Q. Decisions about managerial remuneration packages?

In recent years there has been an improved emphasis on decisions about managerial remuneration packages being removed from the control of managers who benefit from them. The utilization of remuneration committees in listed companies is an example of this. The neutral decisions of non-executive directors it is believed will eliminate or reduce managerial self interest and encourage remuneration packages that support the achievement of shareholder rather than managerial goals.

Suitable management remuneration packages for RZP Co Remuneration packages may be based on a performance measure linked to values in the income statement. A bonus could be honoured for instance based on profit before tax, growth in turnover or earnings (earnings per share). Such performance measures could initiate maximisation of profit in the short-term rather than in the long-term for example by deferring capital expenditure required to reduce environmental pollution and may encourage managers to manipulate reported financial information in order to achieve bonus targets. They could as well lead to sub-optimal managerial performance if managers do enough to earn their bonus but then reduce their efforts once their target has been achieved.

RZP Co has achieved earnings growth of in excess of 20% in both 2003 and 2004 but this is likely to reflect in part a recovery from the negative earnings growth in 2001 since over the five-year period its earnings growth isn't very different from its sector's (it may be worse). If the annual earnings growth were to be part of a remuneration package for RZP Co earnings growth could perhaps be compared to the sector and any bonus made conditional upon ongoing performance in order to discourage a short-term focus.