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ACCA Strategic Professional · Advanced Financial Management · Financial strategy formulation

Delta plc wants to reduce the agency conflict between shareholders and managers by aligning managerial rewards with shareholder wealth. Which remuneration approach BEST achieves this?

Share options or long-term incentive plans based on multi-year total shareholder return best align managers with shareholders, because rewards rise and fall with shareholder wealth. Revenue or acquisition-based bonuses encourage size over value, and a fixed salary gives no performance link.

  1. AShare options and long-term incentive plans based on total shareholder return over several yearsCorrect
  2. BA fixed salary with no variable component
  3. CA bonus based on annual revenue growth
  4. DA bonus based on the number of subsidiaries acquired

Explanation

Long-term share-based pay linked to total shareholder return ties managers' rewards to shareholder wealth over a multi-year horizon. Revenue growth and acquisition counts can encourage empire building, and fixed salary gives no link to performance.

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