Does Variable Remuneration Reward Performance?: A Study of Two Australian Stock Exchange (ASX) Listed Financial Services Corporations

Abstract: Given recent
high profile corporate collapses and scandals in Australia there has
been increased interest in the performance of corporations' senior
management, particularly those listed on the Australian Stock Exchange
(ASX). New regulations, both mandatory and voluntary, have been
developed with the objective of improving the overall governance
structure of these corporations. Concomitant with this effort is greater
information disclosure of remuneration packages provided to
corporations' directors and senior executives; the most important being
the promulgation of AASB 1046 - Director and Executive Disclosures by
Disclosing Entities by the Australian Accounting Standards Board. Given
increased disclosure this paper investigates remuneration practices for
two ASX-listed financial services corporations covering the years 2003
to 2007. Specifically it looks at the structure of remuneration packages
and remuneration amounts for both the fixed and variable or
performance-based components of remuneration. The major finding is that
although remuneration package structures follow similar lines there are
significant differences in remuneration amounts, particularly in the
variable or performance-based remuneration, between senior personnel
within the same corporation as well as between corporations. The study
examined annual percentage changes in both fixed and variable
remuneration and found that fixed percentage changes were quite small,
while for variable remuneration percentage increases were higher than
those for a set of financial indicators for the corporation as compared
to percentage decreases which were lower than those for the same set of
financial indicators.