Executive Compensation and Financial Performance Measures: Evidence from Significant Financial Institutions

Le, CHA; Shan, Y; Taylor, S

Executive Compensation and Financial Performance Measures: Evidence from Significant Financial Institutions

Le, CHA Shan, Y

Taylor, S

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Publisher:: WILEY
Publication Type:: Journal Article
Citation:: Australian Accounting Review, 2020, 30, (3), pp. 159-177
Issue Date:: 2020-09-01

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Field	Value	Language
dc.contributor.author	Le, CHA
dc.contributor.author	Shan, Y https://orcid.org/0000-0003-2156-8722
dc.contributor.author	Taylor, S https://orcid.org/0000-0001-8870-4966
dc.date.accessioned	2020-10-02T19:53:57Z
dc.date.available	2020-10-02T19:53:57Z
dc.date.issued	2020-09-01
dc.identifier.citation	Australian Accounting Review, 2020, 30, (3), pp. 159-177
dc.identifier.issn	1035-6908
dc.identifier.issn	1835-2561
dc.identifier.uri	http://hdl.handle.net/10453/143032
dc.description.abstract	© 2020 CPA Australia We survey the use of financial performance measures in determining executive pay among significant Australian financial institutions. We document evidence of the pervasiveness with which externally disclosed non-GAAP (non-Generally Accepted Accounting Principles) financial measures are also used internally to determine variable remuneration, with the apparent popularity of cash profit after tax in short-term incentives plans. Our evidence also highlights the increasing use of peer group-adjusted measures (e.g., relative cash earnings per share and return on equity ranking against a peer group) in determining longer-run incentives, despite the fact that members of the peer group do not measure financial performance in a directly comparable manner. Detailed analysis of the four major trading banks (Australia and New Zealand Banking Group, Commonwealth Bank, National Australia Bank and Westpac) reveals differences in the way non-GAAP earnings measures are calculated across the major banks, as well as some variation over time in the way individual banks measure performance. We also document evidence of non-GAAP earnings restatements, with around 25% of non-GAAP results subsequently being restated. These restatements are more likely to result in a downward revision of the initially reported non-GAAP result than an upward revision. We therefore conclude that existing measures of financial performance used to determine senior executive compensation are not as ‘objective’, as might be assumed.
dc.language	English
dc.publisher	WILEY
dc.relation	http://purl.org/au-research/grants/arc/DP180100388
dc.relation.ispartof	Australian Accounting Review
dc.relation.isbasedon	10.1111/auar.12315
dc.rights	info:eu-repo/semantics/closedAccess
dc.subject	1499 Other Economics, 1501 Accounting, Auditing and Accountability
dc.title	Executive Compensation and Financial Performance Measures: Evidence from Significant Financial Institutions
dc.type	Journal Article
utslib.citation.volume	30
utslib.for	1499 Other Economics
utslib.for	1501 Accounting, Auditing and Accountability
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Accounting Discipline
pubs.organisational-group	/University of Technology Sydney
utslib.copyright.status	closed_access	*
dc.date.updated	2020-10-02T19:53:31Z
pubs.issue	3
pubs.publication-status	Published
pubs.volume	30
utslib.start-page	159
utslib.citation.issue	3

Abstract:

© 2020 CPA Australia We survey the use of financial performance measures in determining executive pay among significant Australian financial institutions. We document evidence of the pervasiveness with which externally disclosed non-GAAP (non-Generally Accepted Accounting Principles) financial measures are also used internally to determine variable remuneration, with the apparent popularity of cash profit after tax in short-term incentives plans. Our evidence also highlights the increasing use of peer group-adjusted measures (e.g., relative cash earnings per share and return on equity ranking against a peer group) in determining longer-run incentives, despite the fact that members of the peer group do not measure financial performance in a directly comparable manner. Detailed analysis of the four major trading banks (Australia and New Zealand Banking Group, Commonwealth Bank, National Australia Bank and Westpac) reveals differences in the way non-GAAP earnings measures are calculated across the major banks, as well as some variation over time in the way individual banks measure performance. We also document evidence of non-GAAP earnings restatements, with around 25% of non-GAAP results subsequently being restated. These restatements are more likely to result in a downward revision of the initially reported non-GAAP result than an upward revision. We therefore conclude that existing measures of financial performance used to determine senior executive compensation are not as ‘objective’, as might be assumed.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/143032