New Incentive Plan Motivation, Options and the Economic Profit-System Overview of the Previous System & Motivation We believe the new incentive system was needed and reasonable because the accounting-based incentive system, where EPS was a measure of performance, raised valid concerns. The first being an agency problem. This existed within the old system as manager’s interests were not aligned with those of stockholders. EPS had improved steadily at a rate of 9% annually; however, the share price had increased only slightly in comparison. Therefore, the company’s stockholders had hardly benefited. The second issue was the use of subjectivity in granting bonus awards. These awards were given out even when their entity had not performed well. Managers began “politicking”, meaning they would try and convince their evaluators they performed better than the results had shown.
The second compensation package was not well designed nor did it help define what the corporate strategy would be. For a second time the compensation package focused on maximizing shareholder’s wealth and didn’t take into consideration the stakeholder’s position at all. Dunlap’s package was deeply weighted in company options ($3.75M). In fact it was weighted heavier than before. The stock grants were
To the extent of prevention of corporate failure, I argue that three ASX principles and recommendations could halt the demise of Dick Smith. Firstly, the 2nd principle which is “Structure the board to add value” by structuring the board with a majority of independent directors would prevent CEO dominance because
1) I agree with the advisory votes provision of the Dodd-Frank Act, because it serves as a valuable means of gauging the pulse of the collective shareholders’ interests. Since executive compensation is an important tool intended to align the interests of both the corporation and the shareholders, a system of assessing the shareholders’ interests is necessary – without it, the shareholders’ interests are in many ways left to speculation. Given the varied geographical locations of the shareholders and the regulations governing their ability to interact with one another, the advisory votes mandate affords the shareholders a collective voice and provides the board of directors with valuable feedback.
The statement explains the company’s compensation philosophy and what the compensation program centers around. According the company’s philosophy, the compensation for named executive officers is made up of three components; salary, stock options, and performance-based bonuses. The fourth proposal to vote on is proposed by a stockholder. Southwest Regional Council of Carpenters Pension fund who is the beneficial owners of less than 100 shares, proposes for a director election majority vote standard. The company lists reasons as to why that is not a good fit for the board and recommends shareholders to vote against the proposal. The proxy statement lists three other stockholder proposals to vote on, if they are presented at the upcoming annual meeting. The board recommends that the shareholders vote against all the three proposals and gives explanations for what is best for the
Activist Investors Influence on Compensation Program Design Over the last five years, we have also seen an increased influence on compensation program design of a new type of shareholder, the activist investor. Activist investors are individuals or groups who purchase a large number of public company shares to exert
Remuneration and reward of directors is another target that corporate governance aimed. This was to reduce the excessive bonuses and salaries that directors used to receive. This was undertaken as they believed it was a corporate abuse where such amount of salaries could be offered to other projects and expansions within the corporation (Masulis, Wang & Xie, 2012). Financial reporters and external auditors were reliable of the financial accountabilities of their reports. This ensured that serious litigation would be undertaken in cases of insufficient reporting and accounting issues. This led to great transparency in firms and reduced risks faced by investors (Masulis,
Many years ago stock options were rarely used as incidental benefits for top executives. Nowadays, compensating employee whit stock options has become an increasingly common practice. Before the year 1996, only the intrinsic value method was used to record these transactions. This method distorted the issuer’s reported financial condition and results of operations, which could lead to inappropriate decisions taken by investors. Followed by the increased use of employee stock options and the surrounding controversy of its recording method, on the year 1996 the fair value method was introduced to be used as an alternative to the intrinsic method and on 2004 the intrinsic value method was completely discontinued. The Fair value method
A. The accountability Concept Academics have made numerous propositions that would modify shareholders derivative suites by switching the balance more in the direction of accountability. The most impressive case is Professor Gevurtz suggestion to eradicate the business judgment rule . He analyzed the different formation methods that courts had established to the rule, his findings on the business judgment rule different explanation can be summarized in two classifications . He described the first class as “ meaningless” by considering that it alludes to directors walking free of the result of their decision except if there is a reason to hold them accountable, For instance, if they breach fiduciary duty or the duty of loyalty . He labeled the second class as “Misguided” because it creates a distinctive standard of accountability –gross negligence- for asserted breach of the obligation of care that vary from the usual tort law . The professor reached the conclusion that court should put the usual negligence standard into practice concerning directors’ action . He advised for the elimination of the business judgment rule, because it has a restricted effectiveness and high possibility for mischief .
HIGHER AUDITOR ACCOUNTABILITY To be called good corporate governance it means and will always include an independent audit system. Thus it means that independence of audit system is a very important pillar of any company. Therefore it can be said that uninterrupted tenures will tend to cause and produce a measure
52% non-voting is the biggest ever protests staged by one of the shareholders to the Board remuneration. Insurer Aviva suffered in 2012 60% of the votes oppose their remuneration (including abstentions), to protest its £ 2.2 m gold greeted the incoming head of the UK business, leading to its chief executive Andrew Moss's
Cynthia Claude Nkono Moanang 1009040 CORPORATE GOVERNANCE AND BUSINESS ETHICS ASSIGNMENT TOPIC: Principals (shareholders) – agent (managers) problem represents the conflict of interest between management and owners. For example, if shareholders cannot effectively monitor the managers’ behaviour, then managers may be tempted to use the firm’s assets for their own ends, all at the expenses of shareholders. Discuss the pros and cons of this statement with regard to duties of Board of Directors.
Regulation’s regarding rule making that supports better stockholder governance grows with improved attention on better stockholder rights for voting. The resent past observed new requirements that prohibit ‘street-name’ nominees from being eligible to enroll in the corporation's Dividend Reinvestment and Cash Investment Plan. If an investor wants to participate in such plans they must first become the shareholder of record. As of June 2003, mutual funds are mandated to publicly reveal their voting rules and registers (2004). The SEC likewise reviews its proposals constantly in order to afford noteworthy stockholders the right to use corporation proxy notes to appoint a director whereas in the past stockholders formerly obtained stockholder consent for a proposal that was not brought into action by the corporation.
Another evidence that the board has become stricter is increase in the probabilities of CEO dismissal. The board not only controls what the management does but also the process of hiring and compensating the top executives. The question that arises here is whether the board steps forward and acquires the costly signal about competency of the CEO or not? On the other hand, how does the CEO influences the board and gains control it, how well does the CEO market her capabilities in order to bargain for less independent board? The question that arises here is that if board controls the dismissal of CEO then why are directors reluctant to object to CEO’s decisions which are not in favor of the shareholders, why doesn’t the board remove the CEO when her performance is poor? Why do the board directors are happy to always act as “yes man” instead of acting as a “troublemaker” or a “strict monitor”. Mace (1986) shows that directors remain steadfastly loyal to misguided CEOs.
Protecting interest of the minority Shareholders M S Siddiqui Legal Economist and pursuing PhD in Open University, Malaysia e-mail: firstname.lastname@example.org The over-investment by directors is not good for the stock market and it should be addressed properly to find a way out and safeguard interest of minority shareholders from the experience of other markets, writes M S Siddiqui……………….