Question 1

Executive pay has been a question of interest. For example, are senior managers paid too much at the expense of shareholders? Shareholders of Lis Anne Foods Plc are considering a proposal activist investor to streamline senior executive pay at the company by designing an executive remuneration scheme. Members of the company initially short-listed three bonus schemes for senior executives: 5% of pre-tax profits to be paid as bonus if profits exceed a certain minimum, 59 of pre-tax profits if a certain turnover growth rate was achieved, and a share option scheme Since the issue has long-tens consequences for shareholders, shareholders agreed to employ a consultant to provide a detailed design of a requisite remuneration scheme for senior managers

YOU ARE REQUIRED TO

A. Explain the need to have an executive remuneration scheme for shareholders of Lis Anne Foods. (5 marks]

B. Explain the factors that the consult should consider in the design of executive remuneration scheme. (8 marks)

C. For each of the proposed bonus scheme comment on its advantages and disadvantages. (7 marks)