Fixed Pay

Discuss about the .

According to the agency theory, there is a popular view associated with employment contracts. This is to link compensation as much as possible with the performance measurements. Moreover, this varies from business to business, industry to industry and individuals to individuals (Rebele & Pierre 2015). The labour market could be segregated into primary market and secondary market depending on the ways the different workers would be compensated. The workers in the primary market would be compensated based on their skills, while the market forces determine the wages for the workers in the secondary market. This is identified as a principal-agent problem in agency theory.

In order to deal with this issue, tipping could be viewed as a form of payment. From the theoretical perspective, the interest of the principal is aligned with the agent, which is service quality, with the help of tipping (Dai, Free & Gendron 2016). The reason is that it is the metric, which the customers use for ascertaining the tip. However, this method is inappropriate for the restaurants. The tip amount could not be associated with the service quality and thus, it could be discriminatory. The other compensation forms could enable in aligning the interests of the staffs with those of the employers. For instance, the performance pay schedules might result in fall in the quality of work rendered by the employees, if they feel that effective recognition of their efforts is not made accordingly. By combining all these factors, it could be stated that salaries alone might not be able to motivate the employees in accordance with the agency theory.

It is a fixed reward paid in cash to an employee by an employer and the most prevalent form of guaranteed pay includes the base salary (Mora & Walker 2015). The salary size is ascertained with the help of the ongoing salary level in the market and the performance of the employees. Along with base salary, guaranteed pay contains allowances incurred to an employee for particular purposes besides job performance. They include allowances pertaining to housing, transport, cost of living, meals, medical or pension benefits and seniority. By providing all these allowances, the employees are motivated to work harder for meeting the goals of the organisations.

This is a form of non-fixed cash payment, which is dependent on performance, discretion or outcomes accomplished. Certain types of variable pay plans include sales commission, bonus schemes and overtime payments. For instance, this type of plan is evident in the real estate sector for compensating the real estate agents. In this case, the prevalent variable pay plan might be that the sales representatives get 50% of each dollar they provide to a revenue level, which could be increased to 85% in future (Buchheit et al. 2017). Basically, it is reliant on yearly timeframe, which needs to be set back to 50%. The reason for administering this plan is to ensure the productivity of the employees, as more efforts could lead to more earnings.

Variable Pay

The employees are provided with certain benefits like paid time-off, life insurance, dental insurance, medical insurance, access to company car and retirement plans. Even though there are some mandatory benefits to be provided to the employees to comply with the governmental rules, few benefits are offered to meet the need of particular employee population. These plans are not given in cash; however, they are included in their pay package with bonus and base salary in order to boost their morale and confidence (Weirich, Pearson & Churyk 2017).

This is a compensation plan of the employer, in which the shares of the employees are used in the form of employee compensation. The most inherent is the stock option; however, other vehicles include stock appreciation rights, restricted stock units, employee stock purchase plan and others. In this plan, the employees are provided with the right to buy a number of shares at a certain price and accordingly, returns would be provided to them for assuring their productivity and motivation level.

When the employees are not satisfied with their current jobs, they might feel that they are underappreciated. This might result in discontentment amongst the fellow employees and this might place the workplace morale to a dent. On the other hand, if the employees are appreciated for their efforts, they tend to perform better and this, in turn, would increase the productivity of the workforce (Dumay & Baard 2017). However, the behaviours and attitudes of the employees play a crucial role in determining their compensation package. If an employee is willing to take additional risk by showing interest to perform new job roles, a positive increase in compensation package is bound to happen and vice-versa. However, this is dependent on the policies of the organisations regarding whether they would provide rewards and benefits based on the work performance of the employees and this, in turn, would influence the attitude to risk of the employees.

There are certain factors that might limit the efficiency of performance-based compensation packages for the staffs to work productively, out of which the four most significant factors are demonstrated as follows:

• One of the primary failures of performance-based compensation package is that the strategy for the organisation is not developed (D. Parker & Guthrie 2014). If the strategic goal of the organisation is to be engaged in local community, a part of the bonus needs to be tied to the individual engagement of the employee in associations, boards along with other community events. Thus, in the absence of link to the business strategy, there is risk in promoting behaviours contradictory to the depicted strategy.
• Another factor is the absence of best practices like zero-injury workplace, process of bid selection, individual development, pre-job planning, negotiated work and others.
• Most business organisations measure employee performance in terms of profitability alone. However, profits are of no importance, if they run out of cash and receivables could not be accumulated.

With the help of executive compensation committee, it is possible to review the compensation of the Chief Executive Officer (CEO) and the other executive officers of the organisation. Moreover, this committee helps in demonstrating the procedure taking into consideration the marketplace and this is agreed by the entire board. Thus, the committee is involved in providing considerable protection to the privacy of the executives by considering the importance of compensation as a way of recognising the achievement record. Finally, the committee keeps contemporaneous details of the meetings where benefits and compensation are ascertained by taking into account external information to develop compensation levels (Dyckman & Zeff 2015).

Benefits

The agency theory states that the traditional approach is not accurate and thus, it has devised a modern approach for the accounting methods. For instances, critical accounting policy include accounting of the banks for future unpaid loans, estimation of bad debts, accounting for derivative values and mortgage firms accounting for right of mortgage servicing (Jefrey 2018). According to the agency theory, financial reporting is necessary to ensure public interest. This is because the probability of failure is high in the free market system, when there is no regulation. However, this theory sheds light on the conflict between the shareholders and the agents. The intention of the shareholders is to increase their returns, while the managers have the motive of maximising their compensation.

In accordance with the agency theory, the auditors perform as agents to the shareholders (principals) at the time of conducting audits and this association fetches identical concerns in relation to trust and confidence. In this context, Guthrie and Parker (2016) cited that the auditors often have their personal motives and interests such as the business directors. The independence of the auditors is extremely significant to the shareholders and this is considered as a significant factor in delivering the quality of audit. However, a relationship with the board of directors of the business organisations is necessary for carrying out an audit effectively. On the other hand, questions could be raised from the shareholders regarding such relationship of the actual and perceived independence of the auditors. Therefore, there is need to incorporate stricter controls and procedures for ensuring protection. Finally, it is necessary for auditing the auditors as well in compliance with the agency theory (Laine et al. 2016).

Governance could be defined as the group of rules, processes and practices by which an organisation is directed as well as controlled. As it is involved with balancing the interests of the various stakeholders of the concerned organisation, it considers all the spheres of management ranging from action plans, performance measurement to internal controls and corporate disclosure (Smith 2017).

According to the agency theory, the managers represent the shareholders in monetary transactions and they are to act in accordance with the interests of the shareholders by ignoring their self-interest in non-profit organisations. However, the managers and the shareholders in this type of organisations do not share the same interests, which might lead to a source of conflict (Arnold 2016). This is because there might few managers in non-profit organisations, which would act in line to meet the shareholders’ interests. As a result, it would lead to disagreement and miscommunication creating issues within the non-profit organisations. The mismatched desires might drive a wedge between each stakeholder and this would result in inefficiencies and financial troubles. Hence, this denotes the incapability of the agency theory to ensure sound governance in non-profit organisations due to the principal-agent problem (Van Puyvelde et al. 2012).

Stock Options

In order to study governance in non-profit organisations, stakeholder theory could be viewed as the alternative to agency theory. This is because it considers the impact of all corporate activities on all the stakeholders associated with the concerned organisations. According to this theory, it is necessary for all the managers of the non-profit organisations to consider the stakeholders’ interest in their governance processes. For ensuring the same, efforts would be taken to eliminate the conflicts between the interests of the stakeholders (Lassala & Feliu 2017). Moreover, this theory considers the traditional members of the non-profit organisations as well as the interests of the third parties having some sort of dependence on the organisations. The crux of this theory is to ensure engagement of all types of stakeholders to deliver desired or expected value. The benefits to be gained include tax revenues, new jobs and others (Baker 2014).

Six types of mixed method research designs are deemed to be inherent for the research studies and they constitute of sequential explanatory, sequential exploratory, sequential transformative, concurrent triangulation, concurrent nested and concurrent transformative (Chen et al. 2016). It could be observed from the stated article that the researcher has intended to explore and offer an inclusive evaluation of the perceptions of the pertinent groups on several auditing issues from the perspective of Libya. In this paper, the researcher has gathered quantitative data by conducting survey and after this; accumulation and analysis of qualitative data is made. The qualitative results are used for describing and interpreting the findings of the quantitative study. Hence, it could be said that the research paper is sequential explanatory in nature, as its concept matches with the methodology followed in the research paper. 

In the research paper of Masoud (2017), it could be observed that the researcher has designed questionnaires and they were mailed to 988 respondents comprising of 145 auditors, 320 auditees, 238 financial community and 285 non-financial community audit beneficiaries. However, only 431 responses were received that were usable. This implies that stratified sampling was used for this particular research to select the survey respondents. This is because the researcher identified the different types of individuals needed for the target population and the proportions are worked out in order to make the sample as representative. On the other hand, the researcher conducted 12 semi-structured interviews through telephone calls with the individuals having adequate knowledge about financial reporting and auditing in Libya. This denotes that non-probability sampling in the form of convenience sampling was followed for this research and thus, this method could be adjudged as appropriate.

Limitations of Performance-Based Compensation Packages

In accordance with the above discussion, it is evident that the researcher selected those individuals for interview having considerable knowledge about financial reporting and auditing. However, personal bias could arise in this case due to the limited timeframe of the research. For instance, the researcher might interview those individuals from whom appointment could be taken early and accordingly, the interview could be conducted. Hence, a number of 30 or above 30 could have been better for supporting the quantitative analysis of this particular research.

The qualitative data analysis is carried out in this research paper in order to support the quantitative outcomes. This analysis is considered to be highly valuable, as the interview quotations were used after the outcomes of additional standardised measures. After combining the outcomes of the qualitative and quantitative analyses, it has been found that the knowledge gap accountabilities need to be issue-focused in the group of Libyan society. In opposition, it might restrict the audit profession in Libya along with the big four firms from entering the nation. Thus, the qualitative analysis conducted helped the researcher to arrive at a conclusion, which signifies the appropriateness of this analysis (Hoque 2018).

Based on the above evaluation, it is clearly inherent that the qualitative analysis was carried out to support the quantitative outcomes. The analysis has been written in a descriptive manner supported by adequate data represented in the form of tables. In addition, the analysis helps in validating the perceptions of the user knowledge in an unregulated Libyan audit market and thus, the audit expectation gap is evaluated properly in this research.

Based on the responses of the survey participants, the researcher found that the implementation of global accounting standard along with standards of auditing and revision of national laws is necessary for the decision-makers in the authority of Libya in order to improve the understandability aspect for the users, while clearly communicating the responsibility level. Moreover, it has been found that the external Libyan auditors working for the big four firms are likely to receive greater incentives for performing high quality audit. This helped the researcher in setting up the platform for qualitative analysis via interviews.

It has already been observed in the research paper of Masuod (2017) that the researcher has designed questionnaires and they were mailed to 988 respondents comprising of 145 auditors, 320 auditees, 238 financial community and 285 non-financial community audit beneficiaries. However, only 431 responses were considered as usable. In the research work of Salifu and Mahama (2015), 150 questionnaires were designed and they were sent to 150 respondents randomly, out of which 135 have been selected. This denotes that probability sampling in the form of simple random sampling was used for conducting the survey, which provides equal opportunities to all the respondents of being chosen in the survey process (Mintz 2016). Thus, the approach of Khaloud is superior, as it segregated the necessary participants out of the target population, while random selection of the participants, as could be observed in the work of Salifu and Mahima, could lead to inaccurate outcomes.

Executive Compensation Committees

In the work of Salifu and Mahama (2015), the findings from the questionnaires were divided into analyses of demographics of respondent groups and measurement of expectation gap existence. On the other hand, Masuod (2017) provided detailed explanations of all the aspects considered in the research work. In addition, the work involved qualitative analysis in the form of interviews, which was not present in the research work of Salifu and Mahama. Therefore, it could be inferred that the approach of Masuod is superior in contrast to Salifu and Mahama.

From the research paper, it has been found that the researcher has not provided detailed explanation of all the interview questions. Instead, it contained a summarised overview of the opinions of the interviewees only to support the quantitative outcomes. Hence, this is the only weak aspect in the overall work of the researcher.

In this case, certain areas are not explained adequately as already evaluated in the above section. It is noteworthy to mention that no statistical tests are made to test the reliability and validity of the data collected. Cronbach’s Alpha is the most significant measure used to test the reliability of quantitative data. This has limited the accuracy of the research and thus, there is no representation of this matter in the overall research work.

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