Question 1 (20 marks)

Marconi Pasted Limited (Maconi) is a listed company that produce various pasta products. The company's Board comprises a Chief Executive and three other executive directors, a non-executive chair and three non-executive directors.

Two of the non-executive directors have served on Maconi 's board for five years. The company has a policy of asking non-executive directors to stand down after six years and so the Chair has established a Nominations Committee to start the process of selecting replacements.

The Chair of Maconi is keen to recruit more non-executive directors as a matter of priority because the Remuneration Committee faces a difficult task. The executive directors are presently remunerated with a combination of a salary and executive stock options. Maconi 's shareholders have expressed concern about the pressures created by these stock options and have asked that they be replaced by individual bonuses that reflect the personal contribution made by each of the executive directors.

The Chair and the non-executive directors are discussing the level of bonus that should be awarded for the current year. This has been complicated because Maconi made a loss for the first time. The Chief Executive has stated that it would not be appropriate to accept a bonus from a loss-making company, but the other executive directors claim that the loss was attributable to economic and industrial conditions and that their leadership minimised the loss. All of the executive directors other than the Chief Executive have asked for substantial bonuses to reflect their leadership in difficult times.

Required:

You are an independent management consultant. The Chair of the Board of Marconi have asked you to discusses the problems associated with determining a suitable level of bonus for each of Maconi 's executive directors. Draft a memo that you will discuss at the next Board meeting.

Mark allocation (1 mark format; 18 marks on discussion of the problems associated with determining a suitable level of bonus for each of Maconi 's executive directors; and 1 mark communication)