Introduction
Corporate Governance Statement and Remuneration Report are core components of the Annual Report. The external users of financial report will make decisions by check these two reports besides the income statement and balance sheet. The Corporate Governance Statement shows the company how to conduct corporate governance, and sound corporate governance can help company to make more profit. Also, a good Remuneration Report makes the financial position of the company more transparent. This essay will analysis some Corporate Governance Statement and Remuneration Report in practical world.
Provide some examples of companies that appear to have performed well financially, even though they might not have model systems of corporate governance. Do you believe these companies could have achieved their financial performance if they were required to implement the full array of corporate governance policies and structures?
We found two companies which don’t have model systems of corporate but have performed well financially.
○1 Westfield Group. It is the largest retail property group in the world by equity market capitalisation. In 2008, its profit was 2.1 billion, but in its Corporate Governance Report, its corporate governance is not as well as its business performance.
Firstly, ASX Corporate Governance Principles and Recommendations states: The chair should be an independent director, but the chairman of board of directors (Mr Lowy) is not independent director.
Secondly, ASX CGC recommends that listed companies have an independent director as chairman and that the roles of chairman and CEO are not held by the same person. But in Westfield Group, Mr Lowy acts as Chairman and CEO.
In my opinion, these two factors do not affect company’s performance. As it is stated in Corporate Governance Report, Mr Lowy is the co–founder of the Westfield Group and with over 47 years direct experience in the design, construction and management of shopping centres. Mr Lowy’s experience and reputation is unrivalled in the industry. Mr Lowy is the most appropriate person to act as Chairman of the Westfield Group Boards.
To sum up, Westfield Group can achieve its financial performance without following all the recommendations presented by ASX CGC.
○2 HiTech Group Australia Limited. HiTech was established in 1993, and has achieved substantial growth since establishment, delivering average annual EBIT growth in excess of 46% per annum over the past three years. In FY 2008, its total revenue is over 5 million and its profit before tax is over 120,000. But HiTech also has some problems in corporate governance.
1) The managing director and CEO is a member of the board and is also the chairman.
2) A majority of the board members are not independent directors.
3) The roles of CEO and chairman are exercised by the same individual.
4) The company does not have a nomination committee.
5) No performance evaluation of the board or management was carried out for the FY2008.
6) The company does not have a remuneration committee.
In my opinion, HiTech had better follow some of the ASX CGC’s recommendations if it wants to run smoothly in the long run. From its financial statement we can see that, it has $5 million revenue, but only has 120,000 profits, the Cost of Providing Service ($3,981,587) and Administration Expense ($888,328) are too high. Company need to figure out why the cost and expense are so high, and find the way out. But in the other hand, HiTech is not a big company, remuneration committee and nomination committee is not necessary for this size company.
In conclusion, the company should consider its own situation, and then decide whether or not following the ASX CGS’S recommendations.
From the internet, access the remuneration report of an Australian listed public company. From that report provide a summary of the salary and performance benchmarks for the executives of that company. Do you believe the report is clear and the performance benchmarks appropriate?
BHP Billiton is the biggest company in Australia. The net profit was 15,962,000,000 US dollar, and total asset was 75,899,000,000 US dollar at the end of FY 2008. In its remuneration report, it states that the remuneration package equal to Fixed Remuneration plus At Risk Remuneration.
Fixed remuneration is made up of base salary, retirement and other benefits. It represents approximately 28 per cent of the individual’s remuneration package. Base salaries are set by reference to the scope and nature of the individual’s performance and experience, and are reviewed each year. Retirement benefits for new entrants are delivered under defined contribution plans. All defined benefit plans are now closed to new entrants. Other benefits include health insurance, relocation costs, life assurance and tax advisory services as applicable. All such benefits are non-pensionable.
At risk remuneration is geared to Group performance and is made up of short-term and long-term incentives. It represents approximately 72 per cent of the individual’s remuneration package. Short-term incentives are delivered annually under the Group Incentive Scheme (GIS). Awards under the GIS are split equally between a cash award (being a percentage of base salary) and a grant of Deferred Shares and/or Options (to encourage employee retention and share ownership). Long-term incentives, in the form of Performance Shares, are awarded annually under the Long Term Incentive Plan (LTIP). The diversified natural resources industry is capital intensive, cyclical and long term. Outstanding performance comes from accessing high-quality resources, successfully developing new projects and maintaining efficient and safe operations.
For example, Marius Kloppers, the CEO of BHP, in FY 2008, his total revenue is shown in the following table.
The performance of the Group relative to the markets in which it operates over the past five years is illustrated by the two charts below. The first compares our TSR (total shareholder return) performance with that of the ASX 100 and the FTSE 100, both of which are broadly-based indices. The second illustrates performance against the LTIP’s (long term incentive plan) peer group index. For FY2008, the total return to BHP Billiton Limited shareholders (as measured by the change in share price plus dividends reinvested) was 60.72 per cent. Over the same period, the total return to BHP Billiton Plc shareholders (measured on the same basis) was 54.86 per cent.
In my opinion, I believe that the remuneration report is clearly. It contains 10 sections, and each section contains several sub-sections. From the report, we can clearly know the remuneration policy of BHP. Also, it uses some tables and charts to make the data more intuitional. But we also find one shortcoming of this report. In the report, we can see 7 people in the Group Management Committee (GMC), but it doesn’t show each person’s position. It just classifies these 7 people into 2 categories- Executive Directors and Other members of the GMC. So, the readers of this report will confuse each person’s position. Like in Amcor’s report, it shows every director’s payment like this:
The performance benchmarks for the executives of BHP are appropriate. It compares BHP performance conditions with other company in Australia and UK. But BHP is a world-famous company, in its remuneration report, it is better to compare with other company in the same industry, not only Australian and UK company. For example, in Qantas’ remuneration report, it shows Qantas’ TSR performance compared to the S&P/ASX 100 Index and the MSCI World Airline Index over the past six years.
In conclusion, BHP’s Remuneration Report is quite clear, only some small details need to improve.
Bibliography
Amcor 2008 Annual Report, 2008, http://media.amcor.com/documents/ar2008_Annual_Report.pdf
ASX CGC Corporate Governance Principles, 2007, second edition, http://asx.ice4.interactiveinvestor.com.au/ASX0701/Corporate%20Governance%20Principles/EN/pdf_pages/page_0018.pdf
BHP billiton 2008 Annual Report, 2008, http://www.bhpbilliton.com/annualreports2008/2008-business-review-and-annual-report/annual-report/index.html
HiTech Group 2008 Annual Report, 2008, http://www.hitechaust.com/annual_reports/2008%20HiTech%20Annual%20Report%20Final%20as%20lodged%2017-9-2008.pdf
HiTech Group Corporate Governance Statement 2008, 2008, http://www.hitechaust.com/investor_files/HiTech%20Corporate%20Governance%20statment%20as%20per%20AR%202008%20and%20web.pdf
Qantas 2008 Annual Report, 2008, http://qantas.republicast3.com/Publications/Qantas+Annual+Report+2008/View.aspx#p=0
Westfield Group, 2008, http://en.wikipedia.org/wiki/Westfield_Group
Westfield Group Corporate Government Statement 2008, 2008, http://westfield.com/corporate/pdf/governance/CORPORATE_GOVERNMENT_STATEMENT_2008.pdf
Westfield Group 2008 Annual Report, 2008, http://westfield.com/corporate/pdf/presentations/ASX_RELEASE_2008_Annual_Report.pdf
Posts
No comments:
Post a Comment