Murray Compensation Inc. Case Study

* b.  Further allocation of amounts allocated to repurchased shares to various components of stockholder equity upon formal or constructive retirement.

Compensation systems can take on many forms, all of which have positives and negatives related to it. However, certain components are noted to be determinants of solid compensation plans. One agreement of a solid compensation system is the use of incentives. “Clearly a successful companies set objectives that will provide incentives to increase profitability” (Needles & Powers, 2011). Incentive bonuses should be measures that the company finds important to long-term growth. According to Needles & Powers (2011) the most successful companies long term focused on profitability measures. For large for-profit firms, compensation programs should offer stock options. The interweaving between the market value of a company’s stock and company’s performance both motivate and increase compensation to employees As the market value of the stock goes up, the difference between the option price and the market price grows, which increases the amount of compensation” (Needles & Powers, 2011). Conclusively, a compensation plan should serve all stakeholders, be simple, group employees properly, reflect company culture and values, and be flexible (Davis & Hardy, 1999; The Basics of a Compensation Program).

Correct :The philosophy of cooperation in an organization is shown by high levels of trust, two-way communication, participation, and harmonious industrial relations. The involvement system is the structure and process for improving organizational productivity using employee-staffed committees.

a. The stock options are incentive stock options and ASC 718 (the codification of FAS 123R) does not

The employee total compensation program in Aflac is competitive with the industry market for the employees (Reed, 2009, p. 3). First, the company has a program referred to as a “Total rewards program” for the employees of this organization (p. 3). Next, the focus of the Aflac organization derives from the importance of employees through communication (p. 3). To illustrate, the company’s benefits include compensation, such as life insurance paid for by Aflac, policy for cancer paid for by Aflac, insurance for protecting accidents at a low premium for employees, and programs that provides bonuses based on profit-sharing (pp. 4,6). In addition, the organization provides a

* PBPA - amortization of bonuses because it is just part of the compensation expense

7. Option compensation will continue to be a critical component of compensation for executives as it simplistically aligns the executives’ pay to shareholder value in its simplest sense. I don’t believe that options compensation is the primary driver of behavior when things shift from the legal to the illegal. As with most senior executives in industry, ego is a huge driver in individual behavior. Compensation is important, but the recognition of your performance is sometimes even more important. We have created a performance driven culture without the necessary control framework for people to operate within. One minute you are doing a great job, the next you have crossed an imaginary line. The frameworks don’t do enough to quantify behavior as legal and illegal leaving inconsistent rules for organizations to operate within. How does Enron compare to the subprime mortgage debacle, or to Steve Jobs backdating options. There remains too much room for interpretation.

ASC 805-30-30-11 further clarifies that a replacement award that is part of the consideration transferred in exchange for the acquiree equals the portion of the acquiree award that is attributable to pre-combination service. Any portion of replacement award that relates to post-combination service should be recorded as compensation cost.

A statement from the officer of the corporation demonstrating that he is willing and able to forgo his compensation for the years in question; and

d. ASC 710-10-25-9 addresses the recognition of deferred compensation arrangements. It states: “To the extent the terms of a contract attribute all or a portion of the expected future benefits to a period of service greater than one year, the cost of those benefits shall be accrued over that period of the employee’s service in a systematic and rational manner.” The compensation costs associated with the stock options should be allocated over the three-year reporting period.

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

In the case response, Peterson has clearly answered each part of the question and provided substantial backup for required questions. To add to the retained earnings portion of the shareholders equity section; it can classified as appropriated or un-appropriated retained earnings. Appropriated retained earnings comprise that portion of retained earnings that is not available to distribute as dividends (Schroeder, Clark, & Cathey, 2014, p. 535). These restrictions develop when the Board of Directors designate special uses for these funds. Lately, many large company’s have been re-purchasing their shares to improve to financial ratios or because they believe their company’s share prices under values the corporation. If a company chooses

FAS 123(R) 5 states that an entity should recognize services received in a share based payment transaction when those services are received. 10 states that an entity shall account for compensation cost from share-based payment transactions with employees in accordance with the fair-value-based method. Under the fair-value-based method, the cost of services received from employees in exchange for awards of share-based compensation shall be measured based on the grant-date fair value of the equity instruments issued. A10-A17 discuss the acceptable methods of calculating fair value at the grant date. The grant-date fair value of the Murray options is $6. Following the guidance in Illustration 4(a), Share Options with Cliff Vesting, of FAS 123(R), compensation expense for the years ended December 31, 2006 & 2007 is $200,000 per year (calculation attached hereto).

the accrual basis of accounting). Under EAS, profit sharing to employees and board of directors is recognized as a dividend

Profit sharing & bonus payment: an organisation should observe the future cost of profit sharing and bonus payments only if the organisation has a present obligation to make these payments based on the result of past events. A trustworthy assessment of the obligation can be made. In some profit sharing plans, the employees would receive a particular share of the profit only if they continue with the organisation for a specified period.