Report on Research in Accounting Practice

Question: Write an essay on research in accounting practice. Answer: Introduction: The following report is a presentation on the researches relating to accounting practices for Strong Built Construction Company on appointment of executives. The report deals with the different aspects of compensation packages to the executives that is necessary for both the employees and employers in an enterprise in order to achieve the target goals. Discussion: In job offers, important factor for employees and executives is the compensation package in addition to the basic remuneration provided by the organizations. In the given case, a new Chief Financial Officer, Susan Bold has been appointed in the Strong Built Construction Company seeking an approach for compensation package (Bromwich and Scapens, 2016). Typically there are generally ten elements of compensation package that is: Basic Salary Annual or Quarterly Bonus Other Bonus Stock Options Stock Equity Pre- tax contribution Health perquisites Life and Accident Insurance Travelling or Legal Insurance Other basic perquisites The above-mentioned elements of compensation package vary from organization to organization depending on different criteria like geographical factor, industrial factor, professional experience etc. Some organization may not provide little compensation as against their policy while some organizations might provide more elements of compensations and perquisites (Van der Stede, 2016). Traditional Agency theory states the relationship between individuals or between entities and individuals in terms of contracts for any decisions to be taken by one individual on behalf of another individual. The agency relationship occurs when entity or an individual as a principal hires another person for the delegation of a specific project in terms agreed between the agent and principal (Malmi, 2016). The key assumptions of the traditional agency theory based on the number of behavioral assumptions that are concerned with the principal and agents while some of the assumptions are dependent on disciplinary approaches. One such assumption is the self-interest between principal and agent for which they enter into the contract. It states that the purpose of entering the contract is similar to both the principal and agents for any particular project in terms of agreed compensation paid by the principal (Lin, 2015). Another assumption considered in the traditional agency theory is utility maximisers. However all the agents do not consider this assumption. This assumption is mainly taken by the principal- agent relationship that are mathematically researchers and the projects which are required to be done in the mathematical ways and in no other ways (Malmi, 2016). One of the important assumptions of the theory is the risk preferences between principal and agents. Risk preference assumption depends on the tolerance level of the principal and agent that is if they are risk takers then they would not seek for the security. Whereas the risk averse principal and agents prefers security over risks involved projects however, principals are considered to be indifferent about risks while agents are considered to be risk averse. This is because principal is bound to pay the contracted compensation to the agents depends on the conditions of his performance (Bolton, Mehran, and Shapiro, 2015). Hence, agent is supposed to perform as per the requirement of principal, which is a risk to him. Further, there are certain other assumption in the theory is that difference in types of agents that is to classify the agents for being productive or unproductive, experienced or inexperienced etc. Other assumptions in the traditional agency theory relates to the information and goal conflicts (Danthine and Donaldson, 2015). Influence of these assumptions of the traditional agency theory on approaches to compensation is the contracted amount, which is paid by the principal to its agents on hiring terms and conditions depending on the escalations or inflation of future economy (Bolton, Mehran, and Shapiro, 2015). Extrinsic motivation is a behavioral performance of an activity, which is performed by individuals in order to receive or earn reward or to evade an adverse situation or outcome (Lin, 2015). For example, studying hard to get good marks in the examination, playing sports to win awards, cleaning and dusting the room in order to avoid parents snapping etc. Whereas intrinsic motivation is a performance of an activity, which involves personal, desire to reward for its own sake rather than any external reward. Intrinsic motivation is performed for self-satisfaction and development rather than any external enjoyment or fun (Arnold, 2016). For example, playing a sport because the activity is enjoyable for the participant, studying hard in order to gain knowledge rather than for the sake of attaining good grades, cleaning the room because it is good to be around cleaned environment. Apart from the differences, there are certain relationships between the two Extrinsic and Intrinsic Motivations. Even though the two motivations are different, both are some way related to each other, i.e. as extrinsic motivation is externally related while intrinsic is internally related, both can be simultaneously related (Van der Stede, 2016). For example, a student likes to study hard in order to gain knowledge which eventually end up getting good grade, an individual likes to play a sport and the same helps the individual in achieving awards, an individual likes and enjoys doing work which ultimately help him/ her earning the livelihood. In an organization, employee is the most vital factor for its growth and sustainability. Additionally, for the employees the key attribute is the compensation pay package provided by the enterprise. Employee compensation is the most crucial part for a companys management as it is the mode of connection between the employer and employee. The influence of remuneration or compensation package plays an important role in the attitude of employee that could be either risky or favorable for the entity. No organization or company can be a big company without the service of employees be it white collared or blue collared hence it is very important to place a decent and deserving compensation to its employees (Lin, 2015). Employees attitude towards the compensation package plays in adverse situation that is if the organization is paying as per the employees desire and capacity, the employee will have a positive attitude towards its work. However, this could be in terms of higher basic pay and less perquisites or compensation or vice versa (Van der Stede, 2016). In any of the situations, it is important for the enterprise to stand at par with the employees desire. Financial benefit from any organization can be either monetary or non-monetary that an employee desires from its employer in return of the work performed by them. Financial benefits can be base pay or it can also be in the form of incentives or perquisites. The time period for the payment of the financial benefit depends on the policies of company to company i.e. the compensation can be paid monthly in some entities while some entities provides quarterly or annual payments (Van der Stede, 2016). This period generally varies and depends on the size of the company and the type of the industry it works in. In case the main object of the entity is blue, collared employees then the financial benefit payment could be a monthly payment. While, the payment may be monthly or annually in case of white collared employee and the segregation can be in other type as well. Compensation package in an organization is designed based on the several factors like the industrial norms, companys outcome and goals, geographical factors, field of experience, working hour slabs etc. Compensation can of three types- Direct Financial compensation, Indirect Financial compensation and Non- Financial compensation. Direct financial compensation refers to basic pay i.e. salaries or wages, commissions, brokerage. Whereas indirect financial compensation refers to the benefits in the form of leaves, allowances, retirement plans etc. on the other hand, Non- financial compensation refers to promotions, growth, working infrastructure of the organization (Bromwich and Scapens, 2016). In formulation of compensation package, there should be fairness in respect of the employment condition as it plays a crucial role in an organization (Bromwich and Scapens, 2016). The fairness role can be in terms of the geographical factor that is the region in which the organization is located and hiring the employees. Another fairness role could be the category of employment that is there should be parity for the employees as per their qualification and experience. The executive compensation committee is responsible to formulate and review the compensation and allowances packages. In the determination of compensation package it is the duty of committee to provide benefits to the executives apart from the basic pays, although it is not a compulsion on their end. The committee has the right of choice to provide or not to provide the benefit to the executives. This discretion has been provided in the provisions of Executive Compensation Committee because the clause of benefits or allowances provided to the executive employees depends on various factors, which may differ from organization to organization (Malmi, 2016). As per the legal rules, listed companies are compulsorily required to form and establish an executive compensation committee consisting of independent directors in recommendation to the board of directors. As per the requirements, a committee should be having minimum of two directors that was increased to five members because of the increase and growth in work of the committee. The members should be independent or non- executive director of the company, as they do not possess any substantial interest in the organization. Additionally, the professional qualification of the members should also be considered i.e. the members are required to have expertise and knowledge in the field of finance and accounts in order to have the understanding of costs of company, risks to the company, outcome of the company (Malmi, 2016). Conclusion: The assignment is dealt with the various elements and issues of compensation and benefit package in context to the executives in an organization. Apart from basic pay there are several other key elements which comprise the compensation and the same varies between company to company in respects to various factors. For any organization it is one of the important variables because the growth and sustainability of an entity is dependent on its man power hence, the organization should provide a decent and deserving compensation to its employees. Moreover, it brings the motivation and job satisfaction among the executives if they are paid well in return of their performance. Reference List: Aaron, J.R., Gibson, S.G., McDowell, W.C., Harris, M.L. and Jobe, M.E., 2015. Structuring Executive Compensation Contracts: The Impact of Industry Technological Intensity.Journal of Management Policy and Practice,16(3), p.11. Arnold, V., 2016. The changing technological environment and the future of behavioural research in accounting.Accounting Finance. Balsam, S., Boone, J., Liu, H. and Yin, J., 2015. 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