Contingent Pay Measures for Managerial Motivation and Remuneration Report for Telstra Corporation Limited

Accounting Theory
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1.Contigent Pay Measures for Managerial Motivation
The contingent pay designed for managers refers to the compensation paid to them on
the basis of performance for motivating them to contribute their best towards improving the
organisational outcomes. The compensation provided to the managers or executives is
dependent on the company performance and thus they make their best efforts in increasing
the performance of the company leading to its higher growth and development. The
remuneration committee designed for structuring the compensation package of the senior
executives and mangers within a company need to include contingent pay as an important
component of the overall package to drive the manager behaviour towards achieving
increased returns for the shareholders. The contingent pay measures generally includes short
and long-term incentive compensation for maximising the managerial performance and as a
result driving company’s profits. Short-term incentive compensation includes the annual
incentives that are provided to the managers on the basis of achievement of certain desired
targets. On the other hand, the long-term compensation refers to the options or bonuses stock
provided to the managers. The major difference between the two is that stock option does not
provide any compensation to the managers if there is no increase in the stock prices after the
date of grant whereas bonus stock is free stock that guarantees compensation to the
executives even in the condition of fall in stock prices after the grant date (Stabile, 2002).
On the other hand, there are also perceived risk associated with the use of contingent
pay measures for driving the company performance through increased motivation of
managers or executives. This is because managers or executives tend to adopt the use of
unethical practices for driving the company performance in order to attain the desired results
and gaining high compensation. There are also evident cases where large corporations such as
Enron and Worldcom business managers have implemented the use of false accounting
practices to disclose higher financial performance. This is largely done by the mangers for
achieving higher contingent pay by driving the increase in the stock prices through disclosure
of false information (Azim and Ahmmod, 2014).
Therefore, it can be said that there is both risks and benefits associated with the use of
contingent pay measures and it is essential on the part of a business corporation to achieve a
balance between the two considerations for enabling the sustained growth in its performance.
In this context, the Board is highly responsible for structuring the compensation package in a
manner that motivates executives but also limits the amount of compensation that can be
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provided to them on the basis of company performance. Also, the internal audit committee
should be appointed by the board members for reviewing the compensation structure to
identify the risks of it driving nay unethical behaviour within the managers or executives
(Bloom and Milkovich, 2005).
2. Remuneration Report for Telstra Corporation Limited
(a) Short and long-term amount paid to CEO as managerial performance
As stated in the remuneration report of Telstra, an ASX listed telecommunication
giant in Australia, the company provides both short and long-term contingent pay to the
senior executives on the basis of their performance. The short-term incentives provides
rewards to the CEO and senior executives on the basis of attaining the specified annual
business objectives. The rewards are provided in the form of cash and also they are entitled to
receive rights to Telstra shares. The long-term incentive is designed for rewarding the
employees for creation of sustainable shareholder returns over the period of 3-5 years the
form of equity instrument of options and restricted shares.
(b)Proportion of CEO Pay for Performance Based
The maximum achievable short-term incentives is 180% of fixed remuneration
whereas long-term incentives is 120% of fixed remuneration for the CEO in Telstra
Corporation Limited .
(c) Measures of Accounting Performance Used for Determination of Bonuses for CEO’s
Telstra Corporation Limited adopts the use of ROI (Return on Investment) as an
accounting measure for determining the executive’s share options. It helps in determining the
returns realised by the company on both its debt and equity instruments and therefore
determining the compensation provided to the CEO on the basis of achievement of company
targets (Telstra Corporation Limited and controlled entities, 2017).
(d)Accounting Decisions taken by CEO for Maximising its Bonuses
The CEO of the company can select the use of income-increasing accounting
procedures for maximising the bonuses paid. CEO can adopt the use of debt and equity
instruments on the basis of determined targets of ROI to be achieved for maximising the
bonuses received (Azim and Ahmmod, 2014).
(e) Use of Agency Theory to Provide Explanation for Various Remuneration Components
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