The And Regulatory Reform Act 2013 - 1294 Words

In recent yearsï ¼Å'with the failures, people in prominent organisations are going to be requested to consider the applicability of their corporate governance. Moreover, the ‘Enterprise and Regulatory Reform Act 2013’ allowed the shareholders in UK have a binding vote on executive compensations. Corporate governance is defined as the regulations which are aimed to control those responsible for administrating an organisation (Boddy, 2014:p99). The wholesome corporate governance has been established through the supervision of external market and the internal positive enterprise culture. It can influence the share price and raising capital costs of a business. The good quality of a firm’s corporate governance is determined by the power of†¦show more content†¦From the outside of corporate governance, Wright (2004) argues it is a key component of enhancing the country’s financial systems and improving the responsibility to make investors be more confi dent. In addition, corporate governance is crucial to a business; it is always generated the contradictions between shareholders and professional managers (Thomas Ward, 2012:p102). O’Donovan claims that corporate governance is an internal management system which involves policies, processes and people - aimed to use good commercial knowledge, objectivity and integrity to serve the demands of shareholders through controlling management events (O’Donovan citied in Thomas and Ward, 2012). The internal management system expresses the command and control mechanism within the business. Therefore, corporate governance involves setting up the rational executive compensation (Hallock and Murphy 1999). The setting of executive compensation is important as a result of providing appropriate motivations to executives and improve their work performance; thus, reducing the contradictions between shareholders and executives (Balsam, 2002). However, Gomez Mejia (1994) argues that a goo d compensation package can offer welfare to both executives and shareholders; nevertheless, a poor package of compensation is useless to stimulate executives, even a waste of capital resources (Mejia