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What are different ways to measure financial performance?
Annual profit after taxation, annual profit before interest & taxation (PBIT), and annual earnings before interest, taxation, depreciation, & amortisation (EBITDA).
What is a problem with using profit measures for a reward system?
Annual profitability can be manipulated within accounting rules.
Does achieving profit targets guarantee shareholder benefit?
No, higher profits don't automatically lead to higher dividends or higher share prices.
What is the ideal bonus system?
The best reward system aligns bonuses with shareholder benefits.
How can performance be measured for shareholders?
Performance can be measured by the benefits gained by shareholders.
What is total shareholder return?
It is the total return on investment for shareholders during the review period, including dividends and changes in share market value.
What is a drawback of measuring performance through share prices?
Share prices are volatile, and returns can fluctuate sharply.
What can executives be rewarded based on?
Executives can be rewarded based on a range of performance targets, including non-financial ones.
What is a problem with long-term performance rewards?
An incoming CEO inherits the long-term results of their predecessor's efforts.
What is the purpose of share option schemes?
They give the holder the right to buy shares at a fixed price within a set time frame.
What happens to unexercised share options after 10 years?
They will expire.
What benefits are directors entitled to?
Directors are entitled to healthcare, car, and life assurance.
How is the remuneration of non-executive directors decided?
It is decided by the board or by shareholders in a general meeting.
What is required for increasing directors' fees?
It can only be increased through a resolution passed at a general meeting.
What must be disclosed in the annual report regarding directors?
The number of directors in different remuneration bands and a breakdown of types of remuneration paid.
What should each element of the remuneration package do?
It should keep directors focused and motivated to improve performance.
What is the balance needed in a remuneration package?
There must be a balance between base salary and performance-related pay.
What should the remuneration reflect for directors and senior management?
It should reflect the responsibility level of directors and senior management.
What is required for listed issuers regarding directors' remuneration?
Detailed disclosure of directors' remuneration is required on a named basis.
What should be considered when setting annual salary increases?
Be mindful of broader pay and employment conditions within the company.
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