Judaism and Christianity Essay Example for Free

Judaism and Christianity Essay What beliefs and practices does Islam share with Judaism and Christianity? Specify what is distinctive about the Islamic form of those beliefs and practices. The relationships between Islam, Judaism and Christianity in the later parts of the 20th century appear to have improved as well as worsened from different perspectives as compared to any other period in history. A noteworthy aspect of the current relationships is that Muslims are now engaged in dialogues with Christians and Jews. Islam is now the fastest growing religion in the world and Muslim leaders and clerics can be observed functioning together with ministers, priests and rabbis in several religious endeavors. However, the three religions continue to have major differences and are engaged in nationalist and territorial conflicts that have gradually been characterized with religious or sectarian differences. This paper makes an analysis of the beliefs and practices that Islam shares with Christianity and Judaism because the misunderstandings between the three religions can be resolved only in recognizing that they have the same roots and share several social and religious practices. Islam is a monotheistic religion and is the second biggest in the world after Christianity. The religion has its origin in the Middle East and has several customs and beliefs that are the same as Christianity and Judaism. These three religions are commonly referred to as the Abrahamic religions; they believe in one God and trace their lineage from the Prophet Ibrahim, as evident in the Hebrew. Islam, Christianity and Judaism believe there is only one God who is the creator of all things that exist in the world and He is the one who takes care of every living being. The three religions provide that God believes in justice and He has established fundamental rules in guiding people about how they can become virtuous and honorable in complying with His intentions. The three religions hold that God believes in mercy and that with His grace people get the power to become more like what is desired of them to become (Wells, 2011). Islam, along with Christianity and Judaism, holds that all human beings are Ibrahim’s children and are the most capable living beings on Earth. Human beings were created with an element of mystery in being given immense potential to grow constantly, individually as well as a species. When people strive towards achieving good, righteous and loving qualities they transform into what God desired them to become. If such freedom is misused and others are harmed with one’s actions, it implies that such people are transgressing God’s will, which makes them evil. The three religions believe that it is possible for every individual to seek God’s help in achieving the capability to ward off evil influences. Eventually, the message in all three religions is to be devoted and obedient to God (Los Angeles Chinese Learning Center, 2012). In being monotheistic, the three religions are different from Buddhism and Hinduism. They share common beliefs about history being the arena of God’s activities and His encounters with human beings, Satan, angels, heavenly revelation and prophets. All three religions focus on t he importance of Judgment Day, accountability, responsibility and perpetual rewards and punishments. The three religions give immense importance to peace, which is evident from historical patterns of greeting one another, implying Peace Be Upon You, beginning with Assalamalaikim in Islam, with pax vobisum in Christianity and salom aleicham in Judaism. However, such greetings of peace have primarily pertained to greeting one another in a given community or society. All three religions believe that it is essential to engage in holy wars to espouse the cause of empires and to protect societies. The relationships between religion and politics is apparent in the present times also although in different ways, such as the circumstances that prevail in present day Israel, Palestine, Middle East and other parts of the world. All the three religions share the same ancestry and believe in scriptures that were delivered through heaven. They have similar religious practices and rites relative to charity and regular prayers, value of pilgrimage and common holy places. The three religions give the promise that appropriate behaviors will be rewarded and inappropriate behaviors will be punished in life as well as in the afterlife. They balance and integrate many elements of piety, devotion, legalism and mysticism and appear to be suitable in co-existing mutually in reinforcing one another (Peters, 1990). Islam has similarity with Judaism in regard to the focus on practice instead of beliefs. The main basis of religious obedience in Islam and Judaism is religious law, while in Christianity the focus is on theology. Across history, the main differences between Islam and Judaism have pertained to disagreement of religious practices and religious law. The disputes between Islam and Christianity have pertained primarily to the divide amongst communities about theological belief systems, relative to the relationships between divine and human characteristics. Christianity and Judaism are given special consideration in Islam in view of the Islamic beliefs that God had conveyed His will through His Prophets, namely Ibrahim, Moses and Jesus. In this regard, the Quran specifically states that God revealed his will throug h Ibrahim, Ismail and their progeny, as well as through Moses and Jesus. There is no difference amongst them and in what they say, which is why Muslims adhere to what was said by these Prophets (Newby, 1996). Islam and the Quran hold that Christians and Jews are Ibrahim’s children and relate to them as people of the book (Esposito, 2011). This is because the three religions originate from the same lineage of Ibrahim. Muslims trace their lineage from Ibrahim and his servant Hagar, while Christians and Jews trace their lineage from Ibrahim and his spouse Sarah. Muslims hold that God’s revelation in the form of the Torah was first delivered to the Jews by Prophet Moses and later to Christians by the Prophet Jesus. Muslims are in agreement about some biblical prophets such as Jesus and Moses and use their names as Isa and Musa respectively (Hipps et al, 2003). They also use the Virgin Mary’s name as Mariam and it is evident that her name appears more frequently in the Quran than in the New Testament. Muslims do not refute the status of Virgin Mary and Jesus’ virgin birth but they hold that in due course, over the centuries, the original revelation as made to Jesus and Moses became despoiled. Muslims view the Old Testament as a mix of human manufacture and of God’s messages. They hold the same views about the New Testament and believe that doctrines referring to Jesus as the Son of God are erroneous without any truth. They do not believe that the death of Jesus represented the redemption and atonement for mankind’s sins. It is apparent that Islam, Christianity and Judaism have some common roots and share several common practices. This is because they are all having the same Abrahamic heritage. Islam, Christianity and Judaism are monotheistic religions as they believe in a single God in focusing on the unity and oneness of God. The confirmation of one God in Christianity has been often debated because of its adherence to the Holy Trinity but this cannot be considered as a refutation of monotheism. It is only an acknowledgement of the ways in which God is viewed because in Christianity the Divine Being is God. Islam, Christianity and Judaism hold that God is the source and foundation of all that exists in the world and takes care of all His creations in ensuring their wellbeing. All the three religions confirm that people are governed and guided by basic rules that make them take the right path and become righteous in complying with God’s will. References 1. Esposito, John L. (2011). What Everyone Needs to Know about Islam, Oxford University Press. 2. Hipps, Amelia., Kayanaugh, Dorothy., and Khaled Abou El Fadl. (2003). Islam, Christianity, Judaism, Mason Crest Publishers. |Los Angeles Chinese Learning Center. (2012). Judaism, Christianity and Islam: Similarities, | |http://chinese-school.netfirms.com/Judaism-Christianity-Islam.html, Accessed on 16 October, 2012. | |Newby, Gordon. (1996). Muslim, Jews and Christians Relations and Interactions,The Muslim Almanac, Gale Research Inc, Detroit, p.423-429. | |Peters, F. E. (1990). Judaism, Christianity, and Islam,Volume 1: From Covenant to Community, Princeton University Press | |Wells, Mark. (2011). Comparison of Islam, Judaism and Christianity, http://smileyandwest.ning.com, Accessed on 16 October, 2012 | | |

Executive Compensation and Stock Option in the UK

Executive Compensation and Stock Option in the UK 1 Introduction Todays highly competitive world consists of numerous corporations and these corporations are so huge and so large that it cannot be controlled by the people who own them. The control of these corporations is separated from shareholders who are the owners and vested into the hands of professional executives who are specifically hired for its management. This separation of ownership and control gave rise to agency problem or the principal-agent problem. Principal is referred to the stockholders and the agents are the executives who work for the stockholders. Although stockholders are the owners of the company to whom the executives are accountable, their actual powers are restricted except in the case of those corporations where stockholders are also the directors of that corporation. Stockholders have no right to inspect the books of accounts nor are they aware of the exact functioning and position of the firm. As a result, executives tend to work inefficiently without even bothering to look for profitable new investment opportunities, as well as they may use the firms assets for private purposes and also work to achieve their personal goals all at the expense of the shareholders. Some managers do not take any action whatever state or condition the corporation may be as they are risk averse and fear the threat of losing their job if a decision taken by them goes wrong. Therefore in order to avoid the various problems that arise due to the agency problem, executives must be properly and promptly compensated along with proper monitoring. In the beginning of 1990s, debates on corporate governance mainly focused on directors remuneration and fat cats. Fat cats are referred to those executives who provided themselves with huge compensation packages without any performance criteria. In UK, the most famous Fat Cat episode which saddened the shareholders of many large public companies and dragged the attention of the media was the notorious British Gas incident of the mid 1990s. Various issues arising out of executive compensation and the trouble of framing the deserved level of compensation, that has to be provided to an executive, made executive remuneration a main area of concern under corporate governance. According to Jensen (1993), providing the right level of remuneration to the executives and creating positive incentives in order to achieve the interest of the shareholders has been an important study conducted in many academic literatures. An improvement in corporate governance is brought about by filtering certain aspects of executive remuneration. There exists a wide gap between the remuneration paid to the executives and the remuneration paid to the other employees on the company. This gap keeps on increasing year after year as executives demand more and more for their services and decision making process to boosts the productivity and reputation of the firm which thereby increases the market price of the companys share. In a research mentioned in the Higgs Report (2003), chairmen of FTSE 100 companies in 2003 earned an average of  £ 426,000 as remuneration. Moreover, executives are being rewarded with stock options which would enrich them with abnormal profits in the future when the options granted to them are exercised. Critics argue that, executives are not worth for the remuneration paid because of their poor and unsatisfactory performance. According to Blitz (2003), MORI a leading market research company in the UK, through a survey, found 78% of the people unsatisfied by the remuneration paid to the executives. The pu blic in UK believe that executives are being overpaid for the amount of work they actually do. 2 Methodology This paper is a critical review on the various aspects of executive compensation in the UK and how the executive compensation especially the executive stock option encourage the managers and top executives, for their personal benefit, to take short term high risks and boost up the current value of shares rather than looking into the future and acting in favour of the stakeholders of the company. The tools used for the research mainly consist of various literature reviews of past articles and current working papers with some analysis of some statistical data regarding executive compensation. On the basis of the above mentioned area of research certain questions have been framed which will be critically looked into: a) Brief description of the executive compensation and corporate governance in the UK. b) Basic structure of executive remuneration in the UK and their disclosure requirements in United Kingdom. c) Are stock options considered the best means of remuneration in an executive compensation package? d) A brief historical overview of the introduction of executive stock option in the UK. e) What are the various manipulations done with executive stock option and what are the risk incentives created by executive stock option? f) Brief comparison of the UK executive compensation with the US executive compensation. g) The role of executive compensation in the UK banking towards the current financial crises. 3 Executive Compensation and Corporate Governance in the United Kingdom: During the past decade, various issues on corporate governance established the emergence of many reports and codes of best practice in the United Kingdom. These include the Inland Revenue (1988), Cadbury Report (1992), Greenbury Report (1995), Hampel Report (1998), The Combined Code (1998), Hermes Statement on Corporate Governance and Voting Policy (1998), Internal Control: Guidance for Directors on the Combined Code (Turnbull Report)(1999), Company Law Reform (1999) and Financial Services Market Act (2001) (Konstantinos Stathopoulos, Susanne Espenlaub, Martin Walker, 2003). Among these reports the Cadbury Report, Greenbury Report and the Combined Code, which emerged from the Hampel Report, focused on issues regarding executive compensation. 3.1 Cadbury Report (1992): The first guidelines of good practice on various issues of corporate governance were provided in the year 1992 by the Cadbury Committee which was established in May 1991 and was chaired by Adrian Cadbury. The Cadbury Committee discussed issues that were broader in nature than the executive remuneration but certain suggestions the committee made on altering the executive pay was accepted as permanent. The Cadbury report was titled as the Financial Aspects of Corporate Governance and came out with the Code of Best Practice, which insisted that decisions based on executive remunerations should not be made by the executive directors nor they have to get involved in making such a decision (1992, paragraph 4.42 p. 31). The report therefore recommended the appointment of a remuneration committee which will act in the interest of the shareholders of the firm and express a good opinion on various matters regarding executive compensation to the board. Companies in the UK responded spontaneousl y to this recommendation made in the Cadbury Report and established a remuneration committee within the firm (Bostock, 1995). The remuneration committee consists of a non-executive director as the chairperson and non-executive directors as its members who are all independent and free from the influence of the management. According to Williamson (I985), there always arises a question of doubt whether the directors make remuneration contracts for their own huge benefits and sanction it, if an independent pay committee does not exist. The role of remuneration committee is to ensure that executive compensation levels are set up in a formal, transparent way along with the goals required to be achieved by the executives for any schemes that are performance related. The remuneration committee can take advice from outside sources whenever necessary. The Cadbury report also suggested the establishment of an audit committee within each company which comprises of three non-executive directors (Martin Conyon, Paul Gregg and Stephen Machin, 1995). According to a questionnaire survey conducted by Conyon and Mallin (1997), by 1995, 98% of the companies followed the suggestions made by the Cadbury report and has reported the involvement of the remuneration committee in their annual reports. 3.2 The Greenbury Report (1995): Cadbury report failed to provide detailed guidance on how compensation packages have to be structured. However, it pointed out executive compensation to be the main area of study for the next committee known as the Greenbury Committee. The Greenbury Committee chaired by Sir Richard Greenbury, was formed by the United Kingdom Confederation of Business and Industry, and in 1995 it submitted the Greenbury report which dealt with matters regarding the determination and accounting of top executive pay. The main issues discussed in the Greenbury Report includes the role of the remuneration committee in an organisation, the disclosure requirement required by the shareholders of the organisation, the remuneration policies for compensating the executives and the service contracts provided to the executives. The remuneration policies recommended in the Greenbury Report are: a) Compensation packages must be provided by the remuneration committee to quality executives in order to influence, sec ure and encourage them and any payments extra to this intention must be avoided (Greenbury Report Paragraphs 6.5 – 6.7). b) The payments made and the subsequent resulting performance by other companies in the same industry must be evaluated by the remuneration committee. On the basis of this evaluation, the remuneration committee should relatively place their company (Paragraphs 6.11 – 6.12). c) While making changes to the annual salary of the executives, the remuneration committee should look into the payment and employment situations in other areas of the company rather than only concentrating on the executive pay and increasing them so as to satisfy the executives (Paragraph 6.13). d) The part of remuneration that is related to performance should be designed in such a way that the executives incentives go hand in hand with the interest of the shareholders and the executives are motivated to perform their duties with high standards (Paragraph 6.16). e) The performan ce conditions for executives to avail their annual bonuses, if any, should be designed to support and widen the operations of the business. The maximum possible amount of annual bonus an executive can avail should be taken into consideration by the remuneration committee and in some cases a part of these bonus payments can also be made by shares (Paragraphs 6.19 – 6.22). f) Under the long term incentive scheme, the Greenbury Report suggested that the shares and options granted to the executives should neither vest nor be exercisable, at least for a period of 3 years after such grant. The remuneration committee should encourage its executives to keep possession of their shares, after its vesting or exercise, for a long period of time (Paragraphs 6.23 – 6.34). g) The present existing long term incentive scheme should either be replaced by the new incentive scheme proposed or, the new incentive scheme proposed when combined with the old existing scheme should formulate a well structured incentive plan. The remuneration committee should make sure that the new long term incentive plan does not pay in excess than what is actually required for the executives and this new plan is accepted by the shareholders (Paragraph 6.35). h) The criteria for any long term incentive grant should be challenging and the performance of the executives should help achieve the goals set by the company in order to stand out from rest of its competitors. Key variables like the total shareholders return are used to judge the performance of the company with respect to its competitors (Paragraphs 6.38 – 6.40). i) Executive stock option grant or any other long term incentive grant must not be presented in lump-sum but should be awarded in series of stages. Moreover, no discount should be provided to the executives on the issue of executive stock option (Paragraph 6.29). j) While increasing the annual basic salary of the executives, the remuneration committee should look in to the effect of such increase on the executives pension entitlement and on the future expenses of the company particularly in case of those executives who are nearing retirement. The annual bonuses paid or any benefits paid in kind are not entitled for any pension payment (Paragraph 6.42 – 6.45). The aim of the Greenbury Report was not to cut down the executives remuneration but was to establish a balance between the compensation paid to the executives and their respective performance. On publishing the report in 1995 by the Greenbury Committee, certain tax advantages that was permitted on newly issued share options which comes under the approved executive share option scheme was withdrawn by the UK government. A new type of option scheme was introduced in November 1995 which had an upper limit of only  £20,000 on individual option holdings. Further, executive share options whose exercise price was earlier accepted at a discounted price of 15% on the existing share price at the time of grant was prevented (Konstantinos Stathopoulos, Susanne Espenlaub Martin Walker, 2003). According to Conyon (1994) in UK, the top executive director of a company was also made member of its remuneration committee before the launch of the Greenbury Report. However, the old fashioned executive share options schemes was not benefitted from the recommendations made by the Greenbury Committee as it not only seized the tax benefits but also encouraged to substitute options with long term incentive plans which in the UK is just awarding shares and not cash. The recommendations made by the Greenbury Report were not widely accepted as many of the critics believed that the report failed to link the executive pay with the performance of the company. 3.3 The Combined Code (1998): The Combined Code of the London Stock Exchange controls the various remuneration practices adopted by the companies listed in the London Stock Exchange. It has combined the recommendations given by the Cadbury Report and the Greenbury Report in order to form a regulation for efficient remuneration practice. The annual report of the companies listed should contain in a separate section the remuneration policy adopted by the company. The Combined Code requires a statement, in the annual report, showing that the remuneration standards mentioned in the code are being followed by the company and if any set standard is not complied with, the statement should point out the reason for the non compliance. A high level of executive remuneration disclosure is also required under the combined code and clear explanations about the various compensation packages provided to each executive director and non executive director should be stated (Konstantinos Stathopoulos, Susanne Espenlaub Martin Walk er, 2003). 4 Structure of Executive Remuneration in the UK: The typical structure of executive compensation in UK comprise of base salary, annual bonus, share options and long term incentive plans along with certain additional components like restricted stock and retirement plans. In 1997, an average executive compensation package consisted of 54% of base salary, 24% of annual bonus and 22% of non cash items which include share options and long term incentive plans (Martin J. Conyon, Simon I. Peck, Laura E. Read and Graham V. Sadler, 2000). Base Salary Determination of the base salary of an executive is done by taking into consideration the base salaries paid to executives of other companies in the same industry through surveys and analysis. This system of setting up and providing base salary is known as competitive benchmarking. Certain modifications are carried out on the base salary depending on the size of the firm, thereby linking executive compensation and firm size. In UK, base salary form the major part of the total executive remuneration paid. Base salary is that component of executive remuneration which is fixed and do not vary according to the performance, experience, age, etc of the executives. A  £1 increase in the base salary is preferred by executives who are risk averse than a  £1 increase in other components of executive compensation that are variable. Annual Bonus Bonus is provided to the executives on the basis of their performance during the relevant financial year. It is provided on an annual basis and the amounts paid as bonus to each executive vary from year to year. The performance of the executives is generally measured by taking into consideration accounting numbers which can be cross checked and audited. Executives have a clear idea of their daily performance by looking at the accounting numbers and they can forecast how overall profit of the company is going to look like at the end of the year. The drawback of relying on accounting numbers for measuring performance is that it is fully under the control of the executives and if wanted executives can manipulate the accounts in order to increase their annual bonus entitlement. Share Options Share options are contracts provided to the executives that cannot be traded which gives the executives the right to buy the shares of the firm at a price that is pre-determined known as the exercisable price for a specified time period. These contracts become void and have to be surrendered if the exercisable period mentioned has elapsed or if the executive resigns from the company before the exercisable period. This component of executive compensation is looked more into detail in the later section. Long-Term Incentive Plans – Long-Term Incentive Plans are provided to the executives in order to motivate and compensate them for achieving long term performance for the company. Grant of shares is the most typical form of LTIPs provided in the UK. These shares are vested to the executives only on achieving the objectives set by the company that is related to future performance. Earnings per Share and Total Shareholders Return are the two main elements by which the performance of the company is measured in the UK. Retirement Plans – Apart from the basic pension plans provided by the company, in UK, executives are encouraged to participate in an additional retirement benefit plan. These plans are a major source of concern because it symbolises invisible compensation. The actual value of executive retirement plan cannot be calculated by the available information provided in the books of accounts and the annual report. 4.1 Disclosure Requirement of Executives Remuneration in the UK: The Greenbury Report in 1995 identified three fundamental principles, which are accountability, transparency and performance linkage, in respect to executives remuneration. In UK, the current best practice disclosure pattern failed to compile with these fundamental principles therefore the government introduced certain necessary additions to the existing disclosure pattern. These latest requirements regarding disclosure of UK executives remuneration unifies the existing law, regulation and best practices that are mentioned in the UK Companies Act of 1985, the UK Listing Rules and the UK Combined Code of Principles of Good Governance and Code of Best Practice. The new requirement requires every company in the UK to adopt and prepare the directors remuneration report along with other necessary requirements. 4.1.1 Directors Remuneration Report (DRR): Companies listed in the London Stock Exchange should prepare the directors remuneration report for every financial year (Section 234B Companies Act) and should publish this report along with the accounts and annual report of the company (Section 244 Companies Act). The preparation of the remuneration report is done by the board of directors and not by the remuneration committee being, a committee accountable and responsible to the board and consisting only the non executive directors of the company. The remuneration of both the executive and non executive directors is clearly mentioned in the remuneration report. The fully prepared remuneration report should be filed with the registrar of companies (Section 242 Companies Act) and made available and provided to all the parties interested in the company such as the shareholders, debenture holders, and other persons who are required to attend the general meetings (Section 238 Companies Act). The remuneration report should contain all the information regarding the remuneration of the directors for the financial year completed i.e. the relevant financial year which includes disclosure of the amount receivable by the directors, whether paid or not, during the financial year as well as the disclosure of any amount paid as directors remuneration for any other period during the financial year (Companies Act, Schedule 7A, paragraph 19). The remuneration report should include the payments made to a third party for any services provided to the directors (Companies Act, Schedule 7A, paragraph 18(3)) and a statement showing the future remuneration policy of the directors. In UK, only the disclosure of directors remuneration is needed in the remuneration report. The name and information of every person who is the director, during the relevant financial year, has to be mentioned in the remuneration report. The remuneration report contains information that has to be audited by an external auditor (Companies Act, Schedule 7A, Part 3) and information need not be audited (Companies Act, Schedule 7A, Part 3). a) Information in DRR subject to audit: With regards to information subject to audit, the external auditor in his own consent should mention whether the information provided are prepared according to the necessary requirement and if any information is not complied as needed, the auditor should provide a statement showing them (Sections 235 and 237 Companies Act). The auditor will also look into disclosure information that are not subjected to audit and verify them with the company accounts as well as with the disclosure information that are audited. The various information included in the DRR that are subject to audit are: Emoluments and compensation For the services provided to the company as an executive or for any other services relating to the companys management, the salary, bonus, fees or compensation as termination of qualifying services received or receivable by the executives should be disclosed in the DRR. The overall value of non monetary benefits provided to the executives should be mentioned and the total aggregate of each kind of executive compensation provided in the relevant financial year should be compared with the previous financial year (Companies Act, Schedule 7A, paragraph 6). Share Options – The different types of shares options a company have should be mentioned along with their terms and conditions and besides each share option the total option each executive hold in the beginning of the relevant financial year as well as in the end should be disclosed. Detailed information of the various options provided during the year, its date of grant, its exercise price, date of expiry, number that have become void and number exercised and unexercised by the executives should be mentioned. If the share options are subject to any performance condition then the criteria has to be clearly described. For those shares that have been exercised, the market price during the time of exercise and for those shares unexercised ,the highest, lowest and the year end market prices have to be also mentioned. Since the disclosure of share options is a lengthy process, the aggregate of options each director hold is stated and the disclosure can be made on the basis of weighted average exercise pri ces (Companies Act, Schedule 7A, paragraphs 7-9). Long-term incentive schemes – Disclosure of scheme interests at the beginning and end of the current financial year which each executive hold must be made. Details of the type of scheme interest provided to the executives, its value and when it is vested in the year should be mentioned. If there are any conditions on the basis of which scheme interests will be granted then the relevant conditions should be specified (Companies Act, Schedule 7A, paragraphs 10 and 11). Other Information Details of executives pension scheme transfer value, any benefits that are accumulated over time and amount paid or payable by the company towards the money purchase pension scheme and retirement benefit scheme should be mentioned (Companies Act, Schedule 7A, paragraph 12). Amount received or receivable by the executives as benefits over and above the retirement benefit which he is entitled after 31st March 1997 should be included in the DRR (Companies Act, Schedule 7A, paragraph 13). If any person, who was once the executive of the company, has been given a special reward or if any third party is paid for their services provided to the executives during the relevant financial year it should be stated and disclosed (Companies Act, Schedule 7A, paragraph 14 15). b) Information in DRR not subject to audit: The information in the DRR that are not subject to audit is: Remuneration Committee – If any decision regarding the remuneration of the executives is taken by a committee during the financial year then the DRR must contain the name of all the non executive directors who were the members of such a committee and also should mention the name of any other person who is not the member of the committee but has been appointed by the members to assist them with certain services and advice. The details of the services rendered by the outside party should be clearly mentioned and this is done to ensure that the executive director play no role and influence the decision making of the committee (Companies Act, Schedule 7A, paragraph 2). Statement of policy on executives remuneration – A statement of future policy on executives remuneration for the coming financial years has to be included in the directors remuneration report (Companies Act, Schedule 7A, paragraph 3). The statement of policy should therefore disclose the conditions of performance, by an executive, for the entitlement of share option and long term incentive scheme along with the reasons for setting up such performance condition and the method used to assess the performance condition. If any executive fails meet the performance condition and does not benefit from the stock option grant or long term incentive scheme, the report should clearly state the conditions that are unsatisfactory. Details of the company on the basis of which the performance is measured should be provided in the report. Changes or amendments proposed to the existing terms and conditions for executives entitlement should be highlighted. Explanation should also provide for non-performance related remuneration and company policies on executives service contracts. This statement covers all directors from the end of the current financial year till the time when the report is put for voting by the shareholders of the company Performance graph – Publication of preceding 5 years performance graph should be included in the DRR showing the total shareholder return for holding shares whose listing transformed the company into a quoted company and for holding shares on the basis of which calculations are made for a broad equity market index. A fair method is used for the calculation of the total shareholder return along with various assumptions like the interest received on shares being reinvested (Companies Act, Schedule 7A, paragraph 4). Service Contract – During the relevant financial year if any executive is provided with a service contract, the date at which the service contract has been provided, its duration and its terms and conditions should be mentioned in the remuneration report. A detail of the termination compensation the executive is entitled to receive along with the companys liability on early termination is to be included (Companies Act, Schedule 7A, paragraph 5). On the complete preparation of the remuneration report, in the annual general body meeting it is introduced and called for a vote by the shareholders of the company (Section 241A Companies Act). This concept of voting the remuneration report was a controversial topic as many commentators suggested the voting to be limited to only the remuneration policy rather than the whole remuneration report. The reason they point out is that the executives remuneration policies are futuristic in nature so the shareholders can express their opinion on the policies adopted ra ther than making aware of the actual remuneration paid to each individual director. 4.1.2 Other Requirements: a) Along with the preparation of the DRR, disclosure of the aggregate compensation of the executive, loan given to the executives and other company transactions with the executive should be done in the notes of the annual accounts as mentioned in Schedule 6 of the Companies Act. b) As per Section 251 of the Companies Act and Companies Regulations (1995), listed companies in their summary financial statements should as a statement, state its policies regarding the remuneration of executives and the companys performance graph. 5 Stock/Share Options – Are they the Best in an Executive Compensation package? The most prominent and important component of executive compensation, in order to merge the interests of the executives with that of the interests of the shareholders, is providing the executives with stock options in the firms they serve (Jensen and Meckling, 1976). According to Jeffrey A. Williamson and Brian H. Kleiner, A stock option is a security that represents the right, but not the obligation, to buy or sell a specified amount of stocks at a specified price within a specified period of time. Stock options granted to executives of many large multinational firms are much higher in value than the annual cash pay they are entitled to be paid which in-turn boosts up the overall total compensation provided to the executives. This makes stock options the single largest ingredient in the current scenario of executive compensation. In the United States itself, stock options are held by more than 10 million employees (Simon R. and Dugan J., 2001) out of which around 160,000 of them tur ned out to be millionaires (Tate E.A. and Wilson T.E., 2001). Initially stock options were provided as a bonus to all the key executives of a company, but during the recent years its use is restricted only to the top level management. Providing stock options have resulted in increased productivity of the organisations. Executives are aware that their gain is linked with the stock performance of the organisation therefore they strive harder and work more efficiently to achieve progress. The main objective behind granting stock options is to make sure that executive make a profit on the success of the companys operations and in case of failures they suffer. Hence executive stock options link pay to performance. Critics argue to provide shares of stock rather than providing stock options in order to link pay and performance. The value of a stock option is only one third the value of a share, in case of companies having an average volatile stock price and yielding an average dividend the reason being stockholders receiving the whole value along with the dividend payment and the option holders benefitting only from the additional returns that is over and above the exercise price. This implies that options have a greater leverage and at the same cost, a company can provide its executives with options that are three times as much as that of shares. Stock options are incentive plans that are future Executive Compensation and Stock Option in the UK Executive Compensation and Stock Option in the UK 1 Introduction Todays highly competitive world consists of numerous corporations and these corporations are so huge and so large that it cannot be controlled by the people who own them. The control of these corporations is separated from shareholders who are the owners and vested into the hands of professional executives who are specifically hired for its management. This separation of ownership and control gave rise to agency problem or the principal-agent problem. Principal is referred to the stockholders and the agents are the executives who work for the stockholders. Although stockholders are the owners of the company to whom the executives are accountable, their actual powers are restricted except in the case of those corporations where stockholders are also the directors of that corporation. Stockholders have no right to inspect the books of accounts nor are they aware of the exact functioning and position of the firm. As a result, executives tend to work inefficiently without even bothering to look for profitable new investment opportunities, as well as they may use the firms assets for private purposes and also work to achieve their personal goals all at the expense of the shareholders. Some managers do not take any action whatever state or condition the corporation may be as they are risk averse and fear the threat of losing their job if a decision taken by them goes wrong. Therefore in order to avoid the various problems that arise due to the agency problem, executives must be properly and promptly compensated along with proper monitoring. In the beginning of 1990s, debates on corporate governance mainly focused on directors remuneration and fat cats. Fat cats are referred to those executives who provided themselves with huge compensation packages without any performance criteria. In UK, the most famous Fat Cat episode which saddened the shareholders of many large public companies and dragged the attention of the media was the notorious British Gas incident of the mid 1990s. Various issues arising out of executive compensation and the trouble of framing the deserved level of compensation, that has to be provided to an executive, made executive remuneration a main area of concern under corporate governance. According to Jensen (1993), providing the right level of remuneration to the executives and creating positive incentives in order to achieve the interest of the shareholders has been an important study conducted in many academic literatures. An improvement in corporate governance is brought about by filtering certain aspects of executive remuneration. There exists a wide gap between the remuneration paid to the executives and the remuneration paid to the other employees on the company. This gap keeps on increasing year after year as executives demand more and more for their services and decision making process to boosts the productivity and reputation of the firm which thereby increases the market price of the companys share. In a research mentioned in the Higgs Report (2003), chairmen of FTSE 100 companies in 2003 earned an average of  £ 426,000 as remuneration. Moreover, executives are being rewarded with stock options which would enrich them with abnormal profits in the future when the options granted to them are exercised. Critics argue that, executives are not worth for the remuneration paid because of their poor and unsatisfactory performance. According to Blitz (2003), MORI a leading market research company in the UK, through a survey, found 78% of the people unsatisfied by the remuneration paid to the executives. The pu blic in UK believe that executives are being overpaid for the amount of work they actually do. 2 Methodology This paper is a critical review on the various aspects of executive compensation in the UK and how the executive compensation especially the executive stock option encourage the managers and top executives, for their personal benefit, to take short term high risks and boost up the current value of shares rather than looking into the future and acting in favour of the stakeholders of the company. The tools used for the research mainly consist of various literature reviews of past articles and current working papers with some analysis of some statistical data regarding executive compensation. On the basis of the above mentioned area of research certain questions have been framed which will be critically looked into: a) Brief description of the executive compensation and corporate governance in the UK. b) Basic structure of executive remuneration in the UK and their disclosure requirements in United Kingdom. c) Are stock options considered the best means of remuneration in an executive compensation package? d) A brief historical overview of the introduction of executive stock option in the UK. e) What are the various manipulations done with executive stock option and what are the risk incentives created by executive stock option? f) Brief comparison of the UK executive compensation with the US executive compensation. g) The role of executive compensation in the UK banking towards the current financial crises. 3 Executive Compensation and Corporate Governance in the United Kingdom: During the past decade, various issues on corporate governance established the emergence of many reports and codes of best practice in the United Kingdom. These include the Inland Revenue (1988), Cadbury Report (1992), Greenbury Report (1995), Hampel Report (1998), The Combined Code (1998), Hermes Statement on Corporate Governance and Voting Policy (1998), Internal Control: Guidance for Directors on the Combined Code (Turnbull Report)(1999), Company Law Reform (1999) and Financial Services Market Act (2001) (Konstantinos Stathopoulos, Susanne Espenlaub, Martin Walker, 2003). Among these reports the Cadbury Report, Greenbury Report and the Combined Code, which emerged from the Hampel Report, focused on issues regarding executive compensation. 3.1 Cadbury Report (1992): The first guidelines of good practice on various issues of corporate governance were provided in the year 1992 by the Cadbury Committee which was established in May 1991 and was chaired by Adrian Cadbury. The Cadbury Committee discussed issues that were broader in nature than the executive remuneration but certain suggestions the committee made on altering the executive pay was accepted as permanent. The Cadbury report was titled as the Financial Aspects of Corporate Governance and came out with the Code of Best Practice, which insisted that decisions based on executive remunerations should not be made by the executive directors nor they have to get involved in making such a decision (1992, paragraph 4.42 p. 31). The report therefore recommended the appointment of a remuneration committee which will act in the interest of the shareholders of the firm and express a good opinion on various matters regarding executive compensation to the board. Companies in the UK responded spontaneousl y to this recommendation made in the Cadbury Report and established a remuneration committee within the firm (Bostock, 1995). The remuneration committee consists of a non-executive director as the chairperson and non-executive directors as its members who are all independent and free from the influence of the management. According to Williamson (I985), there always arises a question of doubt whether the directors make remuneration contracts for their own huge benefits and sanction it, if an independent pay committee does not exist. The role of remuneration committee is to ensure that executive compensation levels are set up in a formal, transparent way along with the goals required to be achieved by the executives for any schemes that are performance related. The remuneration committee can take advice from outside sources whenever necessary. The Cadbury report also suggested the establishment of an audit committee within each company which comprises of three non-executive directors (Martin Conyon, Paul Gregg and Stephen Machin, 1995). According to a questionnaire survey conducted by Conyon and Mallin (1997), by 1995, 98% of the companies followed the suggestions made by the Cadbury report and has reported the involvement of the remuneration committee in their annual reports. 3.2 The Greenbury Report (1995): Cadbury report failed to provide detailed guidance on how compensation packages have to be structured. However, it pointed out executive compensation to be the main area of study for the next committee known as the Greenbury Committee. The Greenbury Committee chaired by Sir Richard Greenbury, was formed by the United Kingdom Confederation of Business and Industry, and in 1995 it submitted the Greenbury report which dealt with matters regarding the determination and accounting of top executive pay. The main issues discussed in the Greenbury Report includes the role of the remuneration committee in an organisation, the disclosure requirement required by the shareholders of the organisation, the remuneration policies for compensating the executives and the service contracts provided to the executives. The remuneration policies recommended in the Greenbury Report are: a) Compensation packages must be provided by the remuneration committee to quality executives in order to influence, sec ure and encourage them and any payments extra to this intention must be avoided (Greenbury Report Paragraphs 6.5 – 6.7). b) The payments made and the subsequent resulting performance by other companies in the same industry must be evaluated by the remuneration committee. On the basis of this evaluation, the remuneration committee should relatively place their company (Paragraphs 6.11 – 6.12). c) While making changes to the annual salary of the executives, the remuneration committee should look into the payment and employment situations in other areas of the company rather than only concentrating on the executive pay and increasing them so as to satisfy the executives (Paragraph 6.13). d) The part of remuneration that is related to performance should be designed in such a way that the executives incentives go hand in hand with the interest of the shareholders and the executives are motivated to perform their duties with high standards (Paragraph 6.16). e) The performan ce conditions for executives to avail their annual bonuses, if any, should be designed to support and widen the operations of the business. The maximum possible amount of annual bonus an executive can avail should be taken into consideration by the remuneration committee and in some cases a part of these bonus payments can also be made by shares (Paragraphs 6.19 – 6.22). f) Under the long term incentive scheme, the Greenbury Report suggested that the shares and options granted to the executives should neither vest nor be exercisable, at least for a period of 3 years after such grant. The remuneration committee should encourage its executives to keep possession of their shares, after its vesting or exercise, for a long period of time (Paragraphs 6.23 – 6.34). g) The present existing long term incentive scheme should either be replaced by the new incentive scheme proposed or, the new incentive scheme proposed when combined with the old existing scheme should formulate a well structured incentive plan. The remuneration committee should make sure that the new long term incentive plan does not pay in excess than what is actually required for the executives and this new plan is accepted by the shareholders (Paragraph 6.35). h) The criteria for any long term incentive grant should be challenging and the performance of the executives should help achieve the goals set by the company in order to stand out from rest of its competitors. Key variables like the total shareholders return are used to judge the performance of the company with respect to its competitors (Paragraphs 6.38 – 6.40). i) Executive stock option grant or any other long term incentive grant must not be presented in lump-sum but should be awarded in series of stages. Moreover, no discount should be provided to the executives on the issue of executive stock option (Paragraph 6.29). j) While increasing the annual basic salary of the executives, the remuneration committee should look in to the effect of such increase on the executives pension entitlement and on the future expenses of the company particularly in case of those executives who are nearing retirement. The annual bonuses paid or any benefits paid in kind are not entitled for any pension payment (Paragraph 6.42 – 6.45). The aim of the Greenbury Report was not to cut down the executives remuneration but was to establish a balance between the compensation paid to the executives and their respective performance. On publishing the report in 1995 by the Greenbury Committee, certain tax advantages that was permitted on newly issued share options which comes under the approved executive share option scheme was withdrawn by the UK government. A new type of option scheme was introduced in November 1995 which had an upper limit of only  £20,000 on individual option holdings. Further, executive share options whose exercise price was earlier accepted at a discounted price of 15% on the existing share price at the time of grant was prevented (Konstantinos Stathopoulos, Susanne Espenlaub Martin Walker, 2003). According to Conyon (1994) in UK, the top executive director of a company was also made member of its remuneration committee before the launch of the Greenbury Report. However, the old fashioned executive share options schemes was not benefitted from the recommendations made by the Greenbury Committee as it not only seized the tax benefits but also encouraged to substitute options with long term incentive plans which in the UK is just awarding shares and not cash. The recommendations made by the Greenbury Report were not widely accepted as many of the critics believed that the report failed to link the executive pay with the performance of the company. 3.3 The Combined Code (1998): The Combined Code of the London Stock Exchange controls the various remuneration practices adopted by the companies listed in the London Stock Exchange. It has combined the recommendations given by the Cadbury Report and the Greenbury Report in order to form a regulation for efficient remuneration practice. The annual report of the companies listed should contain in a separate section the remuneration policy adopted by the company. The Combined Code requires a statement, in the annual report, showing that the remuneration standards mentioned in the code are being followed by the company and if any set standard is not complied with, the statement should point out the reason for the non compliance. A high level of executive remuneration disclosure is also required under the combined code and clear explanations about the various compensation packages provided to each executive director and non executive director should be stated (Konstantinos Stathopoulos, Susanne Espenlaub Martin Walk er, 2003). 4 Structure of Executive Remuneration in the UK: The typical structure of executive compensation in UK comprise of base salary, annual bonus, share options and long term incentive plans along with certain additional components like restricted stock and retirement plans. In 1997, an average executive compensation package consisted of 54% of base salary, 24% of annual bonus and 22% of non cash items which include share options and long term incentive plans (Martin J. Conyon, Simon I. Peck, Laura E. Read and Graham V. Sadler, 2000). Base Salary Determination of the base salary of an executive is done by taking into consideration the base salaries paid to executives of other companies in the same industry through surveys and analysis. This system of setting up and providing base salary is known as competitive benchmarking. Certain modifications are carried out on the base salary depending on the size of the firm, thereby linking executive compensation and firm size. In UK, base salary form the major part of the total executive remuneration paid. Base salary is that component of executive remuneration which is fixed and do not vary according to the performance, experience, age, etc of the executives. A  £1 increase in the base salary is preferred by executives who are risk averse than a  £1 increase in other components of executive compensation that are variable. Annual Bonus Bonus is provided to the executives on the basis of their performance during the relevant financial year. It is provided on an annual basis and the amounts paid as bonus to each executive vary from year to year. The performance of the executives is generally measured by taking into consideration accounting numbers which can be cross checked and audited. Executives have a clear idea of their daily performance by looking at the accounting numbers and they can forecast how overall profit of the company is going to look like at the end of the year. The drawback of relying on accounting numbers for measuring performance is that it is fully under the control of the executives and if wanted executives can manipulate the accounts in order to increase their annual bonus entitlement. Share Options Share options are contracts provided to the executives that cannot be traded which gives the executives the right to buy the shares of the firm at a price that is pre-determined known as the exercisable price for a specified time period. These contracts become void and have to be surrendered if the exercisable period mentioned has elapsed or if the executive resigns from the company before the exercisable period. This component of executive compensation is looked more into detail in the later section. Long-Term Incentive Plans – Long-Term Incentive Plans are provided to the executives in order to motivate and compensate them for achieving long term performance for the company. Grant of shares is the most typical form of LTIPs provided in the UK. These shares are vested to the executives only on achieving the objectives set by the company that is related to future performance. Earnings per Share and Total Shareholders Return are the two main elements by which the performance of the company is measured in the UK. Retirement Plans – Apart from the basic pension plans provided by the company, in UK, executives are encouraged to participate in an additional retirement benefit plan. These plans are a major source of concern because it symbolises invisible compensation. The actual value of executive retirement plan cannot be calculated by the available information provided in the books of accounts and the annual report. 4.1 Disclosure Requirement of Executives Remuneration in the UK: The Greenbury Report in 1995 identified three fundamental principles, which are accountability, transparency and performance linkage, in respect to executives remuneration. In UK, the current best practice disclosure pattern failed to compile with these fundamental principles therefore the government introduced certain necessary additions to the existing disclosure pattern. These latest requirements regarding disclosure of UK executives remuneration unifies the existing law, regulation and best practices that are mentioned in the UK Companies Act of 1985, the UK Listing Rules and the UK Combined Code of Principles of Good Governance and Code of Best Practice. The new requirement requires every company in the UK to adopt and prepare the directors remuneration report along with other necessary requirements. 4.1.1 Directors Remuneration Report (DRR): Companies listed in the London Stock Exchange should prepare the directors remuneration report for every financial year (Section 234B Companies Act) and should publish this report along with the accounts and annual report of the company (Section 244 Companies Act). The preparation of the remuneration report is done by the board of directors and not by the remuneration committee being, a committee accountable and responsible to the board and consisting only the non executive directors of the company. The remuneration of both the executive and non executive directors is clearly mentioned in the remuneration report. The fully prepared remuneration report should be filed with the registrar of companies (Section 242 Companies Act) and made available and provided to all the parties interested in the company such as the shareholders, debenture holders, and other persons who are required to attend the general meetings (Section 238 Companies Act). The remuneration report should contain all the information regarding the remuneration of the directors for the financial year completed i.e. the relevant financial year which includes disclosure of the amount receivable by the directors, whether paid or not, during the financial year as well as the disclosure of any amount paid as directors remuneration for any other period during the financial year (Companies Act, Schedule 7A, paragraph 19). The remuneration report should include the payments made to a third party for any services provided to the directors (Companies Act, Schedule 7A, paragraph 18(3)) and a statement showing the future remuneration policy of the directors. In UK, only the disclosure of directors remuneration is needed in the remuneration report. The name and information of every person who is the director, during the relevant financial year, has to be mentioned in the remuneration report. The remuneration report contains information that has to be audited by an external auditor (Companies Act, Schedule 7A, Part 3) and information need not be audited (Companies Act, Schedule 7A, Part 3). a) Information in DRR subject to audit: With regards to information subject to audit, the external auditor in his own consent should mention whether the information provided are prepared according to the necessary requirement and if any information is not complied as needed, the auditor should provide a statement showing them (Sections 235 and 237 Companies Act). The auditor will also look into disclosure information that are not subjected to audit and verify them with the company accounts as well as with the disclosure information that are audited. The various information included in the DRR that are subject to audit are: Emoluments and compensation For the services provided to the company as an executive or for any other services relating to the companys management, the salary, bonus, fees or compensation as termination of qualifying services received or receivable by the executives should be disclosed in the DRR. The overall value of non monetary benefits provided to the executives should be mentioned and the total aggregate of each kind of executive compensation provided in the relevant financial year should be compared with the previous financial year (Companies Act, Schedule 7A, paragraph 6). Share Options – The different types of shares options a company have should be mentioned along with their terms and conditions and besides each share option the total option each executive hold in the beginning of the relevant financial year as well as in the end should be disclosed. Detailed information of the various options provided during the year, its date of grant, its exercise price, date of expiry, number that have become void and number exercised and unexercised by the executives should be mentioned. If the share options are subject to any performance condition then the criteria has to be clearly described. For those shares that have been exercised, the market price during the time of exercise and for those shares unexercised ,the highest, lowest and the year end market prices have to be also mentioned. Since the disclosure of share options is a lengthy process, the aggregate of options each director hold is stated and the disclosure can be made on the basis of weighted average exercise pri ces (Companies Act, Schedule 7A, paragraphs 7-9). Long-term incentive schemes – Disclosure of scheme interests at the beginning and end of the current financial year which each executive hold must be made. Details of the type of scheme interest provided to the executives, its value and when it is vested in the year should be mentioned. If there are any conditions on the basis of which scheme interests will be granted then the relevant conditions should be specified (Companies Act, Schedule 7A, paragraphs 10 and 11). Other Information Details of executives pension scheme transfer value, any benefits that are accumulated over time and amount paid or payable by the company towards the money purchase pension scheme and retirement benefit scheme should be mentioned (Companies Act, Schedule 7A, paragraph 12). Amount received or receivable by the executives as benefits over and above the retirement benefit which he is entitled after 31st March 1997 should be included in the DRR (Companies Act, Schedule 7A, paragraph 13). If any person, who was once the executive of the company, has been given a special reward or if any third party is paid for their services provided to the executives during the relevant financial year it should be stated and disclosed (Companies Act, Schedule 7A, paragraph 14 15). b) Information in DRR not subject to audit: The information in the DRR that are not subject to audit is: Remuneration Committee – If any decision regarding the remuneration of the executives is taken by a committee during the financial year then the DRR must contain the name of all the non executive directors who were the members of such a committee and also should mention the name of any other person who is not the member of the committee but has been appointed by the members to assist them with certain services and advice. The details of the services rendered by the outside party should be clearly mentioned and this is done to ensure that the executive director play no role and influence the decision making of the committee (Companies Act, Schedule 7A, paragraph 2). Statement of policy on executives remuneration – A statement of future policy on executives remuneration for the coming financial years has to be included in the directors remuneration report (Companies Act, Schedule 7A, paragraph 3). The statement of policy should therefore disclose the conditions of performance, by an executive, for the entitlement of share option and long term incentive scheme along with the reasons for setting up such performance condition and the method used to assess the performance condition. If any executive fails meet the performance condition and does not benefit from the stock option grant or long term incentive scheme, the report should clearly state the conditions that are unsatisfactory. Details of the company on the basis of which the performance is measured should be provided in the report. Changes or amendments proposed to the existing terms and conditions for executives entitlement should be highlighted. Explanation should also provide for non-performance related remuneration and company policies on executives service contracts. This statement covers all directors from the end of the current financial year till the time when the report is put for voting by the shareholders of the company Performance graph – Publication of preceding 5 years performance graph should be included in the DRR showing the total shareholder return for holding shares whose listing transformed the company into a quoted company and for holding shares on the basis of which calculations are made for a broad equity market index. A fair method is used for the calculation of the total shareholder return along with various assumptions like the interest received on shares being reinvested (Companies Act, Schedule 7A, paragraph 4). Service Contract – During the relevant financial year if any executive is provided with a service contract, the date at which the service contract has been provided, its duration and its terms and conditions should be mentioned in the remuneration report. A detail of the termination compensation the executive is entitled to receive along with the companys liability on early termination is to be included (Companies Act, Schedule 7A, paragraph 5). On the complete preparation of the remuneration report, in the annual general body meeting it is introduced and called for a vote by the shareholders of the company (Section 241A Companies Act). This concept of voting the remuneration report was a controversial topic as many commentators suggested the voting to be limited to only the remuneration policy rather than the whole remuneration report. The reason they point out is that the executives remuneration policies are futuristic in nature so the shareholders can express their opinion on the policies adopted ra ther than making aware of the actual remuneration paid to each individual director. 4.1.2 Other Requirements: a) Along with the preparation of the DRR, disclosure of the aggregate compensation of the executive, loan given to the executives and other company transactions with the executive should be done in the notes of the annual accounts as mentioned in Schedule 6 of the Companies Act. b) As per Section 251 of the Companies Act and Companies Regulations (1995), listed companies in their summary financial statements should as a statement, state its policies regarding the remuneration of executives and the companys performance graph. 5 Stock/Share Options – Are they the Best in an Executive Compensation package? The most prominent and important component of executive compensation, in order to merge the interests of the executives with that of the interests of the shareholders, is providing the executives with stock options in the firms they serve (Jensen and Meckling, 1976). According to Jeffrey A. Williamson and Brian H. Kleiner, A stock option is a security that represents the right, but not the obligation, to buy or sell a specified amount of stocks at a specified price within a specified period of time. Stock options granted to executives of many large multinational firms are much higher in value than the annual cash pay they are entitled to be paid which in-turn boosts up the overall total compensation provided to the executives. This makes stock options the single largest ingredient in the current scenario of executive compensation. In the United States itself, stock options are held by more than 10 million employees (Simon R. and Dugan J., 2001) out of which around 160,000 of them tur ned out to be millionaires (Tate E.A. and Wilson T.E., 2001). Initially stock options were provided as a bonus to all the key executives of a company, but during the recent years its use is restricted only to the top level management. Providing stock options have resulted in increased productivity of the organisations. Executives are aware that their gain is linked with the stock performance of the organisation therefore they strive harder and work more efficiently to achieve progress. The main objective behind granting stock options is to make sure that executive make a profit on the success of the companys operations and in case of failures they suffer. Hence executive stock options link pay to performance. Critics argue to provide shares of stock rather than providing stock options in order to link pay and performance. The value of a stock option is only one third the value of a share, in case of companies having an average volatile stock price and yielding an average dividend the reason being stockholders receiving the whole value along with the dividend payment and the option holders benefitting only from the additional returns that is over and above the exercise price. This implies that options have a greater leverage and at the same cost, a company can provide its executives with options that are three times as much as that of shares. Stock options are incentive plans that are future

What is Art? Essay -- Essays Papers

What is Art1 Art can mean many different things to many different people and was one of the earliest ways in which man has expressed him or herself to others, whether it was through cave drawings or hieroglyphics. It does not begin or end with just drawing or painting, items typically considered art, or the many other recognized facets of art including architecture, drama, literature, sculpting, and music. The writing of Beowulf, one of the earliest known written prose, or the Greek plays which have influenced drama since their inception, are considered some of the greatest forms of art in history. Art can allow us pleasure just simply through the process of creating. Art can allow us to express ourselves to give us better insight into our own feelings. Art can, in contrast, allow us to stir emotions from within the viewer, occasionally leaving the viewer with an awakened or refreshed outlook. Some may only consider a work as art if it requires a particular skill from the artist, however, ar t can actually be viewed as simply another form of communication. No matter what form this expression takes, whether dance, poetry or the painted canvas, people have reasons for pursuing the need to create. Dance, as a form of art, allows the person or persons to express themselves through the movements of their bodies, whether the dancing takes place on a stage, in a theater, or on the floor of a dance club. This non-verbal art form can allow a dancer to express stories and s...

Literature of the 1970s :: essays papers

Literature of the 1970s The literature of the 1970’s contains a divergent amount of writers and genres. Poems, novels, and short stories are the main forms of expression, and these were produced by writers from around the world. â€Å"Many of the books in the 1970’s revolve around a general theme of man’s alienation from his spiritual roots†(Gillis). One author of the seventies is John Updike. He portrayed his characters â€Å"trying to find the meaning in a society spiritually empty and in a state of moral decay†(Gillis). Interest in the 1970’s focused on writers as disparate in the concerns and styles as V.S. Pritchett and Doris Lessing(â€Å"English Literature†). V.S. Pritchett is noted as a literary critic of remarkable education. She is also considered a master of the short story. Doris Lessing went from writing short stories collected as African novels concerning the role of women in contemporary society. â€Å"No playwright dominated this decade of both social and artistic unrest. Among the most acknowledged were Sam Shepherd, Lanford Wilson, David Mamet, and Neil Simon†(Gillis). Another noted playwright is Edward Franklin Albee. He is an American playwright whose most successful plays focus on familial relationships. His early plays are characterized by themes typical of the theater of the absurd. The characters suffer from an inability or unwillingness to communicate meaningfully or to sympathize or empathize with one another(â€Å"English Literature†). Another author of the seventies is Iris Murdoch. A teacher of philosophy as well as a writer, she is esteemed for slyly comic analyses of contemporary lives in her many novels such as The Black Prince. Murdoch’s effects are made by the contrast between her eccentric characters and the underlying seriousness of her ideas(â€Å"English Literature†). Eudora Welty, an American writer was born in Jackson, Mississippi. Some of her novels include The Robber Bridegroom, Delta Wedding, The Ponder Heart, and Losing Hearts. Her skillful re-creation of regional patterns of speech and thought make her well-noted. â€Å"Welty’s main subject is the intricacies of human relationships, particularly as revealed through her characters’ interactions in intimate social encounters†(Eudora Welty: Biography). Most of her novels and short stories are tales of eccentric and even hideous characters. She portrays them with charm and sympathetic humor. Many of the stories that brought her fame first appeared in The New Yorker Magazine. Another American novelist during the seventies was Michael Shaara. He was a short-story writer whose writing on military matters is known for its historical accuracy and realism.

The Rainmaker by John Grisham :: The Rainmaker John Grisham

The Rainmaker by John Grisham    The world is full of great novels. From Sherlock Holmes to the three musketeers. As the years progress more novels are written and more money is made. John Grisham is a rising star in literature. His books have enticed readers and has given the people something good to read. What makes his books great is that they are so realistic. He applies his personal law and trial knowledge into the books he writes. What it is about ? It was his last semester of law school. Rudy Baylor was assigned to give free advice to a group of seniors. It is at that very time, and that very place, that Rudy encounters his first true clients. Dot and Buddy Black. They have been robbed by a powerful insurance company. A company with millions of dollars in assets. They have caused the suffering of a young man. They have ruined his chances to live by not issuing their coverage that they were obligated to give. Donny Ray, son of Dot and Buddy is dying of Lukemia, he is going to die, his chances for survival are over and it is a matter of months. Rudy does’nt realize the case that has fallen into his lap until phone calls are made. There is a great problem, however, Rudy is broke, he hasn’t even passed his bar exam yet. And will go head to head with one of America’s most experienced and accomplished defense attorney’s. From the beginning of the novel to the last word, Rudy is plagued with a series of mishaps and problems. When something looks bright the clouds come in and ruin the hope. Rudy is in Luck. As the big trial begins, he is given a judge that is definetly on his side and 12 jury members that think the same way that he does. After researching great benefit, the insurance company, Rudy discovers cover ups by the company. He also discovers Great Benefits harsh way in getting rid of their numerous mistakes. n How it relates to your audience The Trial Obviously Rudy is not stupid. He enters all the facts he has discovered and uses them to help solidify his p osition in the minds of the jurors As the trial goes on Rudy is given another problem. A beaten girl is discovered by Rudy at the hospital during his studying.

Implications of Information Technology on LAPD Essay

Los Angeles is one of the cities in the United States, in the year 2010; the city is approximated to have a population of four million people, with an area of four hundred and sixty eight square miles. In 1869, the Los Angeles Police Department (LAPD) was created to serve the area. Currently, LAPD is the third most prevalent police department in the United States. The police force faces an array of challenges Corwin, (2004), these includes governance, financial constraints, resource allocations, sustainable evidence gathering and storage, crime detections and operational priorities. Brief background of the organization Los Angeles Police Department (LAPD) has been in the forefront in innovative techniques in an effort to fight crime, the technological systems proposed to be adopted by LAPD, takes into consideration the implementations which are currently in place. LAPD has adopted several Information Technology centered techniques which includes remote camera surveillance system, automatic license plate-recognition system, computer-aided dispatch (CAD) system and facial-recognition software. The information Technology driven approaches adopted by LAPD have had strategic implications on the performance of the police department Chu, (2001), considering the diverse challenges encountered by the police force; the technologies are also envisioned to offer a competitive edge, to the police force in fighting crime. The report considers and evaluates the strategic implications of information technology in the police force in future. Los Angeles Police Department (LAPD) has been cooperating with several partners in implementation information technology driven solutions to fight crime. Over the past the department has utilized Information Technology in gathering watertight evidence in criminal cases and gaining public trust, the phased implementation of installation of video cameras in one thousand six hundred cars, to serve more than twelve thousand officers, to cost approximately $25 million is evidenced highlight of the utilization of Information Communication Technology. Northrop Grumman has long history with the American armed forces, the company was contracted in the year 1996 to plan and construct the Los Angeles Police Department Emergency Command Control and Communications System with subsidiary self-sufficient emergency dispatch centers, the project lasted for five years. With diverse experience, they have assisted the police to deploy computer-aided dispatch (CAD) the police boast of Emergency Communication System which integrates CommandPoint(tm) Mobile applications from Northrop Grumman and computer-aided dispatch (CAD) Discussion of Current Business Issues Governance has been a business challenge in the United States police force, Los Angeles inclusive. There has been a mix up in roles and responsibilities of the police officers, where at times the states have had mixed hierarchies confounded by bureaucratic empires and fiefdoms. Furthermore, there have been a massive amount of units, which has complicated the crime fighting due to diverse hierarchy of reporting structures. The current business environment calls for paradigm shift to increase accountability and transparency. Governance in the police force has also been an issue in waning public confidence, the current business environment favors self perpetuating oligarchy, this call for implementation of systems that favor accountability to the public. As regards financial expenditure in the police force, the police have over the years been consumers of tax, without resultant direct creation of wealth. Business wise, the police force have been viewed as liabilities to the tax payers, the fact that criminals have been advancing in technology calls for a rejoinder in form of technological advancement from the police quarters, this comes with increased expenditure. Moreover, the area covered by the Los Angeles police department is wide, with the ever increasing population means that the financial expenditure rises with time, however, the prevailing economic situations means that there are several competing needs for the funds available; this has curtailed monies allocated to the police department. The business environment also involves utilization of resources. Human resources, which in this case involves police officers and Information Communication Technology staff are the essential resources in the LAPD, currently, the legendary system requires the police department to have trained personnel to manage the network infrastructure. The systems also have the police department utilizing its own network link, which is very expensive in terms of maintenance as well as the regular training of officers as argued by Glenn, (2003), to update on the latest encryption techniques, so as to maintain the integrity of data. A crucial examination of the duties and responsibilities of all the officers has at times generated duplication of responsibilities, with several officers dedicated to supervisory duties rather than in directly fighting crime, therefore the roles of the officers have to be defined and the human resource streamlined to meet the customer demands, which in this case, is the public. The biggest challenge however has been escalating crime and solution lies in effectively detecting and avoiding crime. Some researchers have argued that senior police officers condone the practices associated with fiddling the figures, â€Å"Cooking the Books† also referred as gaming, to portray crime levels as decreasing, by techniques such as cuffing, stitching, skewing, nodding. The business issues are weakness in terms of evidence to charge suspects, where suspects have escaped judgment due to weak evidence mechanism, Joycelyn, (2008). Moreover, with the escalating number of criminals, officers have at time had to rely of the strength of their memories to remember all the suspects, in addition some suspects may be available in the police departments’ database, but the officers may not be able to access the data while in the field. There is therefore a need of a system which can capture and sustain evidence, while assisting the officers identify criminals hence improving security in Los Angeles. Another current issue is the operational priorities challenge where the priorities of the police force have been diversified and not in agreement with the Peelian principles, which lays emphasis on protection of life and property and the prevention and detection of crime, in this case anything else is a distraction. The Los Angeles Police Department (LAPD) has faced the challenge of operational priorities, where the systems being utilized have demanded the officers to concentrate on maintaining the systems; there is therefore need to implement a system which fosters Peelian principles. The current business environment has therefore a myriad of challenges, the police at all times are expected to have a strategic competitive advantage over their competitor – the criminals. The police have to adopt a paradigm shift which invilves adoption and implementation of Information Technology driven solutions, the application of not only creativity but also imagination in the approach to its adoption gives credence to the common caution to innovators that you cannot use yesterday’s tool for today’s job and expect to be in business tomorrow. With respect to Los Angeles Police Department, , LAPD cannot afford to keep using traditional methodology of detecting and fighting crime and expected to beat the criminals who are advancing with technology. Discussion of Proposed Solution The proposed solution lies in total implementation of the Emergency Communication System which integrates CommandPoint(tm) Mobile applications and computer-aided dispatch (CAD). The implementation of CommandPoint Mobile interfaces acts as a link between the command centre and the field units, improving access to the latest information by the field officers while fostering exchange of information, between the field officers, command centre and other interested police forces within the United States, such as the detectives and crime busters. The envisioned solution should in addition encompass remote camera surveillance which posses’ intelligent video competence to tenuously recognize and scrutinize apprehensive occurrences, when illegal actions transpire the police officers can be alerted. The automatic license plate-recognition system (PlateScan) involves patrol vehicles fitted with video cameras and mobile data computer, where the scanned license plates are systematically compared with existent data in databases incase the vehicle may be of need to the law enforcers. The facial-recognition software works in concord with camera surveillance system to scrutinize the captured images of human faces, then quickly and accurately judge against images contained in the database, these video cameras are deployed in patrol vehicles. This is envisaged to address the problem of identification of suspects, since suspects can be identified in shorter times. To interconnect the several disperse officers in the field, LAPD’s Information and Communications Services Bureau adopted, it is proposed that the officers utilize public network to decrease costs while improving security by increasing coverage, using public network also reduces the human resource constraint the network shall have, since the police shall not have to maintain their own network, neither to they have to maintain the network. With the implementation of the automated field reporting system and Computer Aided Dispatch (CAD), the need for mobile communication with high speed broadband was imminent, the legendary system was restricted to certain areas, while operating in low speeds of 19. Kilo bits per second, the proposed solution is to consider the existent LAPD installed Sprint Data Link where the patrol vehicles are fitted an antenna connected to an EV-DO Sierra Wireless 595 connection card in a Dell D610 laptops installed with Windows XP operating system SP2, 1 GB of RAM, a DVD drive, and an 80 GB hard disk, the police can easily access databases, crime-analysis data, photographs, fingerprints, reports and mapping data,. The fact that Sprint is a private network calls for need to increment the security measures. The proposed solution includes utilization of registered modems by the officers to avoid unauthorized access to the network; this is fostered by end-to-end encryption as well as the providers’ authentication server. Computer Aided Dispatch in combination with the proposals above provides the officers indispensable wide source of information for strategic decision making. The utilization of information technology has been fostered further by Bluetooth fingerprint scanners; currently the scanners are limited in application. However, it is proposed that every patrol vehicle to be equipped with fingerprint scanners, such that persons with clean history cannot be subjected to suspicious arrests, this addresses the issue of arbitrary arrests therefore improving the customer image of the police force, furthermore, the devices to be utilized by the officers should be GPS capable therefore the police can accurately determine locations and positions with precision. The utilization of a private mobile broadband network is intentioned to reduce the costs associated with network access since utilizes high speeds, with minimal costs, furthermore, officers are relieved the duties of maintaining the network. The laptops have to preserve the image determined for mission critical systems to guarantee dependability and security with minimal downtime without dependence on Information Communication Technology personnel; this requires the deployment of Anti-Executable and Deep Freeze as a comprehensive solution on the MDC laptops. Deep Freeze allows the users to promptly reboot the laptop to return it to its original Configuration, this has avoided the need to substitute the laptops when a problem occurs. This is in addition to Anti-Executable’s whitelist technology which standardizes the operating environment by regulating the programs installable. This has been adopted to reduce the number of personnel required to keep the systems in performance mode, therefore addressing governance challenges. The proposed solution is not immune of challenges, considering that the operations are in data sensitive environment, the shifting of the computing environment from MDT to MDC denote new software and hardware, this introduces threats and vulnerabilities. Using more than one thousand five hundred laptops and modems introduces new threats and probable software configuration issues. Windows XP is predisposed to external threats such as spyware, viruses, and other malware. The strategic utilization of Information Technology in LAPD The future of LAPD in utilization of Information Technology has great potential. The Department has optional innovations which include empowering police on foot; horseback or bicycle patrols with high-speed data network access by facilitating handheld devices to utilize wireless data cards, the officers can effectively access the data, from the centralized station, without necessarily using patrol vehicles. Furthermore, having high definition video streamed from cameras and patrol cars to a centralized system in the station enables the police to have real-time information of scenarios as they unfold. In addition, the department can integrate GPS information into the dispatch system for mobile resource management. Recommendations Whereas the police department has been faced with an array of challenges such as the large population size and density, the bulky geographical area, and further complicated by the cultural diversity of the residents. Information technology has been extolled as the ultimate solution, while progressing efficiency of the Department. Implementation of the proposed system shall enable the LAPD reduce costs associated with networking, since they shall be utilizing public network and already available software such as Windows XP, Deep Freeze and Anti-Executable. Moreover, the system shall require fewer officers to manage, hence reducing costs while addressing governance challenges by ensuring that officers get access to all the requisite information as and when needed, hence avoiding bureaucracy in accessing information. While fostering the relationship with the customers – the public, the officers shall also be able to detect and deal with crime as it occurs, while getting substantial and immense evidences against criminals. The system also enables the officers to concentrate on their operational priority – fighting crime in Los Angeles. To protect the people of Los Angeles therefore, the Los Angeles Police Department (LAPD) should adopt information technology driven solutions which are anticipated to offer several merits in the next three years and beyond. These strategic impacts of the proposed system are intentioned to have a competitive advantage over criminals, these strategic impacts include enhanced coverage, faster response to emergencies, mapping capabilities and harmonization of communication among the police personnel, connectivity to the investigators and detectives as well as to the entire United States police unit – hence reducing or even eliminating crime in Los Angeles.

Atlantic Computers Case Analysis Essay

1. Stick with company tradition by charging only for hardware and give the PESA software tool away for free. As can be seen in Exhibit 2, there is a noticeable difference between basic servers running with and without the PESA software. This difference would cater directly to those customers in the file-sharing application and web-server segments of the market. Currently, as the Tronn would be competing directly with the rival company’s Zink server, which is priced at $1,700 as opposed to the Tronn’s $2,000, customer’s would assume that the Zink is better value as it costs less, despite the fact that the price shows a 40% mark-up over Tronn’s 30% mark-up. By offering the PESA software tool as part of the overall package, Tronn could add a value advantage over Zink, as they do not offer a software tool which enhances the performance of the server. However, as aforementioned, the customers using the basic servers would benefit most from the PESA software, rather than the high-performance servers. According to Exhibit 1, the majority of units sold are those of the high-performance servers. 2. Charge a price equal to what the customer would pay for four Ontario Zink servers. The case states that Ontario’s Zink servers dominate the basic server segment, and therefore the introduction of the Tronn server would mean that the two companies would be competing directly against one another. Further, Ontario holds a supply-chain advantage over Atlantic, in that they ensure that their products are widely available to all consumers, e.g. the majority of their sales are generated online. However, when loaded with the PESA software, Tronn’s servers run at an efficiency of 4 times faster than their standard speed. The option suggests that the Tronn, when loaded with the PESA software, should be valued at four times as much as the Zink server, as it would be performing at the same standard. This would price the Tronn at $6,800. While a price this high would indeed generate revenue, it must be considered that the Tronn is a new product entering the market. Without appropriate marketing, the consumer would be unaware of the benefits of using the Tronn and thus would opt for the much cheaper option, Zink. This strategy is called skimming. In order to be successful, Atlantic would have to ensure that consumers are aware of the significant product differentiation between the Tronn and the Zink servers (i.e. The PESA software). 3. Charge a price based on a cost-plus approach to pricing PESA (based on software tool’s development costs). As stated above, the cost-plus approach is Atlantic’s standard pricing strategy. In the case, Atlantic is said to have production restraints and therefore will only be able to produce a certain number of Tronn servers in the near term. For example, if Atlantic can sell all of its projected units in the first three years, they are looking at selling 212,000 units in total. In the first year, the percentage of market share rises by 4%, meaning that the total number of Tronn servers sold was 2,000. In the second year, the percentage rises by 9%, giving a total of 6,300 servers sold. In the third year, this raises to 14% and 12,880 servers sold. Of these 21,180 servers, assume that only half are loaded with PESA software, giving us 10,590 servers with the software in total over the three years. The development costs of the PESA software totalled $2,000,000,000. In order to cover the development costs of the software in the first three years, Atlantic would have to price the software at $189. If we assume the Tronn server without the software costs $1,538 to produce, and the PESA is to be included in the sales price, we are looking at a $1,727 production cost. Adding a mark-up of 30%, the sales price of the Tronn and PESA (Atlantic bundle) would be $2,245.10. 4. Charge a price based on value-in-pricing. In order to calculate a total savings price, it is necessary to determine the calculations of a few other items. Also, in these calculations, we will assume that the Tronn server is valued at $2,000. Firstly, considering that one Tronn server loaded with the PESA software is performs to the same standard as four Zink servers, it can be said that a saving of $1,600 per annum can be had by purchasing just one Tronn as opposed to 4 Zink servers. Secondly, annual electricity savings are equal to $250. Third, the cost of application software licenses is equal to $750 per year. Finally, if a server administrator earns $80,000 per year and the number of servers one can manage is 40, labour cost savings are $2,000 per year. The total savings can be added to achieve $4,600 per year. In a quick summary of the above, the following can be noted: * In Option 1, the price of the Tronn and PESA software tool would be $2,000. * In Option 2, the price of the Tronn and PESA software tool would be $6,800. * In Option 3, the price of the Tronn and PESA software tool would be $2,245.10. * In Option 4, the savings of purchasing the Tronn and PESA software tool would be $4,600. I believe that Option 1 would not be an intelligent strategy for Jowers to use. Without charging for the PESA software, the company will find themselves struggling to pay off the costs of developing the tool in the first place. This means they would have to sell more units in the first three years than what they originally projected, giving the company unrealistic sales assumptions and in my opinion, they would ultimately suffer profit losses. I also consider Option 2 to be a bad choice of strategy. While one Tronn server, in conjunction with the PESA tool can indeed perform to the power of four Zink servers, it would be foolish to price the Tronn at the equivalent of this. A price of $6,800 for just one server is too much for a consumer to consider paying, especially for a product that is new into an already established market. Serious marketing and clear differentiation would be required to ensure the success of this strategy, both of which can be very time-consuming and costly. While Option 4 shows a significant number in savings, I would recommend that Option 3, the cost-plus pricing strategy be used in launching the Atlantic Bundle into the basic-server consumer market. As stated in the case, Atlantic Computers is already a strong player in the high performance servers segment, but due to the consistent growth of the internet, the new market of basic servers is emerging. Jowers discovered that one of the main reasons that Atlantic succeeded in the high performance severs market was by product differentiation. This is a large factor in the Tronn’s appeal to the basic server segment, as it also comes with the PESA software tool, something that Zink computers does not have. However, Ontario Computers competes mainly on price, due to the fact that they are able to sell their products online and therefore cut costs in other areas. Despite this, I believe that with Atlantic emerging into the market with a superior product, they will be able to compete successfully. According to Atlantic Computers general consensus, they do not usually charge extra for software tools. However, the importance of the PESA tool must be made known to the sales force. Firstly, without charging extra for the tool, the company will struggle to generate enough revenue in the first three years to pay of the development costs of the product. Furthermore, Jowers followed the status quo and used cost-plus pricing to determine the value of the software, and after adding that cost onto the production costs of the Tronn itself and also adding a 30% mark-up, the total bundle only cost $245.10 more than the Tronn would cost on its own. Emphasis should also be put on the fact that one Tronn server loaded with the PESA software tool, which was valued at $2,245.10, performed to the equivalency of four basic Zink servers, which in total would be valued at $6,800. This shows a $4554.90 saving for customers who choose to purchase the Atlantic Bundle over the required four Zink servers for the same performance. With Jowers given the opportunity to talk with prospective buyers at the trade show, he will also have the chance to explain the features and benefits of purchasing the Atlantic Bundle himself as well as obtaining firsthand consumer feedback on the products. According to the case, the CEO of Ontario Computers states, â€Å"Our business model is not to be the leading innovator on product technology. Rather, our business model is to provide leading technology to customers via the most flexible and innovative supply chain strategy possible†. The company achieved this by managing to cut their costs through distributing their products online and thus were able to offer their product for a much cheaper price than Atlantic Computers. In retaliation to the introduction of the Tronn in the market, Ontario Computer will most likely continue to base their business model on operational excellence and continue to search for ways to compete on price. Another consequence could be the company developing a software tool of their own to compete directly with the PESA tool. If this was to happen, it could pose a threat to Atlantic Computers in that Ontario would still most likely be capable of competing on price, giving them the competitive advantage. However, if Atlantic manages to establish their brand before their competition gets a chance to retaliate, they should have no problem holding onto their market share and consumer segment.