SIGNIFICANCE OF AUTHORITATIVE PERFORMANCE IN ORGANISATIONS
This assignment would take on the role played by managers in an organisation and whether or not companies should provide incentives to them solely based on their performances alone. Alongside this, it also considers the role that CEOs play in the success of an organisation and whether or not the majority of profit grasping by them is justified. It also provides insights on the measures of accounting performance that would determine aptly the salary that a CEO should receive.
1. Organisational balance between managerial payment and measurement of performance
There are several aspects of an organisation and a department that a manager has to supervise in order to ensure that there is no hindrance to the daily operations and workflow within the company. Performance can be realised as the achievement of the company with respect to its prioritised goals. It comprises of achieved outcomes or accomplishments that take place via the contribution of the individuals. One of the significant roles played in the success of an organisation is that of a manager. The decisions that a manager takes during the course of a business venture or during its operations become detrimental for the success of the company in the long run. In the organisational performance based culture, it is fitting that awards and payments are offered to their employees in terms of performance. Their performance targets and goals need to be clearly defined by the manager and should be communicated with them on a formal tone. This would enhance the motivation level of the workers and would improve the efficiency of the productivity (Wheelen et al. 2017, p.18). Organisation stakeholders are wary about the role that a manager plays while dealing with the team assigned to carry out a project. The success of the team is directly dependent on who the leader of the team is and how efficiently the role of the manager is being carried out. Along with this, if the objectives of the business ventures are being met, then it is necessary for organisations to reward its managers to improve employee motivation. If such an acknowledgement towards the performance of the team and the manager is not taken by the company, then there may be a drop in enthusiasm and motivation regarding the following business ventures taken by the company. Along with this, they also need to hike the salaries of the managers to uplift them. However, one of the most common problems that organisations generally face while dealing with performance appraisal of a manager is to determine the metrics of performance, that are also termed as tasks, goals and measures. The primary agenda lies with determining the best justified quantifiable parameters for several tasks. Amongst the Board of Directors, they can be clearly be defined. Alongside this, it is also needed by the organisations to realise a balance between the quantity of delivery and the quality of delivery that is provided by a manager. For instance, no sales performance evaluation should be carried out based on the extreme proximities or delivery made by the sales manager or if the efforts of delivery makes the venture entirely unprofitable. On the contrary to this, organisations should also possess the power of reducing the payment of managers of the fail to meet the expectations of the organisation or the team members do not appreciate the way the manager handles the team (Bolden, 2016, p.145). In other words, the managerial payment should be directly involved with the profits that the organisation makes and its compliance with the yearly objectives. If the manager fails to meet them, their payments should be reduced on the organisation’s behalf.
2. (a) Definition of short-term amount in terms of cash bonus and salary and its relationship with managerial performance
Short-term amount in terms of salary and cash bonus are provided to employees when there is a hike in the performance of the organisation and positive reviews are obtain on a small venture that has a short term implication on the business objectives of the organisation (Buckingham and Goodall, 2015, p.48). As a result, the amount that a manager receives is a minor hike in the salary or a monthly bonus incentive added to the salary. There is not a long-term implication on the performance of a manager as there is not any significant noteworthy impact on the longevity of the organisation or obtaining the yearly objectives of the company.
(b) Proportion of the payment of the CEO
There is a massive chunk of profit that goes with the salary of the CEO. The CEO of most organisations all over the world still wants to obtain most of the profits incurred by the company (Cardy and Leonard, 2014, p.52). However, in recent times, organisations are becoming more cautious and are providing the salaries of the CEOs with respect to their performance and their contribution regarding the success of the venture. Although, the packages of CEO are not coming down, it has now become contextual and now depends on the current background and payment of the CEO.
(c) Measures of accounting performance that are used to determine the bonus of the CEO.
Three significant paradigms of accounting performance are used by organisations to determine the bonus that a CEO obtains. These bonuses are either cash-flows based or accruals-based such as operating cash flows or earnings (Goetsch and Davis, 2014, p.36). These measures of performance in accounting are capturing of various aspects of the efforts that a CEO puts in a business venture to make it successful. These measures include the amount of investment that has been made by the CEO. Alongside this, the other measures include the effectiveness of the plan to implement the business venture and the way teams are handled by the CEO to carry it out.
(d) Effective Accounting Decisions taken by the CEO to maximise bonus.
In order to maximise bonus obtained from the business venture, there are several key decisions which the CEO can implement in order to maximise their profits. One of the major initiatives that the CEO can use in order to increase their chances and margin of profits would include the promotion of the project by social media. Along with this, the CEO can also associate major shareholders and stakeholders with the project (Colbert et al. 2014, p.355). This would enhance the significance of the project and would increase the chances of earning significant profits from it. Along with this, the most efficient workers can also be introduced to a hike or a performance incentive which would motivate them to work for the success of the project in the long run.
(e) Justification of agency theory providing an explanation on the different components of remuneration.
As stated in earlier research studies, the agency theory based on regulation of the fixed effects and firm effects of the CEO. Strong evidences have been obtained that showed that agency theory had a significant impact on the various aspects of remuneration. According to the theory, the compensation and remuneration that a CEO receives is less sensitive as and when compared to the profitability of the enterprise (Lange et al. 2015, p.1226). This very much complies with the relevant literature on conventional organisations in the west.
(3) Identifying two issues between the managers and the shareholders and Identifying bonus plans on the reduction of these agency problems.
Additional costs are one issue that stems from the presence of conflicting situations amongst stakeholders which take place when the ownership of an organisation is separated from the control. It has been earlier argued that the costs of agency are the costs that incur from the conflicts that take place between bondholders, shareholders and managers (Peng et al. 2016, p.2014). They can be defined as the costs of fixing these conflicts. They comprise of the costs of offering managers with incentives to maximise the wealth of shareholders and evaluating their behaviour on a regular basis, along with the additional problem of securing bondholders from shareholders. Costs of agency are always born by stockholders. The sum of agency costs comprise or supervising expenditures on the principal, the expenditures of bonds by the agent, and the residual loss that takes place. Residual loss can be defined as the reduction in the organisational value of a company which takes place when the ownership is diluted by the entrepreneur. This is one of the most significant costs as the other two are only incurred to the point that cost-effective reductions would be yielded in the residual loss. Induced by an ownership dilution, the shift that occurs out of profits into the discretion of the manager is the primary reason behind the loss. Bonding expenditures and monitoring expenditures can also support in the restoration of performance that existed before dilution took place. The agency cost that cannot be reduced is the minimum sum of these three factors. Regarding the issue of agency costs, a solution can be found in the form of managerial incentives and the efficiency of managerial surveillance (Hartnell et al. 2016, p.846). The objective of incentive solution is to match the wealth of the shareholders to those of the executives. By this method, the interests between these two groups can be aligned. Stock options, stock or both can be given to the executives as a major component of their remuneration. The second solution involves compensation in the form or shares which is well suited to regulate excessive consumption by the managers, and also time-horizon of investments that make an impact on the shares of prices. The options for managers and rights for voting stem from the shares ownership, which is a significant means to regulate the agency problems, provided the risk aversion techniques taken by managers. As the equity participation is increased by managers, they have higher chances of becoming more effective. They possess a higher chance of becoming more prudent and avoid carrying out risky investments as their own interests may be threatened.
(4) The various ways that a bank can take to safeguard lending.
This report would be addressing an appropriate risk of credit that the bank runs while lending. It would also include how the bank can operate under a process which involves sound granting of credit. Along with these, it would involve maintaining an administration with appropriate credit, monitoring and measurement process (Helfat and Peteraf, 2015, p.834). The final issue that it would address would include ensuring additional controls over risk of credits. Although, particular management practices related to credit risks may vary from bank to bank depending upon the complexity and nature of credit activities, an understandable Management program related to credit risks would address these four aspects. These measures should also be implemented in combination with sound practices related to the evaluation of quality of assets, the adequacy of reserves and provision, along with disclosure of risking of credit. While the precise approach selected by individual supervisors would rely on several factors, that would also comprise of their off-site and on-site supervisory techniques alongside the degree to which external auditors are utilised in the supervisory operation. Supervisory expectations from the loan risk approach of the management that is used by the particular banks need to commensurate with the sophistication and scope of the banking activities. For less sophisticated or smaller banks, it is necessary for supervisors to determine that the lending risk management approach which is being implemented is enough to carry out their activities. A further specific instance related to loan provision risks relate to the method of settling down financial transactions. If a side of a loan is settled whereas the other fails, a significant loss may be incurred by the bank which would be equal to the principal loan amount. Even if the taker is late to settle, the bank may incur a loss that would relate to missed opportunities of investment.
In conclusion, it can be said that the managers and CEO play a significant role in determining the success obtained from a business venture. Managers when play a noteworthy role in the success should be rewarded. Alongside this, the company policy on bonuses, incentives and hikes should be solely based on the performance of the managers and the CEO of the company. This would result in a fair distribution of profits amongst the workers within the company.
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