Main Components of Remuneration in Salary Packages
Essay Preview: Main Components of Remuneration in Salary Packages
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MAIN COMPONENTS of remuneration in salary packages
E.g base level or cash payments and incentive payments (short/long term)
Qantas uses a reward program in which has been consistent for the past 8 years (the main components/framework). It has proved effective through increasing comparisons. The reward program involves a mixture of:
FAR – Salary decisions are based on the concept of Fixed Annual Remuneration (FAR), which involves a guaranteed salary level from which superannuation and certain other benefits, such as a maintained motor vehicle, are able to be deducted at the election of the employee on a salary sacrifice basis.
Performance plan:
Performance cash plan (which is a short term incentive) – The Performance Cash Plan is designed to reward Executives when key performance measures are achieved over the 12 month business cycle.
Performance equity plan comprising the Performance Share Plan ( medium term incentive) – The Performance Equity Plan comprises the Performance Share Plan (medium-term) and works side by side with the Performance Rights Plan (long-term incentive). Both elements are designed to strengthen the alignment of the interests of the Executives with shareholders.
Performance rights plan (which is a long term incentive) – Retention tool – The aims of the Performance Rights Plan as the long-term incentive component are to:
_ align the interests of eligible Executives and shareholders;
_ provide targeted but competitive remuneration and a long-term incentive for the retention of key Executives; and
_ support a culture of employee share ownership.
Concessionary travel benefits – Basically travel entitlements provided to all Executives within Qantas, consistent with practice in the airline industry. Travel at concessionary prices, is on a sub-load (standby) basis, i.e. subject to considerable restrictions and limits on availability and includes specified direct family members or parties
Discretionary benefits which differ from time to time and so therefore is not a main component, but does exist every year.
Plain and simple, set out in the 2011 annual report The Executive Remuneration Framework, as a brief overview consists of the FAR, the Short Term Incentive Plan and the Long Term Incentive Plan.
Fixed Annual Remuneration (FAR)
Salary decisions are based on the concept of Fixed Annual Remuneration (FAR), which involves a guaranteed salary level from which superannuation and certain other benefits, such as a maintained motor vehicle, are able to be deducted at the election of the employee on a salary sacrifice basis.
FAR is set with reference to market data, reflecting the scope of the role, the unique value of the role and the performance of the person in the role. FAR is reviewed annually and reflects a middle of the market approach, as compared to similar comparative roles within Australia, having particular reference to large public companies for the most senior roles.
The Performance Plan
The alignment of Executive remuneration outcomes with the performance of both Qantas and the individual is a key part of the Qantas People Plan. Relevant performance hurdles, agreed in advance of the allocation of incentives, are a key element in an appropriately structured Performance Plan. Vesting should be over a period that is consistent with the realisation of the short, medium and long-term strategic objectives approved by the Board.
Performance Cash Plan
The Performance Cash Plan is designed to reward Executives when key performance measures are achieved over the 12 month business cycle.
The target reward is a percentage of FAR dependent on each individuals level of responsibility. The actual incentive earned is based on a combination of Qantas results and individual performance and may be greater than or less than the target amount.
Performance against target results on a company wide basis, determines the amount (if any) of the pool of money available for payment. The measure for most Executives is the Earnings Before Depreciation Rentals Interest and Tax (EBDRIT) and, for the members of the Executive Committee, is the Return on Total Gross Assets (RoTGA) being EBDRIT divided by Total Gross Assets. The target is set with an inherent stretch component. It is anticipated that the target would be achieved in 3 out of every 4 years, given this level of stretch.
Once a pool has been approved, based on Qantas performance, the assessment of the performance of individuals against their specific annual goals takes place along with a further assessment of the relative contribution of Executives. This results in a differentiated distribution of the bonus pool between participating Executives.
Performance Equity Plan
The Performance Equity Plan comprises the Performance Share Plan (medium-term) and the Performance Rights Plan (long-term incentive). Both elements are designed to strengthen the alignment of the interests of the Executives with shareholders.
Performance Share Plan
The medium-term incentive component is delivered via deferred shares under the terms and conditions of the Deferred Share Plan
(approved by shareholders at the October 2002 Annual General Meeting), subject to satisfactory results on a balanced scorecard basis.
The target reward is a percentage of FAR dependent on each individuals level of responsibility. The actual incentive earned is based on a combination of Qantas results and individual performance.
Performance at a company level against the balanced scorecard determines the amount (if any) of the pool of shares available for payment. The Balanced Scorecard for 2004/05 contains target measures from the corporate Key Performance