The current report aims to evaluate the performance and management control systems of the three leading insurance companies in Australia in order to assess the effectiveness of executive performance and remuneration policies. The three organisations that have selected to fit the purpose of this report include AMP Limited, IAG Limited and QBE Insurance Group. In this report, the company reviews have been evaluated in terms of executive remuneration apportionment, changes in remuneration reporting, company performance in contrast to executive payment and combination of performance measures used. The remuneration systems for the three organisations have been evaluated as well to assess the efficacy of the overall organisational performance. Finally, the report sheds light on providing recommendations for improving the reporting along with widening the performance measures of the organisation.
Allocation of executive remuneration:
In order to determine the allocation of executive remuneration, it is necessary to consider the fixed pay, short-term incentives and long-term incentives of the executive directors (Arnaboldi, Lapsley and Steccolini, 2015).
Figure 1: Allocation of executive remuneration in AMP Limited from 2013-2016
(Source: Amp.com.au, 2017)
According to the above figure, it could be found out that AMP Limited has disclosed the value of long-term incentives (LTIs) at their face value from 2013-2016, as laid out its annual report. However, in case of STIs, no such disclosure in relation to short-term incentives (STIs) has been made in 2013 and 2014. From 2015, the organisation has revealed its method of allocating short-term incentives by segregating them into 60% cash component and 40% deferred into share rights and the allocation process is identical in 2016 as well. It has been observed that the fixed remuneration of AMP Limited was $8,896,000 in 2014, which has increased to $9,098,000 in 2014 and the trend is inherent in case of 2015, as it has increased to $10,240,000 in 2015. However, in 2016, it has fallen to $9,415,000 in 2016. The organisation has failed to provide any short-term incentive in 2013; however, it has provided $1,195,000 in 2014 as STIs in 2014 and it has increased further to $11,498 in 2015. In 2016, it has again declined significantly to $2,219,000 in 2016. In case of LTIs, it has increased considerably over the years and thus, there is an increase in overall remuneration until 2015, which has declined in 2016 slightly due to fall in STIs.
Figure 2: Allocation of executive remuneration in AMP Limited from 2013-2016
(Source: Iag.com.au, 2017)
According to the above figure, it has been found that both STIs and LTIs have increased from 2013 to 2015; however, the trend is similar to that of AMP Limited in 2016. This is because the organisation has experienced a decline in its STIs and LTIs in 2016. The similar trend is observed in case of fixed remuneration as well and hence, there is a fall in overall remuneration of the executives of AMP Limited in 2016, which has experienced a steady increase from 2013 to 2015. Moreover, the allocation of STI has been made as 2/3rd of cash STI and 1/3rd of deferred STI. The LTI has been allocated based on 95th percentile of the peer group of the organisation.
Figure 3: Allocation of executive remuneration in AMP Limited from 2013-2016
(Source: Qbe.com.au, 2017)
Based on the above figure, it could be cited that the fixed pay, STIs and LTIs of the organisation have experienced a steady growth over the four-year period. However, no detailed breakdown regarding the allocation of STI has been depicted in the annual reports of the organisation.
The changes in reporting of executive remuneration could be evaluated with the above-stated figures for all the three selected organisations. This is because they help in revealing whether the organisations have made additional disclosures or eliminated some disclosures over the four-year period (Buckingham and Goodall, 2015).
In 2013 and 2014, the remuneration strategy of the organisation is to match remuneration with the creation of shareholder value by retaining and attracting staffs to contribute to its success. However, in 2015 and 2016, the organisation has developed some additional strategies for reporting its executive remuneration. These include formation of a risk management framework along with a governance framework that enables in handling conflicts of interest, precise responsibilities and ensuring effective checks and balances in place.
In 2013 and 2014, the organisation has disclosed other remuneration in its executive remuneration payment, which has been removed from the same in the annual reports of 2015 and 2016. This might be due to the fact that either the organisation has not paid any other remuneration to its executives during these years or it has manipulated its financial statements in these years for company benefits (De Waal and Kourtit, 2013). Moreover, termination payment has been made as an additional disclosure in the annual report of 2016, as two of its directors are about to part ways with the organisation in 2017.
The remuneration strategy of IAG Limited is developed in such a manner that the executive remuneration is aligned with the interests of its stakeholders. In addition, it aims to maintain market competitiveness and risk-taking behaviour to maintain long-term financial soundness (Mone and London, 2014). In 2016, it has appointed remuneration consultants for providing the remuneration benchmarking. The reporting policy has remained the same over the years, as no additional disclosures have been made or any disclosures have been eliminated.
The remuneration strategy of the organisation is to match remuneration with the creation of shareholder value by retaining and attracting staffs to contribute to its success. In addition, the organisation has disclosed other remuneration in its executive remuneration payment, which has been removed from the same in the annual reports of 2015 and 2016. This might be due to the fact that either the organisation has not paid any other remuneration to its executives during these years or it has manipulated its financial statements in these years for company benefits (Rausch, Sheta and Ayesh, 2013).
The organisational performance in contrast to executive payment could be assessed with the help of contrasting the change in company price per share and dividends per share with the executive payments (De Waal, 2013).
According to the annual report of the organisation, it has been found that the dividend per share of the organisation has increased from $0.23 in 2013 to $0.26 in 2014 and it has increased further to $0.28 in 2015. The dividend per share of the organisation has remained constant at $0.28 in 2016 as well compared to that of the previous year. In addition, the share price of AMP Limited has increased from $4.39 in 2013 to $5.50 in 2014 and it has increased further to $5.83 in 2015. The share price of the organisation; however, has fallen sharply to $5.04 in 2016 possibly due to the declining net income and falling market demand (Gerrish, 2016).
From the information depicted in the annual report, it has been found that the STI pool as a percentage of underlying profit has been 9.8% in 2013, which has increased to 11.3% in 2014. However, it has declined to 9.4% in 2015 and the decline is further inherent to 7.1% in 2016. This denotes that despite the increase in profit margin in 2015, the organisation has reduced its executive payments in relation to STIs and LTIs for maximising its base of retained earnings (Hatry, 2013).
As observed from the annual report of the organisation, the dividend per share has increased from $0.36 in 2013 to $0.39 in 2014; however, it has fallen to $0.29 in 2015. In 2016, it has risen sharply to $0.36 despite the fall in overall profit margin. This denotes that the organisation has focused on providing greater dividends to the shareholders in 2016 despite increased profit level in 2015. The share price of the organisation has increased sharply from $5.44 in 2013 to $5.84 in 2014. However, it has fallen considerably to $5.58 in 2015 and the decline is further evident in 2016 to $5.45.
In accordance with the executive payments of the organisation, there is an increase in their payments, as the profit margin has increased from 2013 to 2015. However, it has fallen significantly in 2016 with the fall in net income despite the increase for dividends distributed. Moreover, IAG Limited has not disclosed the STI pool as a percentage of underlying profits in 2016 in its annual reports.
According to the annual report of the organisation, it has been found that the dividend per share of the organisation has increased from $0.32 in 2013 to $0.37 in 2014 and it has increased further to $0.50 in 2015. The dividend per share of the organisation has remained constant at $0.28 in 2016 as well compared to that of the previous year. In addition, the share price of AMP Limited has increased from $10.90 in 2013 to $11.51 in 2014 and it has fallen to $11.21 in 2015. However, it has increased further to $12.59 in 2016.
In accordance with the executive payments of the organisation, there is an increase in their payments, as the profit margin has increased from 2013 to 2015. However, it has fallen significantly in 2016 with the fall in net income despite the increase for dividends distributed. Moreover, IAG Limited has not disclosed the STI pool as a percentage of underlying profits in 2016 in its annual reports.
In order to assess the mix of performance measures used for the three chosen organisations, various financial measures like earnings per share (EPS) and return on equity (ROE) have been taken into consideration. In addition, the non-financial measure like balanced scorecard has been taken into account as well (Hunter and Nielsen, 2013).
According to the annual reports of the organisation, the earnings per share have been $0.23 in 2013, which has increased further to $0.30 in 2014. This has risen further to $0.38 per share; however, due to the net loss suffered in 2016, AMP Limited has experienced a fall in its earnings per share to $0.16. Moreover, another supporting reason identified behind the fall in earnings per share of the organisation is due to the Australian wealth protection losses of $415 million.
In addition, ROE of the organisation has increased from 10.7% in 2013 to 12.7% in 2014 and it has increased further to 13.2% in 2015. However, due to the Australian wealth protection losses and capital expenditure in 2016, the ROE of the organisation has fallen to 5.6%.
As commented by Lattal (2014), balanced scorecard approach helps in covering the different objectives of an organisation along with enabling the managers to track its overall business success. From the financial perspective, it has been observed that AMP Limited has experienced an increase in its overall revenues and profit margins from 2013 to 2015. However, with the change in taste and preference of the customers, it has experienced a sharp fall in its profit level in 2016. In order to deal with this situation, the organisation has cut down its prices, which has compelled its suppliers to minimise their expenses as well.
From the customer perspective, the managers of AMP Limited identify the potential customers and segments of the market, in which the organisation would compete along with measures of performance of those units in the targeted segments (Lawrie, Kalff and Andersen, 2015). In addition, the organisation has introduced special loyalty cards for its customers, which would provide the customers to avail offers in their new or existing insurance policies.
From the internal business perspective, the product development manager of AMP Limited is involved in searching for latest trends in the insurance market for developing into a new line with the organisation (Ljungholm, 2015). The development and design of these new products could be timely for the company, as it needs to source suppliers along with carrying out market research. From the learning and growth perspective, the training and learning of staffs from within the organisation are considered so that it could continue to provide effective services to its customers. AMP Limited mostly employs employees from the Australian community and it is involved in continual design of new training programs so that it could improve the overall skills and learning processes of its staffs.
According to the annual reports of the organisation, the earnings per share have been $0.38 in 2013, which has increased further to $0.56 in 2014. This has reduced significantly to $0.31 per share; however, due to the net loss suffered in 2016, IAG Limited has experienced a fall in its earnings per share to $0.26. In addition, ROE of the organisation has fallen from 25.3% in 2013 to 23% in 2014 and it has fallen further to 15.3% in 2015 and 13% in 2016.
In relation to balanced scorecard approach, from the financial perspective, the organisation has developed a target to accomplish a return on its risk-based capital. It has met the ROE target, since it has been 1.5 times greater compared to the weighted average cost of capital. From the customer perspective, the organisation has formed strong net promoter stores over both the Australian and New Zealand consumer division for providing effective services to the customers (Nielsen, 2013). From the learning and growth perspective, the organisation has formed a new operating model for achieving a constructive culture. However, the staffs did not adapt to the changing environment, which has increased its overall attrition rate. From the internal business perspective, the organisation has developed strategies for uplifting the risk management framework for contributing strongly to operational decision-making.
According to the annual reports of the organisation, the earnings per share have been $0.62 in 2013, which has fallen significantly to ($0.23) in 2014. However, this has increased significantly to $0.56 per share; however, due to the net loss suffered in 2016, IAG Limited has experienced a fall in its earnings per share to $0.49. In addition, ROE of the organisation has fallen from 7% in 2013 to -2.3% in 2014. However, it has increased to 6.9% in 2015 and it has declined again to 6.4% in 2016.
In terms of balanced scorecard approach, from the financial perspective, it has been observed that QBE Insurance Group has experienced an increase in its overall revenues and profit margins from 2013 to 2015. However, with the change in taste and preference of the customers, it has experienced a sharp fall in its profit level in 2016. From the customer perspective, the organisation has formed strong net promoter stores over the Australian consumer division for providing effective services to the customers. From the internal business perspective, the product development manager of QBE Insurance Group is involved in searching for latest trends in the insurance market for developing into a new line with the organisation. From the internal business perspective, the organisation has developed strategies for uplifting the risk management framework for contributing strongly to operational decision-making.
From the evaluation of the remuneration systems of the three organisations that AMP Limited and IAG Limited are involved in disclosing other remuneration and termination payments, which QBE Insurance Group does not disclose. In addition, the detailed breakdown of the STI allocation has been provided on the part of AMP Limited and IAG Limited and this is not provided in case of QBE Insurance Group.
According to the above discussion, it has been found that AMP Limited has experienced an increase in its overall revenues and profit margins from 2013 to 2015. However, with the change in taste and preference of the customers, it has experienced a sharp fall in its profit level in 2016. In order to deal with this situation, the organisation has cut down its prices, which has compelled its suppliers to minimise their expenses as well. Thus, the remuneration policy of the organisation is somewhat effective to improve the overall business performance.
IAG Limited has developed a target to accomplish a return on its risk-based capital. It has met the ROE target, since it has been 1.5 times greater compared to the weighted average cost of capital. The organisation has formed a new operating model for achieving a constructive culture. However, the staffs did not adapt to the changing environment, which has increased its overall attrition rate. Thus, the remuneration policy of the organisation is somewhat ineffective to improve the overall business performance.
The product development manager of QBE Insurance Group is involved in searching for latest trends in the insurance market for developing into a new line with the organisation. In addition, the organisation has developed strategies for uplifting the risk management framework for contributing strongly to operational decision-making. Thus, the remuneration policy of the organisation is somewhat effective to improve the overall business performance.
According to the annual reports of AMP Limited, the earnings per share have been $0.23 in 2013, which has increased further to $0.30 in 2014. This has risen further to $0.38 per share; however, due to the net loss suffered in 2016, AMP Limited has experienced a fall in its earnings per share to $0.16. Moreover, another supporting reason identified behind the fall in earnings per share of the organisation is due to the Australian wealth protection losses of $415 million.
In addition, ROE of the organisation has increased from 10.7% in 2013 to 12.7% in 2014 and it has increased further to 13.2% in 2015. However, due to the Australian wealth protection losses and capital expenditure in 2016, the ROE of the organisation has fallen to 5.6%.
According to the annual reports of IAG Limited, the earnings per share have been $0.38 in 2013, which has increased further to $0.56 in 2014. This has reduced significantly to $0.31 per share; however, due to the net loss suffered in 2016, IAG Limited has experienced a fall in its earnings per share to $0.26. In addition, ROE of the organisation has fallen from 25.3% in 2013 to 23% in 2014 and it has fallen further to 15.3% in 2015 and 13% in 2016.
According to the annual reports of QBE Insurance Group, the earnings per share have been $0.62 in 2013, which has fallen significantly to ($0.23) in 2014. However, this has increased significantly to $0.56 per share; however, due to the net loss suffered in 2016, IAG Limited has experienced a fall in its earnings per share to $0.49. In addition, ROE of the organisation has fallen from 7% in 2013 to -2.3% in 2014. However, it has increased to 6.9% in 2015 and it has declined again to 6.4% in 2016.
Hence, based on the above discussion, it could be stated that the remuneration methods of AMP Limited are superior in contrast to the other two organisations due to better financial performance in the Australian insurance industry.
The following recommendations could be extremely beneficial for the three insurance organisations to improve their remuneration procedures:
Conclusion:
The above discussion clearly states that AMP Limited has experienced an increase in its overall revenues and profit margins from 2013 to 2015. However, with the change in taste and preference of the customers, it has experienced a sharp fall in its profit level in 2016. IAG Limited has formed a new operating model for achieving a constructive culture. However, the staffs did not adapt to the changing environment, which has increased its overall attrition rate. Thus, the remuneration policy of the organisation is somewhat ineffective to improve the overall business performance. QBE Insurance Group has developed strategies for uplifting the risk management framework for contributing strongly to operational decision-making. Thus, the remuneration policy of the organisation is somewhat effective to improve the overall business performance. Hence, it has been found that it could be stated that the remuneration methods of AMP Limited are superior in contrast to the other two organisations due to better financial performance in the Australian insurance industry.
References
Amp.com.au. (2017). About AMP – Banking, superannuation, advice and insurance – AMP. [online] Available at: https://www.amp.com.au/amp/about-amp [Accessed 2 Sep. 2017].
Arnaboldi, M., Lapsley, I. and Steccolini, I., 2015. Performance management in the public sector: The ultimate challenge. Financial Accountability & Management, 31(1), pp.1-22.
Buckingham, M. and Goodall, A., 2015. Reinventing performance management. Harvard Business Review, 93(4), pp.40-50.
De Waal, A. and Kourtit, K., 2013. Performance measurement and management in practice: Advantages, disadvantages and reasons for use. International Journal of Productivity and Performance Management, 62(5), pp.446-473.
De Waal, A., 2013. Strategic Performance Management: A managerial and behavioral approach. Palgrave Macmillan.
Gerrish, E., 2016. The Impact of Performance Management on Performance in Public Organizations: A Meta?Analysis. Public administration review, 76(1), pp.48-66.
Hatry, H.P., 2013. Sorting the relationships among performance measurement, program evaluation, and performance management. New Directions for Evaluation, 2013(137), pp.19-32.
Hunter, D.E. and Nielsen, S.B., 2013. Performance management and evaluation: Exploring complementarities. New Directions for Evaluation, 2013(137), pp.7-17.
Iag.com.au. (2017). IAG Limited. [online] Available at: https://www.iag.com.au/ [Accessed 2 Sep. 2017].
Lattal, K.A., 2014. Performance management: Changing behavior that drives organizational effectiveness.
Lawrie, G., Kalff, D. and Andersen, H., 2015. Balanced scorecard and results-based management: Convergent performance management systems.
Ljungholm, D.P., 2015. The practice of performance management in public sector organizations. Geopolitics, History and International Relations, 7(2), p.190.
Mone, E.M. and London, M., 2014. Employee engagement through effective performance management: A practical guide for managers. Routledge.
Nielsen, P.A., 2013. Performance management, managerial authority, and public service performance. Journal of Public Administration Research and Theory, 24(2), pp.431-458.
Pollitt, C., 2013. The logics of performance management. Evaluation, 19(4), pp.346-363.
Qbe.com.au. (2017). Car, Home, Travel, CTP Insurance | QBE. [online] Available at: https://www.qbe.com.au/ [Accessed 2 Sep. 2017].
Rausch, P., Sheta, A.F. and Ayesh, A. eds., 2013. Business intelligence and performance management: theory, systems and industrial applications. Springer Science & Business Media.
Seuring, S. and Gold, S., 2013. Sustainability management beyond corporate boundaries: from stakeholders to performance. Journal of Cleaner Production, 56, pp.1-6.
Shields, J., Brown, M., Kaine, S., Dolle-Samuel, C., North-Samardzic, A., McLean, P., Johns, R., O’Leary, P., Robinson, J. and Plimmer, G., 2015. Managing Employee Performance & Reward: Concepts, Practices, Strategies. Cambridge University Press.
Van Dooren, W., Bouckaert, G. and Halligan, J., 2015. Performance management in the public sector. Routledge.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download