Contributes to Sound Corporate Governance
Human resource management that has for years been on the backstage of managerial activities centered around the bottom line is now moving to the forefront, also taking on an increased importance for sound corporate governance. Australian Stock Exchange in its guidelines quotes principles that have a direct bearing on human resource management in the corporation. Principle 8 states that the company needs to ”fairly review and actively encourage enhanced board and management effectiveness” (ASX Guidelines, 47).
Principle 9 calls for fair remuneration stating the need to make sure that ‘the level and composition of remuneration is sufficient and reasonable and that its relationship to corporate and individual performance is defined” (ASX Guidelines, 51). With regard to Principle 8 it is important to recognise the importance of performance management that «is viewed as a key integrative mechanism, linking individuals’ goals and responsibilities to the objectives of the business, and integrating major interventions–appraisal, rewards, training, and development–thereby facilitating strategic fit» (Gratton, 1999, 59).
Many Australian companies devote special attention to monitoring performance of both board members and managers. Thus, Australian Ethanol is committed to ”ongoing monitoring of management performance” based on the involvement of the management with the board, and the performance of the company (Australian Ethanol Ltd. ). Remuneration is another aspect of human resource management that has a vital relationship to sound corporate governance.
The company needs to be constantly aware of the structure of remuneration so as to eliminate to the maximum possible degree incentives for management to act unethically, to perpetrate fraud inflating the company’s bottom line or to act in its own interest. Remuneration is one of the ways owners can use to tackle the eternal agency problem, which reflects discrepancies between the interests of shareholders and management.
Australian Ethanol in its corporate guidelines states that its remunerations policy has ”to demonstrate a clear relationship between corporate (and key executive) performance and remuneration”.
Bibliography ASX Corporate Governance Council. Principles of Good Corporate Governance and Best Practice Recommendations, March 2003. Australian Ethanol Limited, ‘Corporate Governance Statement’, viewed May 31, 2005, http://www. indcor. com. au/corpgov. htm. Gratton, L, Hailey VH, Stiles P, & Truss S 1999 ‘Strategic Human Resource Management: Corporate Rhetoric and Human Reality’, Oxford University Press.