Accounting Theory: CEO Remuneration and Woolsworth's New Policy

This article discusses the remuneration structure of the CEO of Woolsworth, including the proportion of fixed and performance-based pay, and the incentives for accounting policy choice that arise from the CEO’s remuneration contract according to agency theory. It also evaluates the new policy of Woolsworth that focuses on people, profit, and planet, and its positive and negative implications.

Running head: Accounting Theory
ACCOUNTING THEORY

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Table of contents
Part A...............................................................................................................................................3
(a) Explaining the amount of the CEO’s remuneration is in the nature of salary and cash bonus
for the current year and for the previous year..............................................................................3
(b) Explaining the forms of remuneration other than salaries and cash bonuses does the CEO
receive..........................................................................................................................................3
(c) Evaluating the proportion of the CEO’s pay for the current reporting period is fixed and
what proportion is performance based.........................................................................................4
(d) Measures of accounting performance, if any, are used to determine the CEO’s bonus.........4
(e) Explaining the incentives for accounting policy choice that arise from the CEO’s
remuneration contract according to agency theory. Using specific accounting policies to
illustrate your answer...................................................................................................................5
(f) Evaluating on if agency theory can provide an explanation for the various remuneration
components..................................................................................................................................5
Part B...............................................................................................................................................6
Policy Introduction.......................................................................................................................7
Positive implication of the policy................................................................................................8
Negative implication of the policy...............................................................................................8
Conclusion...................................................................................................................................9
References......................................................................................................................................10

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Part A
(a) Explaining the amount of the CEO’s remuneration is in the nature of salary and cash
bonus for the current year and for the previous year
The remuneration of the CEO in company is valued at $ 2,500,804, the Cash STI received by the
CEO amounts to 1,509,750 and the value of other rights vested are $ 461,181. This is the
structure of the CEO remuneration. The total remunerate vested to the CEO amounts to
4,471,735. The remuneration includes Directors and officer indemnity insurance also. It can be
said that 75% of the total remuneration received by the CEO is performance based where as the
other remuneration is bs 62.5% of the share rights reserved by the company. Performance based
operation in the context of the company means that the executive performs the duty in
accordance to the focus and objectives of the company and contribute to the overall operations in
the firm. In the Current year Woolworth did not paid any benefits to their CEO that resulted in
zero bonus (Cucchiella, D’Adamo & Gastaldi, 2015). Whereas in the year 2016 the CEO was
entitled to receive a bonus at the end of the annual financial year.
(b) Explaining the forms of remuneration other than salaries and cash bonuses does the
CEO receive
Other than the fixed remuneration of the CEO, it can be seen that there are other forms of
payment that is received by the former in forms of remuneration and they are as follows:
Cash STI: It can be said that in the FY2017 the CEO received and Cash STI of 1,509,750 which
have high amount of money which is received by the CEO in form of remuneration benefits. The
STI comprised of 50% of STI from 2016 where as 50 % of the same was allocated to other KMP
executives.

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Other share rights vested: As it can be said that the CEO acquired some right shares within the
company the benefits received were in form of share rights. The CEO received $ 461,181.in the
current year in form of other share rights vested. The amount was prominent benefits received by
the CEO in form of remuneration (Dewachter, Iania, Lyrio & de Sola Perea, 2015).
It can be said that through the business operations of the firm also allotted the CEO with bonus
but in the current year the following was not entitled to the CEO which includes bonus and
Vested LTI.
(c) Evaluating the proportion of the CEO’s pay for the current reporting period is fixed
and what proportion is performance based
It can be said that through the annual report of wills worth it can be said that 75% of the CEO’s
remuneration pay is performance based. On the other hand 62.5% of the remuneration received
by the CEO is delivered as per the rights shares acquired by the CEO. It can be said that major
part of the remuneration is based on the performance of the CEO that mean the better the
performance the higher the remuneration of the CEO. On the other hand the rights share
acquired by the CEO determines the 62.5% of the CEO’s pay. 25 % of the remuneration that is
received by the CEO is earned to be fixed. The performance-based measure is done through 25%
of the targeted STI that includes Cash STI of 12.5% and Deferred STI of 12.5% which shows
that the following is mutually balanced. The other 50% of the performance-based system is
dependent of Maximum LTI in which 16.68 % comprise of Relative TSR with share price
gateway, 16.66% of Sales per trading square meter and 16.66% of ROFE.
(d) Measures of accounting performance, if any, are used to determine the CEO’s bonus
In remuneration Structure of the company it can be said that 75% of the remuneration is based on
performance of the former.0 It can be said that Bonus entitlement and accounting done for the

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same is also performance based. The higher LTI and STI limits the higher the amounts of bonus
which is received by the CEO. it can be said that there is no fixed bonus provided to the CEO. It
can be further said that bonus are also received in form of bonus shares to CEO where acquiring
the required amount of right shares needed (Cucchiella & Rosa, 2015). This means the CEO
must fulfill share right requirement which will entitle the following to a bonus.
(e) Explaining the incentives for accounting policy choice that arise from the CEO’s
remuneration contract according to agency theory. Using specific accounting policies to
illustrate your answer
The accounting policy that is currently used in the accounting for incentive for CEO is very
prominent. It can be said that through the use of effective accounting policy the company ensures
that the incentive system within the company performance based. Remuneration contracts and its
objective were to bring out the best operations out of the CEO. It can be said that firm uses
disclosures of the performance target to make the executives understand the objectives and goals
needed to be achieved in order to get entitled for the incentives as per the accounting structure of
the company. In this case it can be said that majorly the company pay’s to executive is based on
performance base remunerations, bound and share incentives which cause future failure.
(f) Evaluating on if agency theory can provide an explanation for the various remuneration
components
As per the agency theory in the current case of Woolworth it can be stated that low base salary of
the CEO which has fairly low proportion of total remuneration can have limited amount of
impact of management behavior. Performance based bonus and share entitle the CEO to perform
at rapid pace taking all the measures and risks to ensure growth in the value of company. Hence
the Agency theory describes on how remuneration affects the principles of Agents which are the

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CEO. If the remuneration structure is more performance based it will tend to extract better
performance from the CEO’s of the company which can been seen in Woolsworth’s case (Vogel,
2014).
Part B
The Woolsworth Company of Australia is formulating a new policy since past few months. The
company has already leaded as one of the top most retail company in Australia and has already
managed to hold a good position in the market. Previously the company have served their clients
with superior quality of services and punctuality. Their services have attracted a large customer
base and now the company have some new plans for their customers and this time the company
are focusing on something different. The Board of Directors of the company has decided to focus
on the three main topics namely people, profit and planet. This new idea will help the company
to maintain a position in the global market and this new policy of the company will be both
beneficial as well as harmful for the firm. The organisation is focusing on the new policy for the
betterment of its performance and with the help of this the corporation will be able increase their
profit with their position. The retail firm has always focused on their customer facility and tries
to improve their customer service and customer satisfaction. The organisation is well aware that
in order to get customer satisfaction the company has to provide good quality of services and
have to maintain their budgets. The firm with a low marginal profit has several customers and
now the organisation is in a leading position in the market (Thorlaksonet. al2018). Now the
board of directors has come with some new ideas by which the company will increase the profit
of the company. With that, the company will maintain a good relationship with their customers
and the firm will take care of the environment. The new decision of the company has been

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formulated for the betterment of both the company as well as the environment which is essential
for a new change and for the firm’s betterment.
Policy Introduction
The board of directors of Woolsworth Company has formulated a new policy in which the
company will focus on three main categories. First are the People by which the company will
focus on their customer and their needs. Second focusing is on then Profit of the company. Since
the very beginning the company is maintaining a low budget plan by which the company are
providing superior quality of products for their customer and for this the company’s profit was
not that much. Now since the company has made a good position so the company will now focus
to increase their profit. And the third thing on which the company will going to focus is the
planet. The board of directors has decided that the top managers of the company will be included
in this new project. The managers who will do their work by focusing on this three serious issues
will be paid good sum (Kumar and Reinartz2018). The board of directors of the company will
pay them more if the company focus on the customers, which means the managers, has to
understand the needs of their customers and has to fulfil it. With this the company also have to
focus on the company’s profit. The company have to keep in mind that balancing is important. If
the company are satisfying their customers then on the other hand the company also have to
make the company more profitable. And after the first and second focus the company also have
to keep in mind that environment should be save. The wages of the company’s managers will be
measured by these three parameters (Zhanget.et al 2018). Those who will be able to maintain
these three parameters will get extra amount of money their job will be more secured. With the
help of this new idea the company has given good opportunities to their managers and created a
passion in them for their work.

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Positive implication of the policy
The new policy of the company which has been formulated by the board of directors of the
company is beneficial for the company. Firstly the new policy has created a passion among the
managers and now for more earning the company will do their work sincerely and with proper
dedication. The new policy will also help the company to earn the maximum profit. Previously
the company was not earning sufficient profit but now the company are able to earn more profit.
Secondly with the introduction of new policy by the board of directors of the company now the
company will also focus more on their customers. Now the company will able to understand the
need of their customers and will be able to fulfill their needs which will satisfy their customers.
Lastly with the implementation of the new policy the company will also focus on the
environment. The environment is already in danger because of global warming (Raineyet. al
2015). The company will ensure that their work won’t disturb the environment very much. The
new policy which has been decided by the board of directors of the company serves for both
company’s benefit regarding profit and their customer satisfaction as well as doing less harm to
the environment.
Negative implication of the policy
The new policy of the company seems to create a barrier between the managers and the working
employees. The board of directors of the company has created an opportunities for the high rank
officials of the company but the company are not aware that by implementation of this policy
there will a partiality between the normal employees an authorities. The negative impact of this
policy is that the salary of the managers will be based on three selected parameters of the board
of directors based on People, Profit and Planet. This is not a solution for the company rather this
will create a problem in both the management and employees. Both the managers and the lower

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rank employees are working hard for the company. The board of directors has formulated a plan
for the betterment of the company and in this plan the company have only included the managers
of the company from different departments (Rappet. al 2015). If the lower rank employees
consider it as discrimination then the company will not provide their job with a quality. Neither
will the company do their respected job with proper dedication respectively. In general this
policy can create a barrier within the employees of the company which will not do so much good
for the betterment of the company.
Conclusion
After going through the entire policy of Woolsworth Company that has been decided by the
board of directors of the company it has been concluded that the policy of the company will both
create a positive and a negative impact on the company. With the help this new policy the
company on one hand will maintain a good customer relationship and will earn good profit
without harming the environment. At the same time the company will create a tension among its
higher rank officials and lower rank employees. If the policy of the company is executed then the
company may achieve its main motives but the companies have to pay the price for it. The lower
rank employees will not do their work properly as the company will feel that a partiality has been
made between them. The company has to understand both the positive and negative impact of the
policy in order to maintain a balance among both the managers and laborers. If the plan is
executed then the company will have to face many incoming challenges from their own people.
It is also concluded form the above that negative impact will very much affect the company no
matter how the positive impact takes the company into a new level.

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