Reference no: EM132984009

The issue of bonuses being paid to senior executives has come under media scrutiny as a result of the recent banking royal commission. The article "APRA urged to make CEO bonuses more transparent" by Sally Patten was published in the Australian Financial Review on 7/11/2019. A central theme in this article is that the Australian Prudential Regulatory Authority (APRA) should ensure that non-financial targets are able to measured appropriately if they are to be used to measure bonuses as part of a plan to impose restrictions on how short-term incentives are paid.

Question 1: Explain why APRA wants to impose restrictions on how short-term incentives are paid, referring to arguments which support the regulation of accounting as well as the bonus plan hypothesis of positive accounting theory (PAT).

Question 2: According to the article, "APRA is proposing to force companies to structure short-term incentives so that at least 50 per cent of senior executives' performance targets such as customer satisfaction, safety and compliance". Explain the purpose of this APRA proposal from the perspective of:

• Agency problems; and
• The Efficiency perspective of PAT

Question 3: Explain the comment "If APRA wishes to push forward with its pay recommendations, it should at least ensure that non-financial measures are quantifiable, hence less easy to manipulate" from the opportunistic perspective of PAT.