Solar Supermarkets, a listed company, is reviewing the approach that it should take to remunerating its executive

Fantastic news! We've Found the answer you've been seeking!

Question:

Solar Supermarkets, a listed company, is reviewing the approach that it should take to remunerating its executive directors and other senior managers. Over the years, the company‟s share price has performed well although there is now concern that price and cost competition from overseas entrants into the domestic market will have a significant impact on the firm‟s profitability. As a result, the directors believe that large investment in new technologies and markets will be required over the next five years. Traditionally, management has been rewarded by salary, a generous system of benefits, and a bonus scheme that has taken up to 4% of turnover. The directors are considering introducing a generous share option scheme with a five year vesting period. There is also a view, expressed by some of the company‟s principal equity investors, that the company should consider returning cash to them through the sale of its property holdings. The company has over 200 stores nationally and 15 overseas, of which all except five are owned by the company. In the domestic economy, growth in the value of commercial property has averaged 8% per annum in recent years whilst retail growth has remained static at 5.5%. A sale and leaseback, or the flotation of a separate property company that would rent the stores to Solar Supermarkets at commercial rates, are two suggestions that have been made at investor meetings. Either approach, it is suggested, would return value to investors and create a supply of capital for further expansion. There have been press rumours, possibly fed from sources within the investor community, that the company may be a target for a private equity acquisition. However, no formal approach has been made to the company. The only other area of controversy to emerge about the company which has concerned the directors followed an announcement about the company pension scheme. Although the scheme is well funded the directors took the decision to close the current final salary scheme to new employees and to replace it with a money purchase scheme. Current employees would not be affected.

Required:

Discuss the strategic, financial and ethical issues that this case presents and the merits of the proposed share option and sale and leaseback schemes.