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Practice and Research in measuring performance

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Introduction

In order to reform the public service provision, the state and the consolidated public sectors set the budgets and also outsource the public sector services that are away from the core administration. In this developmental run, the economic and sociopolitical aspects have laid greater influence for investment for the state-owned enterprises. The public sector industries are strongly increased with regard to efficiency, quality of public service provision and effectiveness for public finance. This report is mainly developed to the link between the executive director compensation and financial performance ratio which has been found having no significant link.

Review of Topic and review of Literature

In the corporate governances the usage of executive compensation acts as an incentive mechanism and this in terms helps the organization to reduce the agencies problems. This is a core research area present in the public organizations of UK. This literature mainly focuses on the pay-performance sensitivity and the economic consequences. The empirical literature is mainly based on the assumption that the public listed companies are following for paying the executive materials. As stated by Ezeani (2017, p.506) and Williams (2017, p.506), it is utmost important for the organization to examine the executive compensation considering under the circumstances of business groups.

As per the RPE (Relative performance Evaluation theory), in case of the multinational setting company's forth agent groups are confronted with the common risks. The valuable information regarding the agent's actions conveys the outputs for other agents. In this regard, it can be found that the listed companies are generally controlled by so-called business groups (Veliyath, et al., 2016, p.519). The performance of the business groups is mainly based on the appointed executives. Executive compensation is completely reliable for business performance. In case the company misleads the policy maker than that, in turn, affects the inefficient allocation of resources and directly impacts the organization's performance.  

As stated by Fisch, Palia and Davidoff Solomon (2017, p.10), purposeful and regular CEO performance evaluation done by the board will act as a cornerstone for effective governance. As per the RIO Tinto 2010 Board Index, 90% of directors and CEOs are surveyed for evaluating the performance in annual basis where is rest of the 10% are surveyed on a frequent basis. Based on this survey, Ghasemi (2017, p.10) and Ab Razak (2017, p.10) have been opined that making performance evaluation of CEO is quite difficult. Organisational performance mainly depends on fair compensation policies provided to the people. This in term reduces conflicts and also makes others work wholeheartedly. As stated by Kirsten (2018, p.10) and Toit (2018, p.10), the fair and reasonable compensation policy for the executives as well employs acts as a fundamental factor for creating long-term corporate values. Implementing reward system enhances the employee's performance.       

Company review

Rio Tinto is world's largest metal and mining British Australian company located in London. There is a long series of acquisitions and mergers have been placed for production of the iron core, aluminum, diamonds, and coals. One of the main existing issues related to company's operation is an alignment of performance with executive’s performance. In order to analyze the company's remuneration structure annual report of three years back to still has been considered.      

1. Details for remuneration committee and its membership

The remuneration policy of RIO Tinto is generally applied to the nonexecutive and executive chairman and directors. The shareholders of companies are not related to the remuneration policy (gurufocus.com, 2018).   

2. Allocation of Executive Remuneration

Fixed pay

The salaries of RIO Tinto target the remuneration company's target comparator groups. Any increase in the salaries of the employees is taken into account based on the individual performance and underlying group performance, roles and responsibilities, internal relativities, global economic condition and base salary budgets which are decided based on the employee population in the company (Soltani and Maupetit, 2015, p.259).    

STIs

Based on the short-term incentive plan the committee defines absolute discretion for the executive who leaves during the performance year (Skovoroda and Bruce, 2017, p.265). Cash payments will be done at normal STI payment strategy. Absolute discretion has been provided to the employee who has given notice period and works until the performance year.      

LTIs

Consistent practice with the Long-term incentives will be granted to the employees who have been working in the organization since 1998. This has been calculated using the average share price over the previous calendar year. The award granted in the year of 2017 is of AS$48.533.  

3. The mix of performance measures used

The Rio Tinto uses the list of performance measures for tracking the employee's performance. Competitive rewards have been provided to motivate, retain and attract the executives. High caliber has been maintained to lead the group of members through ensuring the appropriateness and proportionate in the rewards. Remuneration arrangements and market practices are especially focused (Rose, 2016, p.152, p.202).

4. Financial Performance measures versus non-financial measures

Financial Performance measures

EPS

The earned per shared value represents the portion of profits of companies allocated to each of outstanding shares in the common stock. In the year of 2017 Rio Tinto's EPS is of 4.869 and 2.553 in 2016.

ROE (Return on Equity)

The return on Equity share of the organization is of 25.09%. Various mining operations of Rio Tinto have been located in Australia, Europe and South Africa and in Canada (Quintana-García, and Elvira, 2017). This in term helps the organization to grow in a rapid manner. 

Balanced Scorecards

ROI

Rio Tinto unlocks the costs and gained productivity in the recent years through implementing the technology. This company has offered $7.2 billion investment from the technology. Productivity and cost benefits have been achieved recently through ‘Mine of the Future' program.

Non-financial measures

Net promoter score

The estimated net promoter score for Rio Tinto is 2. While comparing with the other competitors like BHP Billiton, Barrack Gold Corporation, this rank has been given to the Rio Tinto.

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