Remuneration Policy and Employee Benefits - Case Study Example

Running Head: Remuneration and Employee Benefits Remuneration Policy and Employee Benefits – A Case study of Telstra By _________________________ 05th February 2010 Abstract Telstra, an Australian company, offering services in the area of internet and other communications, has grown in sales revenue by 2.9% to $25,371 million with over 30,000 employees. The Directors of Telstra present the Remuneration Report which is prepared in accordance with Sec 300A of the Corporations Act for the Company. The remuneration strategies are prepared in due consultation from the external sources like Guerdon Associates, publicly disclosed remuneration information and data provided by Egan Associates. According to the Telstra’s Annual Report, total remuneration for senior executives includes fixed remuneration, short term incentives and long term incentives. Telstra’s non executive directors are remunerated in accordance to its constitution which provides an aggregated pool of fees total of which not exceeding the annual limit of $3,000,000. The company also offers salary sacrifice arrangements in form of shares. Shares are offered in place of salaries with regard to STI and LTI. The remuneration report can be used to further improve the strategy and policy by gathering information about the benefits of employees. Introduction Armstrong M. (2003) states that human resource management (HRM) is a strategic and coherent approach to the management of an organization’s most valued asset i.e. the people contributing individually or collectively to the achievement of its objectives. Aswathappa K. (2005) mentions that primary objective of HRM is to ensure the availability of a competent and willing workforce to an organization. Additionally, HRM objectives are divided into four segments viz. societal, organizational, functional and personal. The personal objective of HRM is to assist the employees in achieving their personnel goals at least insofar as these goals enhance the individuals’ contribution towards organization. Therefore personal objectives must be met if workers are to be maintained, retained and motivated. This could be possible partly if the company adopts attractive policies and strategy in providing remuneration and benefits to its employees so that the company’s goals are achieved. It is important for any management to know about the remuneration and employee benefits being provided to the employee from top to bottom which may certainly help in future decision making process in the company’s and employees interest. The present paper focuses on the remuneration strategy and employee benefits being provided to the employees of Telstra Corporation Limited while briefing the same to newly appointed CEO of the company. Remuneration Strategy Remuneration structure is the key to management of remuneration costs which ensures and enables the management to recruit right candidate with the required skills so that the organization can meet its objectives. The remuneration strategy must balance the four conflicting forces like organizational needs and values, external market value, internal relativities between positions and roles and individual needs of the employees. (www.mcbridehr.co.nz) Telstra – Remuneration and Employee Benefits: Strategy and Policy Telstra, an Australian company, offering services in the area of internet and other communications, has grown in sales revenue by 2.9% to $25,371 million with over 30,000 employees in Australia alone. In its Annual Report – 2009, Charles Macek, Remuneration Committee, Telstra stated that the remuneration philosophy is designed to create a performance culture by driving and rewarding executive behaviors focused on the company’s strategy and business objective. The company has different pay structure for different individuals working under same positions. (Telstra, Annual Report 2009) Scope of Remuneration Strategy and Policy The Directors of Telstra present the Remuneration Report which is prepared in accordance with Sec 300A of the Corporations Act for the Company. The report explains in detail the remuneration structure for different job heads according to the date of joining. (Telstra, Annual Report 2009) Senior Executives According to the Telstra’s Annual Report, total remuneration for senior executives includes fixed remuneration, short term incentives and long term incentives. The remuneration philosophy points out key principles that are developed to provide market competitive remuneration to attract motivate and retain the highly skilled workforce. The fixed remuneration is base salary which also includes salary sacrifice benefits and applicable fringe benefits and superannuation. The senior executives are given the benefits of Short Term Incentives (STI) which are paid annually when they exceed the targets of company’s financial performance and individual KPI and are paid 25% in shares and 75% in cash. The company also facilitates the senior executives with LTI as a reward performance at or above target for Relative Tool Shareholder Return (RTSR) measure. 50% of LTI is granted through RTSR measure where executives will be allocated one fully paid share for one exercise and 50% LTI is granted through restricted shares subjected to ROI measure. As per the terms of fiscal 2007 LTI Plan, any reward to Senior Executives is underpinned by options with an exercise price of $3.67. In summary, Senior Executives are paid basic salary, STI (cash & shares), non monetary benefits, post employment benefits, termination benefits, accrued long service leave and accounting value of other equity (at risk). This remuneration policy prohibits from entering into arrangements limited to economic risk of their company security holdings and requires them to follow this policy restriction on annual basis enabling the company to monitor and enforce the policy so that the targets could be achieved. (Telstra, Annual Report 2009) Non Executive Director Telstra’s non executive directors are remunerated in accordance to its constitution which provides an aggregated pool of fees total of which not exceeding the annual limit of $3,000,000. Apart from this company offers the non executive directors an opportunity to allocate their total remuneration within three components of Total Remuneration Plan viz. cash, directshare and superannuation which aims at long term benefits and retirement plan. In total, Non Executive Directors are remunerated with salary, fees, non monetary benefits, superannuation, and directshare. The remuneration policy enables the Non Executive Directors to maintain their independence and impartiality in decision making process for the future development of the company. (Telstra, Annual Report 2009) External pressures Though the remuneration report has been prepared and presented in due consultation with Guerdon Associates and its shareholders, the decision making process lies with the Board of Directors of Telstra. There may be a possibility of pressure from shareholders in terms of providing LTI and STI to its employees because the plan provides shares as benefits. (Telstra, Annual Report 2009) Remuneration policies and Incentive Plans are prepared with consulting the accounting firms and getting feedbacks from shareholders about the policies and incentives. The Board of Director’s formulate the remuneration report and it is documented under Section 300A of the Corporations Act of the Company. (Telstra, Annual Report 2009) The remuneration strategies are prepared in due consultation from the external sources like Guerdon Associates, publicly disclosed remuneration information and data provided by Egan Associates. After taking into consideration the suggestions of external and internal sources, the Board of Directors formulate the remuneration strategy for particular group of employees. (Telstra, Annual Report 2009) The remuneration of Senior Executives is benchmarked against international telecommunication firms and organizations within the ASX20 as per data provided by Egan Associates. The remuneration strategy offers many short and long term incentives apart from retention policies to senior executives for Senior Executives. Whereas Non – Executive Directors are paid remuneration along with superannuation and directshare policies. The remuneration strategy gives the employees in both the category enables to maintain their independence and impartiality in making decisions in future course of developing the organization. (Telstra, Annual Report 2009) The senior executives are rewarded in form on Short Term Incentives in cash and shares. Basing on their role, they have maximum opportunity in gaining STI from 120 to 160% of their fixed remuneration if their targets are met, Long Term Incentive Plan in Relative Total Shareholder Return (RTSR) and Return on Investment (ROI), Executive Share Ownership Policy and Retention Incentives. Non Director Executives are rewarded in terms of cash, directshare and superannuation. Telstra also provides opportunity to hold shares equivalent to at least 50% of their annual fees. These incentives and benefits are all regarded as bonuses to employee which are paid in addition to fixed remuneration. (Telstra, Annual Report 2009) The company also offers salary sacrifice arrangements in form of shares. Shares are offered in place of salaries with regard to STI and LTI. The employees can check for legal minimum entitlement in the data provided by Egan Associates under ASX 20 and Corporations Act of the company, which provides the benchmarking and laws relating to remuneration strategy. The benchmarking strategies and laws and comparisons against other international telecommunication companies can be used for continuous improvements in remuneration strategy and policies. (Telstra, Annual Report 2009) Total Cost of Employment Senior Executives Non Director Executives As a newly appointed CEO, it is necessary and important to get and know all the information regarding the employee benefits because they are the resources who are engaged in achieving the company’s objectives and targets within the scheduled time. CEO should consult with managers and employees in regular intervals with regard to the management and benefits of the employees. CEO may consult the managers about the remuneration policies and bonuses offered to employees. CEO may further interact with employees asking about their working conditions, salary benefits, incentives, bonuses and its continuous implementation. Through this CEO can gather information about the unrest, if any, unfulfilled promises by the company, and other issues with regard to encouragement of human resource which may further enhance the production and overall performance of the organization. References 1. Armstrong M. (2003) A handbook of human resource management practice, Ed. 9, Kogan Page Publishers, pp.727 2. Aswathappa K. (2005) Human Resources and Personnel Management, Ed. 4, Tata McGraw Hill, pp. 319 3. Remuneration Strategy and Structures, MHR Global, http://www.mcbridehr.co.nz/Article.aspx?Articleid=63 4. Telstra Corporation Limited, 2009 Annual Report. Read More