Hailey’s Hair Products has two criteria upon which its reward system is based:

(1) Rewarding executives for performance 

(2) Adding to shareholder value.

At present, the remuneration package for executives consists of a base salary, annual bonus and stock options. The base salary is considered critical to attract the ‘best’ people to positions with the bonus and stock options encouraging performance that leads to increases in the share price. Base salaries are set at competitive levels to attract and retain the ‘best’ people. The bonus is payable if executives meet the annual performance targets set by the board at the beginning of the year. The stock options are not able to be exercised until five years after being granted. A recent initiative has meant that executives are able to substitute the bonus payment for stock options (but still with the five-year restriction).

The board’s remuneration committee is made up entirely of independent directors and makes use of outside advisers to ensure that recommendations are fair to all shareholders.

Required

Evaluate the remuneration plan for executives.