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Part I [Total marks 55]
Bill Strong is the founding director and Chief Executive Officer (CEO) of the
Strong Built Construction Company. After an extensive executive search,
Susan Bold has recently appointed as the new Chief Financial Officer (CFO) of
the Strong Built Construction Company. At a recent board meeting
discussions arose about profitability and the compensation of executives. The
construction industry has been in a downturn due to government austerity
measures. Bill has a high public profile and is well-known in the construction
industry. His dynamic personality and leadership charisma are attributed to
the success of the Strong Built Construction Company in maintaining revenue
at similar levels for the last two years, while other construction companies
have faced drops in revenue. Although the Strong Built Construction
Company has been successful in maintaining its revenue levels, profit before
tax has fallen. A recent employee survey revealed falling levels of employee
motivation. Members of the board have been questioning the current
approach to executive compensation that rewards employees with company
shares that are held in trust for three years before employees are able to sell
the shares. Bill Strong is trained in economics and argues that the
conventional agency theory approach to executive compensation where
employees receive monetary benefits helps motivate employees. Susan Bold
explains that intrinsic considerations need to be taken into account in
determining executive compensation.
Required: You are Susan’s assistant and you have been asked to prepare a
report that is backed by scholarly literature addressing the following issues
regarding approaches to compensation:
a. Typical elements of compensation packages (6 marks)
b. Outline the key assumptions of traditional agency theory and their
influence on approaches to compensation (8 marks)
c. Explain the difference between extrinsic and intrinsic motivation and the
relationship between the two motivations (6 marks)
d. How might an employee’s attitude to risk influence their desired
compensation package? (4 marks)
e. How might the time period when employee receives a financial benefit
influence they desire for the benefit? (4 marks)
f. What role do fairness considerations have when determining
compensation? (4 marks)
g. Why an executive compensation committee may provide benefits in
determining compensation. (3 marks)
h. How to structure an executive compensation committee to achieve the
best outcomes. (6 marks)
i. Conclusion: use the information in your previous answers to develop
recommendations for determining compensation that enhance job
satisfaction and work motivation.(4 marks)
3
j. Appropriate report formatting (title page, table of contents, introduction
and appropriate headings) (6 marks)
k. Adequate in-text references and reference list following Harvard style (4
marks)
Part II [Total marks 45]
(i) Read the paper by Gold, Gronewold and Pott (2012):
a. What is the aim of the research paper/project? (3 marks)
b. Draw a table to illustrate the 2 x 3 design (p. 292) showing the six
groups and the different information that each group received. (6
marks)
c. What was the purpose of the manipulation checks? (4 marks)
(ii) Read the study by Agyei, Aye and Owusu-Yeboah (2013); along with
the study by Okafor and Otalor (2013):
a. Briefly outline the research aims of each study (4 marks)
b. Explain how each study attempts to measure the audit expectation
gap and comment on which approach you think is more rigorous,
stating reasons why you believe one approach is superior in its rigor.
(6 marks)
c. Explain how each study selects the research participants and
comment on which approach you think is more rigorous, stating
reasons why you believe one approach is superior. (6 marks)
d. Outline the response rate in each study and whether you think the
response rates are adequate in each study. (6 marks)
e. Explain how each study goes about analysing the data that is
collected and comment on which approach you think is more
rigorous, stating reasons why you believe one approach is superior
in its rigor. (6 marks)
f. Briefly outline two other significant flaws that you have noticed in the studies.
