The paper "Computershare Limited CEO Compensation Package" is an outstanding example of a finance and accounting assignment. The company’ s CEO compensation package is composed of three components namely, the basic salary, the short term incentives and the long term incentives. The basic salary component is not subject to risk while the variable short term incentives (STI) are based on the current year’ s performance. On the other hand, the long term incentive (LTI) component is also variable and comprises awards of performance rights over shares in Computershare. The various components of Computershare’ s CEO compensation are briefly discussed below; Short term incentives The component is composed of a cash bonus (CSTI) as well as an equity grant of the company’ s shares that are made on a deferred vesting basis (DSTI).
In this regard, the CEO is provided with an on-target guide being an amount equal to the base salary and the short term incentive assuming on-target performance. If the CEO achieves the on-target performance, then the short term incentive equals to approximately 43% of the CEO’ s base salary with the maximum benefit the CEO can receive as a short term incentive being 75% of his base salary.
In the year 2014 WS Crosby received a total of $604,750 as of the overall short term incentives. The components of the short term incentive for the CEO are calculated as follows Short term cash bonus (CSTI)- The on-target package guide places this to 15% or 21.4% of base salary with the minimum entitlement being nil where targets are not met while maximum entitlement is pegged at 22% of the package or 32% of base salary. However, 70% of the CSTI is based on performance against budgeted management EBITDA.
The maximum entitlement is achieved if the CEO achieves 120% of the budgeted management EBITDA while no bonus will be awarded where the CEO achieves less than 80% of the budgeted management EBITDA. The remaining 30% of the bonus is based on the CEO’ s personal objectives that depend on his role and responsibilities and include matters such as business expansion, cost and risk control. Short term equity on a deferred basis – this is given as 15% of target performance or 21.4% of base salary.
The minimum entitlement is nil while maximum entitlement to the CEO is 30% of the package or 43% of the base salary. 50% of the DSTI depends on the group’ s management earnings per share/ EPS growth. The maximum entitlement is reached if the EPS growth exceeds 20% while no DSTI is paid where the growth is below 5%. The remaining 50% DSTI is based on strategic, cultural and organizational measures including financial and non-financial performance measures, leadership, character and replaceability. Long-term incentives The CEO is also entitled to receive long-term incentives comprising grants of performance rights over the company’ s stock.
These are known as the deferred long-term incentive plan (DLI) 50% of which is subject to performance hurdles that are based on the company meeting group management EPS growth targets while the remaining 50% is not subject to performance hurdles. It should, however, be noted that these incentives do not vest unless the CEO remains in the company for a five year retention period. In conclusion, it can be argued that the long-term incentives are aimed at motivating the CEO to improve performance and at the same time encourage retention for a longer time given the fact that nurturing talent is not easy.
During the year 2014, the CEO awarded performance rights/ options worth $407,139. Consequently, the CEO’ s total remuneration was $2,133,788 which was composed of the following components;
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