Maximum Word Limit: 3,000 words
Due Date: 5 PM 20 September 2017
Bank executives might be in line for bigger base pays
Business Insider Australia
Jul 18, 2017, 11:34 AM
“Senior executives at Australia’s big banks might see their base pay improve significantly in reaction to the federal government’s moves to restrict bonuses.
The federal budget in May announced a series of measures to increase responsibility and accountability among the big banks, including deferring the payment of bonuses.
Bank CEOs can end up being paid more than $10 million when bonuses, short and long term, are counted.
The government wants a minimum of 40% of an executive’s variable remuneration, and 60% for CEO’s, be held back for four years before being paid.
Shareholders of ASX-listed companies have been increasingly kicking back at the size of bonuses, and how they are calculated, as a component of executive pay.
There is a sense that CEOs and their acolytes somehow game the system anyway, conspiring to create easy targets so they can collect millions from a blue chip range of short and long term bonuses not available to the average worker or shareholder.
Last year there were more than 100 strikes, some as high as 84%, against remuneration reports at company annual general meetings.
The Commonwealth Bank in November had its senior executive pay plans knocked back by shareholders at its AGM, the first such strike for a major bank. If it happens a second time, the board of directors will be spilled.
For the banks, a new Banking Executive Accountability Regime (BEAR) is being created, essentially meaning the licensing of senior executives at the big banks. The details are being worked out now.
These senior executives will have to be registered with the financial regulator APRA and if they misbehave, they lose their licence and, possibly, any bonuses due.
This will increase the financial consequences, by preventing bonuses being paid for decisions whose impact may take a long time.
A consultation paper released by Treasury says a potential consequence of requiring variable remuneration to be deferred is that the banks might adjust pay structures, shifting the balance of payment to base remuneration.
“As a result, individuals may face reduced incentives to engage in, or create a culture of short-term excessive risk taking,” the paper says.
“This raises the question as to whether a shift from variable to base pay is problematic and, if so, what, if anything, should be done to prevent this outcome.”
The banks have been hit by series of scandals including charging for financial planning advise not given.
Plenty of planners have been deregistered and been dismissed but no senior executive has lost their job in the fall out.
“In recent years, there has been growing community concern regarding a number of examples of poor culture and behaviour in banks and the financial sector generally,” the Treasury paper says.
“There have been too many instances where participants have been treated inappropriately by banks and related financial institutions.”
The government drew on the findings of a House of Representatives committee inquiry to strengthen accountability and competition in the banking system.
The committee’s report said: “The major banks have a poor compliance culture and have repeatedly failed to protect the interests of consumers. This is a culture that senior executives have created. It is a culture that they need to be accountable for.”
1. Making managerial pay linked with firm’s performance motivates them to deliver good performance for shareholders. However, it also burdens them with greater risk than they may like. Use Positive Accounting Theory with the help of relevant research literature to explain the risk taking behaviour of managers.
2. Explain the concept of earnings management. What are some of the factors that influence managers to perform earnings management activities? Explain using the relevant research literature.
3. One theory that explains the development of regulation is Public Interest Theory. Explain the theory and provide arguments with the help of research literature that Australian government’s proposed increases in regulation of executive pay being in the public interest.
1. Assignment submission
a. Each group consists of no more than three members from the same tutorial groups.
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d. The submitted hard copy of the assignment must be the identical version of the electronic copy submitted through the Dropbox (i.e. Turnitin) on VU Collaborate. Inconsistency in the hard copy and the electronic copy may result in a zero mark of the assignment.
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e. The Turnitin/Dropbox Similarity Report should be no more than 30%.
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a. The presentation of the response to each question should be clear, concise and accompanied by expository text accessible to the reader
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3. Preventing plagiarism
3.1 Academic Honesty and Preventing Plagiarism Policy
Plagiarism is defined as ‘The practice that involves use of another person’s intellectual output and presenting it (without appropriate acknowledgement) as one’s own’.
Examples of plagiarism:
• Word-for-word copying of sentences/paragraphs in an assignment without acknowledgement or with insufficient or improper acknowledgement;
• Downloading essays or assignments from the web and presenting these for assessment;
• Presenting another student’s work or research data as the student’s work;
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• The use of someone else’s concepts, experimental results, experimental conclusions or conclusions drawn from analysing evidence or arguments without acknowledging the originator of the idea(s) or conclusion(s).
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• Understanding and respecting the University’s policies and procedures regarding plagiarism, collusion, and other forms of academic misconduct, and as such should only submit work for correction or academic credit that is their own or that properly acknowledges the ideas, interpretations, words or creative works of others;
• Avoiding the lending or making accessible original work to others;
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• Refusing to be a party to another student’s efforts to undermine the academic integrity of the University.
• Seeking assistance with their learning and assessment tasks if they are unsure of appropriate forms of acknowledgement.
Assessment Criteria for each part of your assignment
Assessment Structure (marks) Excellent Very Good Good Average Marginal Poor Very Poor
1 Abstract (10)
2 Introduction (10)
3 Part 1 (20)
4 Part 2 (20)
5 Part 3 (20)
6 Conclusion (10)
7 Bibliography, referencing and citations (10)
Assessment criteria to be applied on Assessments
Excellent: Work fulfilling the above criteria to an outstanding degree, in particular demonstrating excellence in sustained argument, critical thought and synthesis of material from diverse sources.
Very Good: Work demonstrating extensive knowledge and understanding of major content areas and issues; the ability to appropriately synthesise material from a range of sources; a well-developed capacity for critical analysis of key issues and concepts; the ability to present a defensible perspective on issues; evidence of wide reading in relevant areas of the discipline.
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Average: Work of ‘average’ standard which demonstrates an average comprehension both of basic concepts and some issues, based on class work and some further reading in the area; some ability to compare key concepts and theoretical perspectives; average presentation, particularly regarding structure, expression and referencing.
Marginal: Work which shows a basic understanding of key elements of the subject matter at a descriptive level, based mainly on attendance at lectures; satisfactory presentation with some deficiencies in structure, expression and referencing.
Poor: Work which shows little evidence of knowledge or understanding of the subject matter and is unsatisfactorily presented, particularly regarding structure, expression and referencing.
Very poor: Work which shows no evidence of knowledge or understanding of the subject matter.