Finding a Balance Between Performance and Risk
1. Organisation manage management performance in following way;-
- Firstly organisation collects the data relating to all the management is collected naturally as part of process work of manager staff.
- On the basis of data collected above measures the balance view of the organisation’s objective. i.e. performance of manger in the areas of productivity, recourse management and quality of work that is done by the management in the organisation.
- After that company provides the performance indicators to every management in the organisation in a fair and consistent manner. Performance indicator should be as independent as possible from variables outside the control of managers. Performance indicator of the management must promote both team work and friendly competition among the manager. Measures will be meaningful for all staff; people feel that they, as individuals, can contribute to improving the performance of the organisation.
- Further the objective of providing the performance indicator of the management in the organisation is to encourage the management for work.
- Such performance indicators of management are very useful to the organisation to measure the incentive or provide the salary to the management staff.
So this is how organisation can measure the performance of the management. On the basis of report of performance origination’s Top management are come to know that efficient utilization of resources. Based on above analysis of report Top management will decide the management remuneration and incentive of the management. In this way organisation balance two considerations when choosing managerial Pay and performance measure (Eisemann, Parker, & Alstyne, 2017).
2. The annual reports of the Adcorp Australia limited have been downloaded and analysis of Compensation contract between chief executive officer and chief financial officer of the company, this contract provide the terms of employment and some remuneration policy of the company. This contract is done for the better governance in the organisation and also provides the continuity of Top management and other management staff of the company.
a) The amount based on Short term compensation of executive director is $ 28190000 and Non executive director is $ 4193000, Including Bonus of the director. In Long term company will pay the incentive to the management according to their performance
b) CEO of the company pays as per their key performance area which is determined by the Remuneration and nomination committee of the company.
c) To determine the CEO bonus, Every Executive director or senior managements of the company received the performance rating on their personal score card based on the score of the CEO nomination and remuneration committee will determine the bonus amount. Salary and other benefit of excitative director or other senior management are reviewed by the Nomination and remuneration committee and then approve the salary of other director. While CEO and CFO approve the adjustments for all other employee(Coate & Mitschow, 2017)
d) CEO can maximise their bonus by increasing the profit of the company. Since the salary of CEO are depending at the percentage of profit. Further CEO can increase the effective capital of the company to maximise their bonus.
e) Agency theory is a part of governance of the company. It involves the problem of direct controlling of a company. Shareholder is the owner of the company and directors are responsible to act as a best of the interest of the shareholder. But when the directors are not act in the best of stakeholder than Agency theory will apply and this theory will prevent the problem. This theory can apply to separate the ownership and control between the shareholder and director of the company. This theory will protect the principal agent relationship among the shareholder and director. So agency theory will also provide the remuneration component in the organisation(Wang, Chiu, li, & Hsiao, 2018).
Analysis of Compensation Contract for CEO
3. Yes bonus plan are used to reduce agency problem that exist between manager and shareholders by tying manager remuneration to an index of the firm’s performance, i.e. by making high co-relation with the value of the firm (For example;- share price and earnings per share etc.) Separation of ownership and control means manger can act in their own way, which is against the best of shareholder. These problem can be categories into two parts
Risk aversion problem;- manager of the company prefer the less risk than the shareholder because human capital are involve in the organisation. Management prefer to invest in portfolio to diversify the risk rather than to maximising the value of the organisation (Cayon, Thorp, & Wu, 2017).
Dividend retention problem ;- In this case shareholder wants the maximum dividend but management want to retain the profit and invest in some other project to maximise the value of the organisation
Horizon value;- management of the company are concern with those cash flow which are affected their remuneration but the shareholder have long term interest in the organisation, so that they can consider the long term cash flow. Further for the purpose of valuing the firm we should consider the all the cash flow of the company, which are discounted as a required rate of return to know the present value of firm. On the basis of value of firm investor are attracted to invest in the company.
4. As a lending officer of the bank it is recommend to bank to impose the following safeguard to reduce the risk;-
i) Loan;- Regarding loan we should check the following point
- We should check the loan document of bank
- We should check the securities hypothecated against loan are proper or not
- We should check the Loan agreement
- We should check the sanction limits of bank are within the authority of bank or not.
- We should check whether bank properly following up the loan instalment or not
- We should check the Interest and instalment of loan
- We should check whether healthy turnover in account.
- We should check whether repayment schedule is made considering repayment capacity of borrower.
- If borrower is a company, whether there is proper resolution to borrower amount from bank.
- We should check interest Calculations should be examined(Boghossian, 2017).
- We should check whether bank make properly provision of their assets or not
ii) Classification Of NPA;- As an officer of company we check whether classification of NPA are done properly or not. If classification of NPA and recognition are not done properly than we rectify the same and record the NPA properly. We should check whether company is followed the NPA norms as may be prescribe are followed properly or not. NPA recognition is one of the important aspects of the bank. Further Calculating the NPA provision is also important aspects. We should check whether properly follow up of NPA are done by the bank or not.
iii) Internal control;- Internal control is also one of the important area that need to checked. We should check the internal control of the bank are design, implement and maintained properly or not, internal control is Maintained throughout the year or not.
iv) Consider the Audit report;- Further we should consider the audit report qualification. That is if any important point mentioned by the auditor of bank in preceding financial year we should consider the same in current year and check whether bank is followed the qualification properly or not.
v) Standard of procedure; – We should check whether bank is followed their standard of procedure or not which are prescribed or not.
vi) Laws and Regulation;- As an lending officer of bank we should check whether bank should followed the laws and regulation which are applicable or not. We should check that compliance is done properly or not.
vii) Credit score;- Before providing the loan to the customer we should check the credit score of such customer, Bank should check the credit score of the customer as the manner prescribe.
viii) Managerial remuneration;- In bank we should check the remunerations to the manager are provide as per the applicable standard norms or not (Alsagoff, 2010).
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