on Director and Executive Remuneration) Act 2011, effective from 1
July 2011, with the aim to increase transparency and accountability in executive
compensation matters. At the heart of the legislation is the ‘two-strike rule’.
Two-strike rule is applicable to Australian listed companies and it allows
shareholders to vote on the compensation paid to the company’s executives. If 25
per cent or more of shareholders vote, for the second time, against the executives’
compensation packages the company’s directors face re-election. Thus, directors
now face greater reputational risk if their company receives a ‘no’ vote on its
remuneration report of at least 25%. Report on Executive Pay for the Year 2016/2017.
In November 2016, Commonwealth Bank of Australia’s (CBA) shareholders
have revolted over senior banker pay packets, delivering a historic ‘first strike’ on
the remuneration report and forcing the nation’s largest company to rethink its
communications strategy with investors skeptical of using ‘soft targets’ to set
bonuses (November 9 2016, Financial Review). However, in November 2017, CBA
dodged a second strike over its executive pay, with 92 per cent of shareholders
backing its remuneration report. (November 16 2017, The Sydney Morning
Herald). Report on Executive Pay for the Year 2016/2017.

Instructions and requirements
You have recently been appointed as a graduate accountant in Commonwealth
Bank of Australia (CBA) that is listed on the Australian Stock Exchange
(ASX). As a requirement of the Corporations Act (2001), an audited executive
remuneration report must be provided by ASX listed companies. The Group
Executive, Financial Services & Chief Financial Officer (CFO) of CBA has asked
you to research and do a comprehensive analysis on the compensation packages
paid to the Executives for the financial year 2016 and 2017. Report on Executive Pay for the Year 2016/2017.

AYB311 Ass 2 Research Paper Task Description Semester 1 2018 4
You are required to write a business report and it MUST follow this structure
below:
 Title Page
 Table of Contents
 Business Report
1. Introduction: Purpose of the report and accounting issues to be
discussed
Literature Review & Discussion and Analysis:
2. Literature Review on executive compensation must include:
 What determines the level of executive compensation?
 Theoretical explanations for the increase in executive compensation
 Does research suggest an association between executive
compensation and firm performance?
 What is the effect of internal corporate governance (e.g.
independent board of directors) on the association between CEO
compensation and firm performance?
3. Discussions and Analysis:
 Discuss whether there are any ethical issues with CEO
compensation package in 2016.
 Discuss benefits and drawbacks of including social performance
criterial in CEO’s compensation package.
 Undertake a comprehensive review of CBA’s executive
remuneration strategy, governance and framework between 2016
and 2017and identify the changes. Report on Executive Pay for the Year 2016/2017.
 Critically analyse whether these updated remuneration principles
in 2017 help resolve agency conflicts between the executives (e.g.
CEO) and shareholders. Support your position and discussion with
reference to accounting theory and academic research you
discussed in section 2 Literature Review
4. Recommendation to CFO being further recommendations to ensure
that the bank does not return to the 2016 position.
 Reference List

AYB311 Ass 2 Research Paper Task Description Semester 1 2018 5
Other requirements:
 PLEASE ENSURE THE SUBMISSION IS TYPED, at least 1.5 line spacing
in 12 point Times New Roman, Arial or Calibri font, and the submission is
APPROPRIATELY REFERENCED. Report on Executive Pay for the Year 2016/2017.
 You must cite at least 8 scholarly sources such as published research
articles, academic books, conference papers, and textbooks (note that
published research articles rank highest, as they are peer reviewed).
Non-academic sources such as news articles and business reports will help
your report but their use is in addition to the minimum scholarly sources.
Lecture slides are not acceptable as a source. Textbook is an appropriate
source. Report on Executive Pay for the Year 2016/2017.
 Use APA referencing and citations.
See: http://www.citewrite.qut.edu.au/cite/qutcite.jsp
 Your word count begins with the heading for your introduction and ends at
the end of your conclusion. Headings and in-text references are therefore
included in the word count. Please include your word count on your title
page.
Resources to assist with this assessment
 Additional Readings (high quality scholarly sources) to help you get started
with the assignment will be posted under the assessment 2 folder.
 In the lecture in week 3, the requirements of the assignment will be
discussed. Report on Executive Pay for the Year 2016/2017.
 In the lecture in week 4, you will be provided an opportunity for you to ask
questions to the assignment task.
 The ‘Blackboard Discussion Board’ will be available in Week 5 for queries
that relate to the process, or clarification of the assignment requirements,
rather than the content. This is a useful resource for you in preparing your
research report. Students are expected to research content issues
themselves.
 Read the CRA carefully as it is an accurate reflection of how marks will be
allocated and it will assist your understanding of what is required. Report on Executive Pay for the Year 2016/2017.

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Report on Executive Pay for the Year 2016/2017

1.0 Introduction

Executive compensation remains a major legal and ethical issue in corporate governance.
Australian government introduce the two strike rule through the Corporations Amendment
(Improving Accountability on Director and Executive Remuneration) Act 2011 which gives
shareholders power to dissolve the board if 25% of the shareholders twice vote against the
executive compensation. In 2016, Commonwealth Bank of Australia's (CBA) shareholders voted
sailed the first strike but the second strike failed in 2017 after 92% approval of the remuneration
report. The purpose of this report is to explore compensation packages paid to executives for the
financial year 2016 and 2017. The report will look at the factors that determine executive
compensation, theoretical explanation for increase in compensation, association between pay and
performance, and effect on corporate governance. The report then analyses ethical issues with
CEO compensation package in 2016 and the benefits of social performance criteria. The report
will also make recommendation on what the bank should do to avoid the 2016 situation…….

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