Table of Contents
Executive Summary 3
1.0 Introduction 4
1.1 How different Accounting Theories relate to real world scenarios? 5
1.2 Bonus plan hypothesis and executive remuneration 6
2.0 Company overview with Remuneration plans 7
2.1 Telstra Corporation Limited 7
2.2 Harvey Norman Holdings Limited 7
2.3 Remuneration plan and the contracting cost 8
3.0 Corporate Amendments and “Say on Pay” 9
3.1 Global Developments of Cooperation Amendments 11
3.2 Pay on Performance link and “First Strike” 11
3.3 Pay on Performance link and “Second Strike” 11
4.0 Conclusion 12
Bibliography 13
Executive Summary
This report is based on Pay and Performance links, and whether the respective components of the remuneration could be used to align the interests of the managers and also minimize the contracting cost of the organization. We have taken examples of annual reports from 2 different companies and have identified various incentives that are given to its respective executives.
Moreover we have generally argued the impact of “Say on Pay” and the “Two Strikes” to companies. Global development of corporation amendments and financial legislations has also been identified.
1.0 Introduction
In this highly competitive and complex business world, executive compensation and shareholder influence on decision making has been controversial. This has particularly become under public scanner and considerable media scrutiny with the start of the global financial crisis in 2008.
These reasons have lead many countries to introduce new financial and corporate amendments to restrict excessive compensation for CEOS and top management executives. The amendments include corporation amendments wh...
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Telstra Corporation Limited 2013, www.aspecthuntley.com.au, Viewed on 21st April 2014,
The company Steel Co, which has been established for around 30 years, has been in a steady decline during the current recession and although a Divisional Director has been employed by the owner the fortunes of the company have not improved. The staff is unhappy, unproductive and unimpressed by the Human Resource system that currently exists in the company. The pay structure that currently exists within the organisation has been much debated among employees who feel it is unsatisfactory. The Business Adviser will research Performance and Reward management tools in order to help the company develop a more suitable Performance and Reward system to use. A variety of sources will be used in order to evaluate the system and tools against other organisational frameworks. The pay structure within the company will also be looked at in order to identify any possible changes that could be made.
CEO compensation has been a heated debate for many years recently, and it can be argued that they are either overpaid or that there payment is justified by the amount of work they do and their performance. To answer the question about whether CEO compensation is justified it must be looked at by the utilitarian viewpoint where the good of many outweighs the good of one. It is true that many CEO’s are paid an exorbitant amount of money; however, their payment is justified by the amount of money that they bring back to the company and the shareholders. There are many factors that impact the pay that the CEO receives according to Shah et.al CEO compensation relies on more than just the performance of the CEO, there are a number of factors that play a rule in the compensation of the CEO including the fellow people who help govern the corporation (Board of Directors, Audit Committee), the size of the company, and the performance that the CEO accomplishes (2009). In this paper the focus will be on the performace aspect of the CEO.
Marshall, M.H., McManus, W.W., Viele, V.F. (2003). Accounting: What the Numbers Mean. 6th ed. New York: McGraw-Hill Companies.
The first incentive plan this author will discuss is “stock option”. “Stock Options” according to Dessler (2011) is normally the type incentive received by executive and sometime lower lever employees of a company. When employees have stock option it give them the right to procure a...
Performance related pay is a financial reward given to employees whose work is considered to have reached a required standard or is above average. “PRP criteria can relate to the individual employee, to work groups or to the organization as a whole” (Armstrong, 2002). It is fair to provide people with financial rewards as a means of paying them according to their contribution (Armstrong 1993:86). The primary purpose of performance related pay in any organization is to recruit, retain and motivate the workforce. It also helps in focusing employees’ minds on particular goals (Protsik, 1966); communicate to employees an organization’s core values, and change the culture of that organization (Kessler and Purcell, 1991).
It is concluded that neither of the above proposals are adequate in that any practical benefit that results from the proposal such as employee and shareholder engagement are outweighed by the theoretical impact of increasing the overlap of the organs which would alter the structure of company law. The legal side of directors’ remuneration appears to be sufficient with the directors’ duties legislation acting as an efficient preventative measure for the problems that directors’ remuneration creates. Furthermore, shareholders already must approve several payments as such this could be strengthened to tackle the issue and employees are to some extent taken care of within s172 as such it is these sections that need development rather than directors’ remuneration.
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Remuneration management is defined as the sum received for an employment or service delivered, this includes the money received on a monthly basis as well as benefits given as rewards (investopedia,para.1 ). Individualism need to be taken into account when implementing these remuneration structures or reward schemes, equal pay plays a role in balancing earnings among the diverse workforce (Shen, Chanda, D’Neetto and Monga,2009,p.241). The Woolworth’s Holdings uphold remuneration policies which have the purpose of making sure to attract and hold on to the best talent, that they are congruent with the strategies of the company and are the determinants of performance during the short and long phases. The policy considers the board members and the employees. This policy manages employees of the company by giving...
Positive accounting theory is arguably an explanatory of accounting practice; economic based theory. RL Watts and JL Zimmerman developed positive accounting theory in 1980s at the William E School of Administration at the Rochester University. People do not know what they want at times. So there are different options available to accountants. There are some logical facts to choose one specific method. On choosing one specific method, accountants will maximize their own benefit first, and then company benefit, shareholder benefit and at last social benefits. A specific method will allow accountants to feel better to do their work as they like them the way they know and they way they are best at doing (Jayne Godfrey). For instance, accountant will write accumulated depreciation on asset value side for big company whereas when a poor balance sheet, it is better to put accumulated depreciation on credit side, so the company will have extra money in their debit (Ken Leo, John Hoggett, 2012). Accountants will use choice of accounting method depending on the situation. Positive accounting theory consists of different types of hypothesis such as bonus plan, political cost and debt hypothesis, which allow the managers to choose one specific method over another. It is accountants’ theory and it is descriptive and accountants will tell what to record.
Nottingham Trent University. (2013). Lecture 1 - An Introduction to Corporate Governance. Available: https://now.ntu.ac.uk/d2l/le/content/248250/viewContent/1053845/View. Last accessed 16th Dec 2013.
Fisman, R. (11 May, 2009). The real reason CEO compensation got out of hand. Retrieved from Slate: http://www.slate.com/articles/business/the_dismal_science/2009/05/comparison_shopping.html
Marshall, D. H., McManus, W. W, & Viele, D. (2002). Accounting: What the Numbers Mean. 5th ed. San Francisco: Irwin/McGraw-Hill.
Critically evaluate this statement: Managers who rely only on pay to motivate their employees to higher levels of job performance will always be disappointed n the results.
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