Question

In: Accounting

AMP has suffered a first strike on its remuneration report after coming under fire from shareholders...

AMP has suffered a first strike on its remuneration report after coming under fire from shareholders and proxy advisers over the “disproportionately large” incentives paid to its executives. At the company’s virtual annual general meeting on Friday, 67 per cent of proxies voted against the remuneration report. It comes after influential proxy advisers Ownership Matters and ISS recommended shareholders vote against the generous pay packages. Both proxy advisers last month argued that executive pay was overly generous and performance hurdles not rigorous enough. If the company receives a second strike next year, it will trigger a board spill under the ‘two-strikes’ rule. Commenting on the executive remuneration plan, Mr Murray [Chair of the Board] said the generous package was required to attract and retain an executive team that could execute the company’s transformation strategy. “The 2019 remuneration structure was designed to reflect the scale, complexity and challenges involved in transforming the business … executing an ambitious strategy, separating the life insurance business, completing client remediation and addressing the company’s challenging regulatory and legal matters. “In our CEO and executives, we have a capable and driven team to deliver our plan. Their awards are substantial, but the hurdles are challenging. For the awards to be realised over the long term, these demanding hurdles must first be achieved, including a significant improvement in business performance and share price,” Mr Murray said. Taking aim at the two-strike rule, which sees a board spill if more than 25 per cent of shareholders vote against a company’s remuneration report two years in a row, Mr Murray warned it reduced the incentive for companies to “properly invest in specialist care, ultimately leaving the more difficult workouts to the unlisted markets”. AMP chief executive Francesco De Ferrari’s pay package came in at $13.43m last year, buoyed by share rights, options and restricted shares, even as the under-pressure wealth group posted losses of $2.5bn. Mr De Ferrari’s remuneration for the 12 months ended December 31 included a $2.18m base salary, $1.32m cash bonus, other short-term benefits of $1.71m and almost $8.2m in rights, options, and restricted shares. Extract from Grieve, C. Shareholders hit AMP with first strike against executive pay packets. The Australian. 8 May 2020. Required: From the information provided: a) Do you think that remuneration incentives are working in the way intended under agency theory for AMP Ltd? Why or why not? (Maximum word limit 500 words) b) How might earning management be relevant to remuneration incentives? Explain. (maximum word limit 250 words) (4 m

Solutions

Expert Solution

B. A company needs to take care of certain parameters and may adopt and admininstrative ceiling as it may deem fit with regard to fixing of managerial remuneration

As per the provisions of the act,compay shall hav regard to financial position of the company,remuneration drawn in any other capacity and alos professional qualifications and experience of an individual.

hence based on management earnings along with other requirements,management remuneration will be paid.

A.Remuneration incentives are working in the way intended under agency theory as far as the chairperson as concerned.

The 2019 remuneration structure was designed to reflect the scale, complexity and challenges involved in transforming the business … executing an ambitious strategy, hence remuneration are based on these concerns .However if the shareholders are not approved up to a maximum level in a general meeting,then it will not be a valid one and remuneration which has already been paid should be refunded to company.

In given case, 67% of shareholders disagreed with with pay towards executive directors,hence it will not be and valid one and it is not working as per the agency theory.


Related Solutions

12) Cornerstone, Inc. has $125,000 of inventory that suffered minor smoke damage from a fire in...
12) Cornerstone, Inc. has $125,000 of inventory that suffered minor smoke damage from a fire in the warehouse. The company can sell the goods "as is" for $45,000; alternatively, the goods can be cleaned and shipped to the firm's outlet center at a cost of $23,000. There the goods could be sold for $80,000. What alternative is more desirable and what is the relevant cost for that alternative? A) Clean and ship to outlet center, $23,000. B) Clean and ship...
Branson Electronics Company is a small, publicly traded company preparing its first quarter interim report to be mailed to shareholders.
Branson Electronics Company is a small, publicly traded company preparing its first quarter interim report to be mailed to shareholders. The following information for the quarter has been compiled:  Fixed operating expenses include payments of $50,000 to an advertising firm to promote Branson through various media throughout the year. The income tax rate for Branson’s level of operations in the first quarter is 20%, but management estimates the effective rate for the entire year will be 25%.    Required:  Prepare...
Marginal Incorporated (MI) has determined that its after-tax cost of debt is 5.0% for the first...
Marginal Incorporated (MI) has determined that its after-tax cost of debt is 5.0% for the first $58 million in bonds it issues, and 8.0% for any bonds issued above $58 million. Its cost of preferred stock is 15.0%. Its cost of internal equity is 17.0%, and its cost of external equity is 21.0%. Currently, the firm's capital structure has $530 million of debt, $150 million of preferred stock, and $320 million of common equity. The firm's marginal tax rate is...
Viejol corporation has collected the following information after its first year of sales. Sales were 1,600,00...
Viejol corporation has collected the following information after its first year of sales. Sales were 1,600,00 on 100,00 units, selling expenses 250,000 940, variable and 60% fixed) direct materials 490,00, direct labor 290,000, administrative expenses 270,000 ( 20% variable and 80% fixed), and manufacturing overhead 380,000( 70% variable and 30% fixed). Top management asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10%...
Martinez Corporation has collected the following information after its first year of sales. Sales were $1,250,000...
Martinez Corporation has collected the following information after its first year of sales. Sales were $1,250,000 on 125,000 units, selling expenses $250,000 (40% variable and 60% fixed), direct materials $496,000, direct labor $34,900, administrative expenses $280,000 (20% variable and 80% fixed), and manufacturing overhead $358,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10%...
Viejol Corporation has collected the following information after its first year of sales. Sales were $1,600,000...
Viejol Corporation has collected the following information after its first year of sales. Sales were $1,600,000 on 100,000 units, selling expenses $210,000 (40% variable and 60% fixed), direct materials $498,000, direct labor $296,600, administrative expenses $284,000 (20% variable and 80% fixed), and manufacturing overhead $378,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10%...
Isaac Corporation has collected the following information after its first year of sales. Sales were $1,800,000...
Isaac Corporation has collected the following information after its first year of sales. Sales were $1,800,000 on 100,000 units; selling expenses $400,000 (30% variable and 70% fixed); direct materials $456,000; direct labour $250,000; administrative expenses $484,000 (50% variable and 50% fixed); manufacturing overhead $480,000 (40% variable and 60% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 20% next...
Company X has collected the following information after its first year of sales. Sales were TL1,650,000...
Company X has collected the following information after its first year of sales. Sales were TL1,650,000 on 120,000 units. Selling expenses were TL245,000 of which 45% was variable. Direct materials were TL490,000 and direct labor were TL290,000. Administrative expenses were TL270,000 of which 22% was variable. MOH was TL384,000 of which 75% was variable. (9 points) Without using CVP Income Statement, compute contribution margin, unit contributionmargin and the contribution margin ratio. (7 points) Prepare a CVP income statement for both...
Company X has collected the following information after its first year of sales. Sales were TL1,650,000...
Company X has collected the following information after its first year of sales. Sales were TL1,650,000 on 120,000 units. Selling expenses were TL245,000 of which 45% was variable. Direct materials were TL490,000 and direct labor were TL290,000. Administrative expenses were TL270,000 of which 22% was variable. MOH was TL384,000 of which 75% was variable. a) Without using CVP Income Statement, compute contribution margin, unit contributionmargin and the contribution margin ratio. b) Prepare a CVP income statement for both per unit,...
Lorge Corporation has collected the following information after its first year of sales. Sales were $2,100,000...
Lorge Corporation has collected the following information after its first year of sales. Sales were $2,100,000 on 105,000 units; selling expenses $250,000 (40% variable and 60% fixed); direct materials $1,006,700; direct labor $240,000; administrative expenses $270,000 (20% variable and 80% fixed); and manufacturing overhead $399,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10%...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT