Shareholder rights and remuneration policy 股东权利及工资政策.docx
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Shareholder rights and remuneration policy 股东权利及工资政策.docx
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Shareholderrightsandremunerationpolicy股东权利及工资政策
Q1:
Shareholders’rightsattheAGM
Shareholdersareindividualswhoinvestthecompany’sstock.Althoughtheydonotoperatethecompanybythemselves,theyhaverightstopertaintheirownership.Shareholdershavenorelationshipwiththeliabilityoftheinvestedcompany,buttheyaffordrisksoflosingtheirinvestment,ifthecompanyshouldbefail.BasedontheAgencytheory,therearepossibilitiesthatmanagersareperformingtheirowninterestandhurtingshareholders’interests.Thus,lawsandcorporationconstitutionshaveformulatedshareholdersrights.InAustralia,shareholders’rightscanbereflectedfromfourperspectives:
Annualgeneralmeeting(AGM),Reportsandannouncements,Dividendsanddividendreinvestmentplans(DRP)andcorporateactions(Australianinvestmentassociation2016).
AustraliancompaniesholdAGMsonceayear.ThreemainrightsshareholdersheldontheAGMsareelectingnewdirectors,votingfordirectorremunerationanddealingwithcompanybusinessessuchasanewinvestmentsorchangingseveralitemsincorporationconstitutions.
Onthefieldofelectingnewdirectors,theboardisdeterminedbyshareholdersandtheyhaverightstochangetheappointmentsofthedirectorsontheAGM.Forinstance,theASAhasdoubtwhetherRobMurray,ChairmanofMetcashshouldresignornotafterhiminvolvementinthegrillinSeptember2016forthecollapseofDickSmith(Yermack2006).Becausetheshareholdershaverightsondeterminationtheboard,RobMurray’sgoorstaycanbevotedbyShareholders(ASA2016).
Onthefieldofdirectorsremuneration,moreandmoreshareholdersinAustraliahaveperformedpositivelyontheirrights.BasedontheresearchofPWC(2016),shareholdersinASX200companieshaveshowntheirowninsightsratherthangrantingtheirrightstoproxy.
Shareholdershaverightsonthebusinesseswhichcanhaveinfluencethecompanyasawhole.Forexample,PWC(2016)pointsthatshareholdersinAustraliaarepaymoreattentionsontheareasincludingmoretransparentdisclosuresonSTI,effectsofperformancemechanismandthereasonabilitybetweenawardandmanagers’performance.
Shareholderscanhaveinfluencesonthecorporation’soperationfromthreeways.
Firstly,shareholdershavevotingrights.AshareholderattendstotheAGMandhehasonevotingrightforeachshareheldbyhim.AnyresolutionconductedbyAGMmustobtainmorethanhalfoftheapprovalsfromshareholderspresentedatthemeeting(Core2009).Forsomedecisionssuchasmodificationofthecorporationchapters,morethantwoquartersyesvotingarenecessary.
Shareholderscanperformtheirrightstoknowtosupervisetheoperationofthecompany.Indetails,shareholdershavetherighttoreviewthecompany'sarticlesofassociation,registerofshareholders,companybondsstubandfinancialreports.Theycanputforwardsuggestionsorinquiryforthecompany'soperatingorinquiry(Kim2007).
Additionally,accordingtotheexercisingmethods,shareholders’rightscanbedividedintosingleshareholderandminorityshareholderrights.Individualshareholdersrightsrefertothatshareholderscanexercisetheirrightspersonally,suchastovotingright.Minorityshareholdersrightsrefertoaproportionatenumberofsharesisgatheredtoexercise(Knyazeva2012,p.663).
Q2Reasonsforshareholders’havingrightsonremunerationpolicy
Shareholders'rightsaredefinedbycorporatelawanddetailedrulesmaybedifferentindifferentnationsinduetocountries’differentlegalsystem(Pham2011p.373).
UK
US
Australia
Exposureperiodforremunerationpolicytoshareholders
Every3years
Lessthan3yearsshouldchangeoccur
Withinthreeyears
Reporting
thedifferencesbetweendirectorsandcommonemployees’compensationonceayear
Onceayear
MainlydiscussedbyRemunerationcommittee.
Approvedline
Morethan50%otherwiseshouldberevertedback
Morethan50%otherwiseshouldberevertedback
Certaineventsmorethantwo-thirdsvotingyes
Morethan50%otherwiseshouldbevoteapprovals
Shareholdershaverightsontheeventsrelatedthedirectors’remunerationarequiteimportantforacorporationandtheinvestors.Firstly,basedontheagencytheory,managerswhoareemployedbytheshareholderandareresponsiblefortheoperationofthecompanyandshareholderswhoinvestinthecompanyaretwoparties(Shlomo2014).Thereisagencyrelationshipbetweenthesetwogroups(seegraph1).
Graph1relationshipbetweensharehodersanddirectorsunderangencytheory
BasedontheassumptionofHomoEconomicuseveryoneinvolvedinthecompanyisindividualistic,rationalandopportunistic.Thus,atanytime,directorsareworkingformaximizationoftheirowninterestsratherthantheshareholders’.Theysethighremunerationpoliciesforthemselvestoearnmorefromthecorporation,whichhasincreasedthemanagementcostinthecompany.Asaresult,netprofitwhichbelongstotheshareholdersisreduced(Yolanda2000p.947).Firstreasonforsuchagencyproblemoccurredisdifferentobjectivesrequiredbydifferentgroups.Secondreasonisthatshareholderscannotdeterminewhetherthemanagershaveperformedappropriately.Atthistime,theshareholdersrightscanguaranteethoseinterestsnotbehurtbymanagers.
ThemaintwotypesofAgencyproblemsaremoralhazardandadverseselection.Shareholdersrightsondirectors’remunerationcangiveshorttermandlongtermincentivesformanagerstoavoidthemoralhazard.Theadverseselectioniscausedbythewrongassignmentaboutthedirectors(Rashid2015p.5).Thiscanbesolvedbyre-electionsonASM.
Sincethe1990s,Stewardshiptheorygetsrapiddevelopment.Itrevealsanotherrelationshipbetweenmanagersandtheprincipal(Pepper&Gore2015,p.47).
.
BasedontheStewardshiptheory,assumptionsthatmanagersareallintrinsicopportunismandlazyarenotright.Thus,shareholders’interestscanconsistenttomanagers.Bythevotingrightsofshareholdershavingonmanagers’remuneration,managerscanpursuitintrinsicjobsatisfaction,whichwouldmakethemworkhard.
Q3:
WhenShareholdersofacompanyhireseniormanagementpersonneltooperatethecompany,shareholdersandexecutivesareformedbetweentheprincipal-agentrelationshipswhichhasbeendiscussedinquestion2.Furthermore,therearethreeconditionsoftheprincipal-agentrelationship:
●Theinterestsarenotconsistent.Shareholderswantmanagersmaketheirbestefforttothecompany.Inthisway,shareholdersvaluecanbemaximized.Unfortunately,managersusuallyarelazyandonlyworkformaximizationtheirincome.
●Thereisinformationasymmetry.Managersundertakeeveryday’sbusinessoftheorganizationandmanagersknowthecorporationverywellandtheyevenmasterproprietaryinformationwhichmanyshareholdersdonotknow.
●Themonitoronexecutorsisdifficult.Shareholderscannotalwayssupervisemanagers’behaviorssoitishardtofindouthowmucheffortsmangersdevotedtoimprovecompanyperformance.
Duetotheabovethreedilemmas,increasinguseofqualitativehurdlesinexecutivecompensationcanbebenefittothecompanyanddogoodtoshareholders’interestsatthesametime.Firstly,thefixedcompensationinmanagers’remunerationplansissuitablefortheworkingprocessorperformanceswhichareeasytomonitortheoperation.Forexample,itiseasytofindouthowmuchworkloadofcottonspinnersbythecloththeyhavemade.However,directorsarenotcommonstaffsinthecompany,theirworkingresultsaredifficulttoquantify.Theirmainjobistodeterminetheoverallstrategiesanddepartmentstrategiesforthecompany,whichisdifficulttotellhowmanyresultsaboutthesedecisions.Andtheresultsofthesedecisionsmaybeseeinginalongrun.Therefore,fortheworkingprocesswhichisdifficulttomonitorandpoorperformanceobservability,fixedcompensationcanbedifficulttoobtaingoodincentiveeffect.Therefore,thequalitativehurdlescanprovidegoodencourageeffectsonthemanagers’behaviors,whichletsthemanagersandshareholderstohaveconsistentinterestsfollowedstawshiptheory.BasedonthebehaviouralperspectivesofCorporateGovernance,behavioralissuesarequitecrucialfactorsforthecorporationgovernanceforacompany.Milgram()hasproposedthatinindividualsheart,everyonehastheconcepttoperformedwellbasedontheethics.Managerscannotbeexcludedfromthat,thereisareflexivesubservienceinhuman’smind,whichmeansindividualssometimeperformedtoaccepttherecognitionfromtheirownbasedontheirethicalrules.Loyaltyandfaithtotheirservingcompanyarepartofthis.Iftheshareholderstreatmangerswell,theymayperformwellinreturnbasedontheirmoralrules.Inaddition,thequalityhurdleshavelinkedmanagerstogetherwiththecompanytheyworkedfor.Theyareonegroupnowandmanagersmayworkmorehardforit.
However,thewayaddedqualityhurdlesintotheremunerationmaycauseanewproblem.Iftheperformancefeepaidtoohigh,managersinordertoobtainthecurrentperformanceattheexpenseofshort-termbehaviorofthecompany'slong-terminterests,whichhasdamagedthelong-termvalueofshareholders.Managers'effortscanbedividedintotwotypes:
toincreasetheshort-termperformanceeffortsandeffortstoimprovethecompany'slong-terminterests.Qualitativehurdlesaccordingtotheresultscaneffectivelymotivatemanagersdoshort-termefforts.Therefore,along-termincentivecompensationmustbecontainedinthecompensationplanstoencouragethemanagerdevoteforthecompany'slong-termvalue.Onlyinthisway,shareholderinterestscanbemaximized.
References:
Core,J.2009,‘CorporateGovernance,Chief
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