Financial Management Report: Executive Compensation and Ethics

This report delves into the core concepts of financial management, emphasizing the practical significance of financial numbers in creating organizational value and agility through the allocation of scarce resources. It highlights the crucial role of ethics, defining them as the moral principles underpinning business operations. The report focuses on executive compensation as a key consideration in investment evaluation, arguing that proper compensation aligns executives' interests with shareholders' interests. It discusses the challenges posed by unethical practices, such as recognizing unsubstantiated revenue, and the importance of whistleblowing. The report advocates for a shift towards remuneration systems that balance financial and non-financial considerations to reduce misconduct and align goals. It emphasizes the increasing use of non-financial metrics in performance management and the need for a robust framework to assess reward and risk, advocating for continuous review and monitoring of compensation systems to ensure their effectiveness. The report uses a real-world scenario to illustrate the challenges faced when ethical considerations are not prioritized.

Running Head: FINANCIAL MANAGEMENT
FINANCIAL MANAGEMENT
Name of the Student
Name of the University
Author Note

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Table of Contents
Executive Compensation............................................................................................................2
Bibliography...............................................................................................................................4

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Executive Compensation
The financial management’ focus is on practical significance of the financial numbers.
The sound financial management helps in creating the value and agility of organization by
allocating scarce resources among the competing opportunities of business. Under this, ethics
plays major role, which are the principles based doing the right things. It is the moral values
by the help of which any business operates. The managers of company are required to act in
best interest of owners of the company.
I define executive compensation as the significant thing for consideration, when
evaluating the opportunity of investment. The executives who are not compensated properly,
they may not be having incentives for performing in best shareholder’s interest. During past
decades, bonus and compensation system of top management have been the deliberate issue.
For the alignment of CEOs interest with the shareholders’ interest, compensation of
employee needs to be tied with the firm’s performance.
When I was working in Xyz Company, I have faced some challenges because of
deceitful CEO. I was the senior employees of the company, I came to know that my CEO was
indulge in the practices such as recognizing the revenue that was not substantial and he had
promoted other unethical practices of business in pursuit of the short-term objectives of
financial performance. He was having personal relationship with the employee who was
working directly for him. When I came to know about this I acted as whistle blower of the
company and highlighted the issue to higher authority.
I have learned that actions taken by top management can cause immense problem to
the firm. Even though most often incentives are used for controlling executives by the help of
tying CEO performance directly to firm’s performance, the system of incentive can also
incline CEO for taking the actions that contains higher degree of the risk or even the behavior

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that is outside the firm legal boundaries. The belief that top executives are responsible for the
firm’s performance and they should not be indulge in the fraudulent activities has forced me
to make the decisions for being the whistleblower of the company. I therefore, think that
there is a need to change the system, where remuneration of executive is largely based on the
achieving financial targets that is based on incentives or on total shareholder return. I think,
remuneration of executive that is based on genuine and balance of the financial and non-
financial consideration helps in reducing the level of misconduct and intends towards
motivating and aligning the goals with those, which are most beneficial to the entity. There
should be notable increase in non-financial metrics uses, when performance has to be
assessed. There is increasing use of the non-financial indicators in the processes of
performance management and compensation, which include assessing what and how the staff
achieves their performance for ensuring to focus on the sustainability of long-term.
However, according to my thought, there is great challenge in the development of the
framework to access policies and practices in balancing reward and risk. The system of
compensation needs to be reviewed and monitored for ensuring that they are operating as it is
intended.

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Bibliography
Bartholomeusz, S. (2019). Banker's pay: There can only be one winner in this battle. [online]
The Sydney Morning Herald. Available at: https://www.smh.com.au/business/banking-and-
finance/banker-s-pay-there-can-only-be-one-winner-in-this-battle-20190327-p517zq.html
[Accessed 24 Jan. 2020].
Ntim, C.G., Lindop, S., Osei, K.A. and Thomas, D.A., 2015. Executive compensation,
corporate governance and corporate performance: A simultaneous equation
approach. Managerial and Decision Economics, 36(2), pp.67-96.