Accounting Theory Revision Question 1 AMP seeks $2.2m rights package for CEO Francesco De Ferrari Under AMP's executive remuneration framework for 2021, Mr De Ferrari will receive fixed pay of $2.2m and a short-term bonus of up to 200 per cent of his base pay, as well as the $2.2m long-term incentive, subject to performance. Approximately 75 per cent of the maximum remuneration he can receive for the current financial year is made up of short and long-term bonuses and was "at risk", AMP said. Mr De Ferrari's long-term bonus will only vest if the wealth manager achieves relative total shareholder return performance at or above the median of its peer group. Long-suffering shareholders will, on April 30, also vote on whether to approve the embattled wealth manager's remuneration report. If 25 per cent, or more, of the votes are cast against the remuneration report, AMP will be hit with a second strike, triggering a vote on a board spill. AMP's first strike at last year's (annual general meeting) AGM came after it was criticised over "disproportionately large" incentives paid to executives. More than two-third of proxies voted against the 2019 remuneration report after proxy advisers. Ownership Matters and ISS recommended shareholders vote against the pay packages. Both proxy advisers argued that executive pay was overly generous and performance hurdles not rigorous enough.
Required I. Explain AMP's executive remuneration framework for 2021 using agency theory. (8 marks) · Agency theory deals with the relationship between principals and agents and focuses on aligning their interests. Where in this case, AMP is the principal and CEO De Ferrari is the agent. . Mr De Ferrari's remuneration package consists of fixed pay, short-term bonuses and long-term incentives. The fixed pay of $2.2 million provides a baseline salary to Mr De Ferrari. The short-term bonus can be up to 200 percent of his base pay, which creates a performance-based incentive for the CEO. And the long-term incentive of $2.2 million is subject to performance and will only vest if the company achieves relative total shareholder return performance at or above the median of its peer group. . The remuneration framework aligns with the agency theory as it provides both fixed and variable components. The fixed pay ensures that the CEO receives a stable income, while the short-term bonus and long-term incentive aim to align his interest with those of the shareholders. By tying a significant portion of the CEO's remuneration to company performance, the framework encourages Mr De Ferrari to make decisions that maximise shareholder value. Remuneration - compensation or payment that an individual receives in exchange for their work or service. Executive remuneration - compensation and benefits package provided to executives. II. Explain how the two-strike rule could help to mitigate agency problems. (4 marks) (Total 12 marks) · The two-strike rule is a mechanism designed to mitigate agency problems and enhance corporate governance. It applies to the voting process on the remuneration report of a company's annual general meeting.
. In AMP's