In this report, managerial pay and the impact of agency theory on the busienss have been assessed. This adverse situation will not only affect the ultimate of organization but also result to failure to achieve the set objectives and goals of company. After evaluating the past performance of company, it is observed that the return on company is already too high which shows that if company want to grow further then it needs to establish nexus between organization’s growth and economic performance.
With the changes in economic conditions, each and every managerial person needs to take effective key decisions to increase the overall business outcomes it is analyzed that managers needs to make the effective business decisions. It is analyzed that ramified changes in economic environment, mostly influence the managerial decisions which may dirty impact the performance of the management in accomplishment of set objectives and goals (Kaufman, 2015).
The manager pay contingent is the effective method to motivate the employees to perform effectively to achieve the set objectives and goals. It is analyzed that the managers are the persons who operate the busienss to make the best use of resources for the betterment of the organization. It is analyzed that if company pays the good pay to managers then they would be motivated to give their best efforts in the best interest of organization. This results in establishment of nexus between the organization’s development and economic growth at large. It is observed that managerial pay gives the specific amount of fixed amount of payment which company will pay to its managers. However, with the increasing complexity and fixed amount of salary payment may result to demotivation in managerial persons. It is analyzed this practice may increase the stress and problems in the work program of the organization (Kaufman, 2015).
It is analyzed that organization needs to establish the proper balance for these advertises activities. It is considered that instead of allowing the remuneration to managers on the basis of the earning earned company should use the proper bonus and growth development plan.
This system is set to motivate employees to work accordingly and effectively. It is analyzed that if proper work program and structured functions are used then it will work as actual practice of earning for the effective running of business. The remuneration programs add value to motivate employees and strengthen the business functioning program. In addition to this, set pay-out gives the consistent motivation to managers and bonus program such as incentives and contingent benefits plans based on the outcomes add value to business functioning of organization.
The changes in pay-scale arise due to the changes in time and overall outcomes of busienss. The proper level of balanced program is must to achieve the set financial and non-financial objectives, relation skill manager’s program and shareholder’s wealth maximization.
In this report, public listed company, Woolworths Company has been selected for determining the compensation policies for the group, CEO, manger person and board of the directors.
The CEO of Woolworths Company is Banducci who takes all the imperative decisions to run the business effectively.
It is analyzed that as per the remuneration plan made by the Woolworths in its annual report, it is considered that the salary of the group CEO amounted to AUD $ 2,500,000 which covers all the short term and long term benefits plan. This includes all the inclusive benefits, salary pas and superannuation benefits which company could take to strengthen the overall outcomes of the business.
The figured determined on the basis of skills, experience, size and complexity of the roles of the individual persons working in the process system of organization (Bandiera, Guiso, Prat, and Sadun, 2015).
It is analyzed that the amount which is based on the long term performance of company and delivered in the form of benefits given to employees. The performance right is given to CEO of the company. It is done to ensure that the company’s overall performance that goes in line with the stakeholder return and busienss strategies are undertaken in proper determined approach (Black, Dikolli, and Dyreng, 2014).
After evaluating the annual report of company, it is analyzed that 75% of the remuneration given to CEO is based on the performance of company and will increase with the increase in the overall turnover of company (Brown-Liburd, and Zamora, 2014).
The short term incentives hold 25% portion and payable as 12.5% cash and 12.5 % deferred amount of payment. On the other hand, long term incentives plans is to given as 75%
The CEO bonus is given under the remuneration policy. As per the annual report, 75% of the remuneration given to CEO is based on the performance of company. It is analyzed that if company is performing well in market then the same benefit will be given to CEO and later on same will be changed with the changes in short term and long term benefits plan of organization. The payment given to CEO is based on the meeting targets. If the performance of company is beyond the targets then it will also increase the overall remuneration to CEO. In the annual report, compensation and other benefits to CEO is around AUD $ 205 million which have increased with the increased short term incentives plans (Florackis, Kanas, and Kostakis, 2015).
The measures of the accounting performance include sales, EBTI, working capital and liquidity position of company. It is analyzed that if company has increased its overall return on capital employed with the increased capacity of its business then the portion of the benefits will be given to employee accordingly. The long term benefits plan and incentive plans will be based on the shareholder’s return and sales price trading square meter and the weightage of 33.3.3 % will be given to each program (Kaufman, 2015).
With the changes in economic condition, CEO could maximize his bonus by increasing the overall performance of company. It is analyzed that if CEO increases the overall turnover of company then it will eventually increase the overall profitability of business. This will have favourable impact on the earnings before interest and tax of company. First of all, if CEO wants to increase its profitability then it will need to lower down its cost of busienss. It could be done by re-engineering of its existing activities , adopting new technologies and installation of new system process (Krause, Whitler, and Semadeni, 2014).However, working capital needs to also be changed with the changing factors of busienss.
The agency theory works as principle agent model which assists in completing the required activities in determined approach. In this model, owners stand as principle and managers are their agents. The role of the agents is to serve as principles motivators who would needs to make efforts to strengthen the work program in determined approach.
The role of the agents is to serve the principles in the best interest of shareholders. Owners are the real shareholders who have invested their capital in the business. It is evaluated that when agents do not perform accordingly then there stands agency loss. The agents need to work hard and efficiently to reduce and disappears agency loss (McGinnis Johnson, and Ng, 2016).
There are various components of the remuneration which includes the fixed pay and dependents performance. The performance of company is linked with the agency theory. If the agency theory is undertaken by the company then it will reduce the overall agency losses and performing with the improved functioning. There are several indicators which could be assessed by evaluating the employee’s satisfaction, working capital, shareholder return and increased business outcomes. If these factors are undertaken then it will surely increase the overall business outcomes and increased the overall managerial performance in determined approach (Mueller, Ouimet, and Simintzi, 2017).
With the ramified business functioning, agency problem arises in the busienss due to the different people mind set and work program. The agent mangers are required to perform with a view to increase the return on capital employed. The busienss profitability of company increases with the increased business turnover. The agents of business such as directors and the entire key managerial takes all the operating and managerial decisions to lower down the cost of production and increase the overall production level. The busienss profitability is highly dependent upon the work process system and strategic planning adopted by the organization. In order to motivate employees, company needs to undertake the proper structured motivational reward system which could establish the nexus between the organizational development and stakeholder’s wealth maximization (Olafsen, et al., 2015).
The bonus plan of the business also plays pivotal role to strengthen the work performance of agents. All the managers and the entire key managerial should be given appropriate benefits plan with the increased busienss outputs. The variable benefits plans strengthen the efforts of key managerial persons in the best interest of organization. It is analyzed that mangers need to understand that they are the drivers of the company who work on the behalf of the real owners for some particular consideration (Shin,, 2014).
The increased outcomes of the efforts of the managers impact the specific components shall include the target performance, level of increase in pay as performance get better, short and long-term benefits (Shin, 2016).
It is analysed that there are several agreements and contract points which are related to the debt agreements to reduce the associated risk of the entered contracts. It includes appointment of the bank’s nominee in board of the company, approval of the bank for acquisition of the assets and creation of charge on the assets.
The agency theory has been described as above. In agency problem the bank should be concerned with would be insider trading, cash absconding and transparency of the required information. These are the problems as these practices might take busienss in risk if they fail to take these points in consideration (Wang row et al. 2015).
There are several details which should be undertaken such as current financial results, liquidity position, debt history, creditworthiness and company’s cash position which may highly impact the financial performance of company. After assessing this information, bank could determine the financial performance and its sustainable future (Wynarczyk, et al. 2016).
Conclusion
After evaluating all the details, it could be inferred that the quality of the work process could be changed with the installation of the new machineries and plants will increase the overall outcomes. The increased return on capital employed could be done by implementing the proper agency theory and implemented strategies in determined approach.
References
Bandiera, O., Guiso, L., Prat, A. and Sadun, R., 2015. Matching firms, managers, and incentives. Journal of Labor Economics, 33(3), pp.623-681.
Black, D.E., Dikolli, S.S. and Dyreng, S.D., 2014. CEO pay?for?complexity and the risk of managerial diversion from multinational diversification. Contemporary Accounting Research, 31(1), pp.103-135.
Brown-Liburd, H. and Zamora, V.L., 2014. The role of corporate social responsibility (CSR) assurance in investors’ judgments when managerial pay is explicitly tied to CSR performance. Auditing: A Journal of Practice & Theory, 34(1), pp.75-96.
Florackis, C., Kanas, A. and Kostakis, A., 2015. Dividend policy, managerial ownership and debt financing: A non-parametric perspective. European Journal of Operational Research, 241(3), pp.783-795.
Kaufman, B.E., 2015. Evolution of strategic HRM as seen through two founding books: A 30th anniversary perspective on development of the field. Human Resource Management, 54(3), pp.389-407.
Krause, R., Whitler, K.A. and Semadeni, M., 2014. Power to the principals! An experimental look at shareholder say-on-pay voting. Academy of Management Journal, 57(1), pp.94-115.
McGinnis Johnson, J. and Ng, E.S., 2016. Money talks or millennials walk: The effect of compensation on nonprofit millennial workers sector-switching intentions. Review of Public Personnel Administration, 36(3), pp.283-305.
Mueller, H.M., Ouimet, P.P. and Simintzi, E., 2017. Wage inequality and firm growth. American Economic Review, 107(5), pp.379-83.
Olafsen, A.H., Halvari, H., Forest, J. and Deci, E.L., 2015. Show them the money? The role of pay, managerial need support, and justice in a self?determination theory model of intrinsic work motivation. Scandinavian journal of psychology, 56(4), pp.447-457.
Shin, T., 2014. Explaining pay disparities between top executives and nonexecutive employees: A relative bargaining power approach. Social Forces, 92(4), pp.1339-1372.
Shin, T., 2016. Fair pay or power play? Pay equity, managerial power, and compensation adjustments for CEOs. Journal of Management, 42(2), pp.419-448.
Wangrow, D.B., Schepker, D.J. and Barker III, V.L., 2015. Managerial discretion: An empirical review and focus on future research directions. Journal of Management, 41(1), pp.99-135.
Wynarczyk, P., Watson, R., Storey, D.J., Short, H. and Keasey, K., 2016. Managerial labour markets in small and medium-sized enterprises. Routledge.
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