•As the country's biggest polluter, AGL Energy has more to do than any other energy company to prove it is serious about carbon reduction.

•But should it pay its chief executive, Brett Redman, a bonus for cutting carbon?

•In the year to June 2019, AGL produced 42.7 million tonnes in scope one carbon emissions, more than double the level of its nearest rival, Energy Australia (20.1 million tonnes), according to the Clean Energy Regulator.

•Five years ago, the company said it would not extend the life of its coal-fired power plants as part of a greenhouse gas policy. At that time the company produced 43.2 million tonnes of carbon emissions. Now, the company says it will include carbon transition metrics in its long-term incentive plan (L-TIP) for key management personnel. This was announced as part of AGL's latest climate action statement and commitments.

•This sounds like Redman will be judged on net carbon emissions, which is not something that has appeared in the AGL remuneration report before.

•As to financial performance metrics, AGL said the new carbon-reduction goals would be only one-third of long-term incentive measures. Two-thirds will be judged against relative Total Shareholder Returns and ROE.

•AGL's board, led by Graeme Hunt, knows the company must keep pace with the high expectations of investors who are demanding energy companies transition to a clean energy future.

•Investors, led by the world's biggest investor, BlackRock, are moving towards environmental, social, and governance standards that aim for zero carbon emissions far quicker than most companies are willing to contemplate.

•Redman, who was paid $3.12 million in 2019, tells Chanticleer he and his executive team need to be held accountable for promises they make on carbon reduction.

•"When we talk about transitioning to a lower-carbon future we're putting actions behind our words as measured and rewarded through the L-TIP scheme," he says. "We think, as far as we can tell, we're the first ASX 50 company to put carbon goals into our long-term incentive scheme."

•Redman believes investors will be pleased with the effort to align executive pay with carbon reduction. "It directly responds to the question: are you serious about the transition?" he says.

•"In order for us to put something into an incentive scheme, we've got to have real plans in place for both the very long term, which is a 20- to the 30-year outlook that takes you out to 2050, as well as the nearer term.

•"There's got to be measurable action over four years to get us there. And for me, at the heart of it is twofold. One is continuing to invest, as we have for a long time, in both renewable energy and the firming solutions that come with it.

•And secondly, with the launch of carbon-neutral options as a standard of what we do, those things should deliver and will deliver measurable change over the next four years for our business as it sets us up in the journey in the next 30 years."

Required:

•Do you think that the remuneration scheme explained in the article will work in the way intended under agency theory for AGL Ltd?  Why or why not?

•Which incentives, if any, could be subject to earnings management?  Why or why not?

• What other theories from ACC30008 can be applied to the discussion reported in the article?