Whitehaven ties executive pay to environment Whitehaven Coal's environmental performance will have a bigger influence over managing director Paul Flynn's remuneration, after a year in which Mr Flynn said the company ''fell significantly short'' on environmental compliance. The bigger focus on the environment came as the company also pledged to make its NSW mines more consistent and cheaper to run, after fiscal 2020 was marred by rising unit costs, spasmodic production and Whitehaven's weakest coal sales in five years. Whitehaven was charged in August by the NSW Natural Resources Access Regulator with failing to rehabilitate drill sites, illegally drilling bore holes and building unauthorised tracks at its Narrabri coal mine. It is being pursued by the same regulator over accusations of breaches at the Maules Creek mine, and Mr Flynn conceded the company had to do better. page2image37296320 "Environmental compliance is another area where we must address some more recent shortcomings,'' he said in an ASX filing on Friday. "Outcomes fell significantly short of what we expect and what the community and other stakeholder groups deserve. Material improvement in this area is essential to maintaining our broader social licence to operate and to meeting the high standards required in the Australian resources sector.'' Whitehaven parted company with several of its senior operational staff within the past year, and the company implied on Friday that those changes were linked to the desire to improve environmental performance. "In this context, fiscal 2020 also saw us round out changes to our management team that represent a significant investment in the leadership and governance structures required to drive change where it is needed,'' the company said in the filing. "Individually and as a leadership group I am confident we have the right mix of experience, skills and interpersonal qualities required to take the company to the next stage of its evolution". Changes to incentives Environmental performance will now have a greater bearing on the short-term incentive payments in Mr Flynn's remuneration package. Whitehaven has also tweaked Mr Flynn's long-term incentives to align them to the company's growth ambitions. Whitehaven's three most prominent growth projects are to restart the Vickery mine that Rio Tinto used to operate in NSW, expand its existing Narrabri mine and build a new mine in Queensland's Bowen Basin at Winchester South. page2image37301312 The progress made on those projects between now and June 2024 will carry a 15 per cent weighting on Mr Flynn's long-term incentive payments. Mr Flynn's total remuneration slumped from $6.2 million in fiscal 2019 to $2.35 million in fiscal 2020, after a tough year in which coal sales fell to a five-year low, profits collapsed by 95 per cent and Whitehaven shares dived. Mr Flynn's fixed remuneration in the year ahead, including superannuation, will be $1.53 million. If all Mr Flynn's bonuses vested to the maximum degree in fiscal 2021, he could earn up to $5.27 million. Required: I. Do you think that the remuneration scheme explained in the article will work in the way intended under agency theory for Whitehaven Ltd? Why or why not? (Maximum words 300). (6 marks) II. Which incentives, if any, could be subject to earnings management? Why or why not? (Maximum words 200) (4 marks) III. What other theories from ACC30008 can be applied to the discussion reported in the article? (Maximum words 500) (10 marks)