Managerial Accounting for The Accounting Trick

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Introduction

This report is undertaken with the objective of understating the remuneration structure of the the top four banks namely Westpac, Commonwealth, National Australian Bank and ANZ in Australia to get an insight into the executive performance. The key executive of the company and his performance is directly linked with the remuneration he draws (Financial Review, 2015). The major emphasis in this report is to evaluate the remuneration drawn by the chief executive officer (CEO) and chief financial officer (CFO) and the different components that make up the remuneration structure.  The components includes perks and benefits namely incentives, bonus and equity option. It motivates the employees to perform and excel to get more incentive and bonus.

The chief executive officer (CEO) is entrusted with the responsibility of the overall direction and administration of the company and focus on the products and services, financial performance, credit policy, operational aspect, business development, risk management and regulatory compliance (Financial Review, 2015).  He evaluates the investment opportunities for the future growth of the bank and takes the right decision to increase the wealth creation for the shareholders and other stakeholders.

Background Material

Accounting can be defined as a system designed by the organizations for measuring, aggregating and transmitting the financial data in order to serve various managerial purposes and thus the accounting system is considered as one of the integral part of the core control system mainly because of the measurement capability of the accounting system (Epstein and Lee, 2007). Moreover, accounting information system also tends to play a crucial role in effective organizational management and in implementation of the internal control system within the organization. The internal control facilitates the organization in efficiently achieving its operational goals and performance. The internal controls can be referred to as the procedures that are set up by the business organizations for purposes like protecting the assets, promoting efficiency, ensuring reliable accounting reports and ensuring adherence to the policies of the company. So with efficient internal control, it becomes easy on the part of the management to use the information with greater reliance for maintaining the business activities effectively and this provides the accounting information system. (Ravichandran  et al., 2007) put forward the fact that there are certain indicators that need to be present in the accounting information system and they are good documentation, independent internal and external audit, existence of effective security measures and effective internal control.

Implementation of an effective accounting information system tends to make a positive and significant impact on the organizations in the form of factors like it leads the organization towards better adaptation to the changing environment, makes the firm competitive and leads to better management of the arm’s length transactions (Garrison and Noreen, 2010). Moreover the management accountant within an organization emphasize upon performing a wide range of functions, however the most important function is to plan for the control of the accounting functions (Hoitash et al., 2009). Thus he is responsible for controlling and coordinating the accounting functions through systematic planning and making an effective use of the available accounting techniques and tools. He also emphasize upon implementing an effective internal control system through tools and techniques like sales forecasts, budgets, tax planning and appraisal of the capital investments that are made by the company.

Individual Report of the Four Banks

Westpac Bank

Westpac is considered to be first bank of Australia founded in 1817 by the name Bank of South Wales. It was named Westpac Banking Company in 1982 and it serves 13.1 million customers in fulfilling their financial goals with a network of 1429 branches. The bank works with the vision of becoming the best service companies in the world and promotes the growth and prosperity of customers, people and society (Westpac.com.au, 2004). The CEO of the Westpac bank was Gail Kelly who became the first female CEO of the oldest bank in 2002 and continued till 2014 while new CEO Brian Hartzer was appointed in the year 2015 at a lower remuneration compared to the earlier one.

Remuneration Comparison of CEO

Brain Hertzer is the new chief executive officer of the bank and entrusted with the responsibility of setting the vision and road map for the bank and motivates the people to achieve the same. He draws the highest salary in the company as he is the person who is held responsible for the success and failure of the company apart from effectiveness of operation, marketing and customer service. In compared to the earlier CEO his salary is less as she has served the company for a long period from 2002 to 2014.The CEO remuneration has fixed and variable component as explained above and fixed part is constant while the variable part has direct relation with the performance and fluctuate with performance of the bank.

Commonwealth Bank

Commonwealth bank of Australia (CBA) is multinational bank established in 1911and it is considered as one of the big four of the banking sector in the country. The bank provides integrated financial products and services including retail banking, institutional banking, fund management, insurance services, investment products and superannuation (Commbank.com.au. 2008). The bank serves the customers with its 1100 branches. The CEO of the bank is Ian Narey who was promoted to the position in 2011.

Remuneration Comparison of CEO

The commonwealth bank decides the remuneration of the CEO other top executives with the joint decision of remuneration committee. It is linked to the shareholders interest, risk management, market trend and flexible marketing scenario and as matter of fact his remuneration is higher compared to the chief financial officer who is responsible for the financial aspect only unlike CEO who takes care of other aspects like marketing, operation and customer service. The variable part like equity option and incentives & bonus has direct correlation with the performance while the fixed remuneration is constant as decided at the time of appointment.

National Australian bank (NAB)

In the banking and financing industry in Australia, NAB operates as renowned brand and it also has presence across the globe that facilitates the banks to offer its services to different communities as per their specific needs and preferences (Nab.com.au, 2015). The banks operates with around 1700 stores serving around 12700000 customers and the company operates with the aim of serving the customers with enhanced quality products and services against reasonable charges and fees.

Moreover, analyzing the financial performance of the company, it is observed that the company experienced an increase of 15% in its net income in the year 2015 in comparison to its net income in the year 2014 and so this made the company capable of offering high incentives to its senior executives (Nab.com.au, 2015). Thus there were certain changes that were made in the remuneration of the financial adviser by the remuneration committee of the company and this has been analyzed i.e. comparison of remuneration of the CEO of the company for three years i.e. 2013, 2014 and 2015 has been presented with the help of the following table:

Remuneration Comparison of CEO

The CEO of NAB is entrusted with the responsibility of overall management of the bank and thus draws higher remuneration compared to other top executives of the company who are responsible for a specific function of the bank. On the other hand the equity liked benefits provided to the CEO by the bank is lower. Thus it is evident while the comparing the remuneration and business performance that the former is directly linked to later and equity option along with incentives and bonus fluctuate with the performance of the bank. Thus if the CEO performs well he draws higher salary in terms of the variable components as mentioned in the table.

ANZ Bank

ANZ is considered as the world’s largest bank in the world and the banks employs around 28000 employees that facilitates it in serving around 5000000 customers across the globe. The banks also hold a strong financial position in the industry with 247 billion dollars (anz, 2015). The bank when measured in terms of capitalization in Australia enjoys the fourth potion in the banking and financial industry. In addition to the operations of the company in Australia and New Zealand, the bank has its presence in thirty different national all over the world.

The analysis revealed the fact that the bank in the year 2015 has been successful in offering good returns to its shareholders and this facilitated it in attracting more and more customers that made a significant positive impact on the capital structure of the bank (anz, 2015). So in the particular year due to good performance, the members of the bank were also facilitated with options and shares in the form of incentives and this proved to be an effective way of motivating the employees towards enhanced performance and commitment towards the bank.    

Remuneration Comparison of CEO

In ANZ the remuneration of CEO is lower than the remuneration of CFO who is entrusted with the responsibility of legal, obligation and mitigation, the merger and acquisition process and relationship management with the major investors while the CEO is responsible for the overall management and operational success of the bank. Thus it can be concluded that the remuneration is directly linked to the responsibility managed by the chief executive and how it impacts the growth and sustainability of the bank. It is one of the few banks in Australia where CFO draw higher remuneration than CEO. A poor performance leads to lower incentives & bonus.

Comparison of Findings

From the above research and analysis of the remuneration of the different banks that include the NAB bank, ANZ bank, Westpac bank and Commonwealth bank, it has been observed that the major components of the remuneration of the C EO include the following:

• Fixed pay in cash
• Equity option
• Equity shares
• Incentives and bonus

However t he remuneration of the CEO of the companies have been compared over a period of three years to analyze the increase and decrease in the salary that facilitates with the overall performance of the bank.

In this context it is observed that in case of the NAB bank, the CEO remuneration for the year 2013 is $7.03 million which is more in comparison to the remuneration of the CEO in the year 2014 which was $7.0 million and this is again higher than the remuneration of the CEO in the year 2015 which was $5.4 million. Thus it is observed that there has been decreasing trend in the remuneration of CEO in the company and the major components responsible for such decrease include the equity shares, the equity options and to some extent the fixed pay.

In context to ANZ bank, it is observed that where the CEO remuneration in the year 2013 was $8.15 million, it increased to 10.18 million in the year 2015 but again in the year 2015 it experienced a major downfall and thus amounted around to $8.58 million.  The major factor for increase in remuneration in 2014 was equity shares and the major reason for the decrease in the remuneration in the year 2015 was also equity shares.

In context to the Westpac bank, it is observed the CEO remuneration in the year 2013 was $9.17 million which again increased in the year 2014 and amounted to $11.77 million, but again in the year 2015 it experienced a major downfall and thus amounted to $5.74 million. In this case the major reasons for the increase in remuneration can be linked to the equity shares and for the decrease, the reason can be linked to both the equity share and fixed pay.

In context to the Commonwealth Bank, it is observed that the CEOI remuneration in the year 2013 was V7.80 million and it increased to $7.93 million in the year 2014 and it again further increased to $7.96 million in the year 2015. However it is also observed that changes in the figures of the CEO remuneration did not vary much and it was relatively stable in comparison to the other banks over the period of three years i.e. 2013, 2014 and 2015.

Thus from the overall analysis it can be said that Commonwealth Bank can be considered to be more stable in case of the remuneration of CEO and thus its performance in comparison to the other banks like NAB, ANZ and Westpac since the CEO remuneration over the period of three years experienced huge fluctuations.    

Summary of findings

There is direct relation between the remuneration system and overall performance of the company. It is established fact that if good remuneration and other benefits like incentive and bonus is provided to the employees it motivates the staff to excel in their performance thereby enhancing the financial position of the company (Westpac.com.au. 2004). Based on this the remuneration component of the big four banking company in Australia is evaluated and they are Westpac, Commonwealth bank of Australia (CBA), National Australian Bank (NAB) and ANZ.

Based on the above analysis related with the remuneration of CEO of the four big banks it is observed that that Westpac and ANZ are leading with $ 26.68 and $ 26.91 respectively while National Australian Bank (NAB) with $ 19.43 is the poorest.

When the remuneration provided to the CEO of the four big bank of Australia is analyzed closely for the past three years it leads to the interesting findings that the fluctuation in the remuneration of CEO is significant in the case of Westpac, National Australian Bank (NAB) and ANZ Bank (West, 2014). On the other hand it is quite stable in the case of Commonwealth bank of Australia (CBA) providing better stability in the long term. Thus taking into account both the remuneration in terms of amount and consistency it is Commonwealth bank of Australia (CBA) that is best bank of Australia.

Conclusion

Therefore it is concluded that the remuneration analysis of the Chief executive officer (CEO) of the four big banks of Australia namely Westpac, Commonwealth bank of Australia (CBA), National Australian Bank (NAB) and ANZ Bank and exhibited interesting results. All the four banks have their own strategy for remuneration both for executive members and non executive members to motivate and reward the employees (West, 2014). Based on the remuneration comparison research done for the four banks it is evident that ANZ has the best remuneration for the CEO of the company but it is also very fluctuating in the past three years for which the research is done namely 2013, 2014 and 2015. It is equally observed in the other two banks namely Westpac, National Australian Bank (NAB) as well. On the other hand in case of Commonwealth bank of Australia (CBA) it is very stable for the three years establishing the stability factor. Thus it is adjudged the best bank to work in Australia. Thus it is recommended that the other bank should learn a lesson and bring more stability in the remuneration structure of the company for better stability.

References

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