Name: - Sameer Prasad

Roll No: - 82
CIE 2: - Case Study
Subject: - Corporate Governance (310)
Faculty Name: - Prof. Shruti Shashidharan
 Pratibha Institute of Business Management
Chinchwad, Pune
Department of MBA
Subject- HR OPERATIONS (305)
Concurrent Internal Evaluation -2

Caselet on
Hammond Brothers

Marks - 25   Submission Date -19 / 10 /2020

Hammond Brothers, a road haulage company, is likely to be

seeking a stock exchange listing in a few years’ time. In preparation for this,
the directors are seeking to understand certain key recommendations of the
international corporate governance codes, since they realise that they will
have to strengthen their corporate governance arrangements.

In particular the directors require information about what the

governance reports have achieved in:

 Defining the role of non-executive directors

 Improving disclosure in financial accounts
 Strengthening the role of the auditor
 Protecting shareholder interests

Previously also, the directors have received the majority of their

income from the company in the form of salary and have decided salary levels
amongst themselves. They realise that they will have to establish a
remuneration committee but are unsure of its role and what it will need to
function effectively. The directors also have worked together well, if
informally; there is a lack of formal reporting and control systems both at the
board and lower levels of management. There is also currently no internal
audit department. The directors are also considering whether it will be
worthwhile to employ a consultant to advice on how the company should be
controlled, focusing on the controls with which the board will be most valid.
 Questions:

(a) Explain the purpose and role of the remuneration committee, and
analyse the information requirements the committee will have in order to
be able to function effectively.
Ans:

I. Purpose and role of the remuneration committee

i. The role of the Remuneration Committee (the “Committee”) is to

determine the strategy and policy in relation to terms and
conditions of engagement (including remuneration) of the
chairman of the Company (the “Chairman”) and the executive
directors (the “Executive Directors”); and to determine the specific
total remuneration of the Chairman and each of the Executive
Directors (including payments and awards under annual bonus
plans, share incentive schemes, pension schemes and any other
compensation arrangements).
ii. The Committee’s responsibility and authority covers the Company
and its direct and indirect subsidiaries (the “Group”).
iii. The Committee will also determine and recommend to the board of
the Company (the “Board”) the remuneration strategy and policy of
the Group as it applies to all employees.
iv. Specific fees payable to non-executive directors (the “Non-
Executive Directors”) are determined by the Board on the
recommendation of the Chairman and Chief Executive Officer.

II. Information requirements the committee

Remuneration committees are rarely given the luxury of starting from a

clean slate. Before the first meeting, it is useful to get a full briefing from
fellow committee members, the chief executive or the human resources
director. In particular, the committee must know:
 i. Details of individual directors' remuneration for the past three to
five years – including base salary, bonuses, long-term incentive
grants and exercise values.
ii. Any immediate changes planned (eg as a result of the expiry of a
share option plan, or a change in the strategy of the business).
iii. Any special arrangements for individual directors and why they
exist. New hires or executives approaching retirement, for
example, might have been offered something different.
iv. The market information provided by advisers.
v. How outside advisers were appointed, who they are, and why they
were selected.
vi. The overall remuneration philosophy – the positioning of total
remuneration relative to the market place, the definition of the
market place, the approach to short-term and long-term incentives,
the benefits policy, etc.
vii. Contract details – notice periods, severance arrangements,
compensation for loss of office and special arrangements (if any) in
relation to changes of control.
b) Explain what is meant by organisation and management controls and
recommend the main organisation and management controls that
Hammond Brothers should operate.

Ans:

I. Organisation and management controls

i. Management control can be defined as the process whereby the

organization sets itself performance objectives and strives to
achieve them as best it can over time
ii. Management control in the organization consists of a systematic
effort on the part of the organizational management. It is required
to assure that all organizational resources are being used in the
most effective and efficient manner possible in order to achieve the
organizational objectives and goals.
iii. It constitutes
a. setting of performance standards with planning objectives,
b. design of information feedback systems,
c. comparison of actual performance with the predetermined
standards, plans or objectives in order to determine whether
there are any deviations and to measure their significance,
and 
d. taking of any remedial action if needed.
iv. Management control describes the means by which the actions of
individuals or groups within the organization are constrained to
perform certain actions while avoiding other actions in an effort to
achieve organizational objectives and goals.
v. Management control in an organization is an approach that enables
the organization to produce desired results (generally expressed in
terms of performance) by taking actions to achieve those results
and by dealing with the dangers brought in by external difficulties
(particularly those related to the market, competitors and the
economic or political environment) and the internal difficulties of
the organization.
vi. It is a method for managing the performance of the organization. It
is an approach that is pursued over time, both before the action in
 the planning phase, and after the action in the monitoring and
analysis of results phase.

II. Main organisation and management controls that Hammond

Brothers should operate.

i. Result checking – Through result checking management measures

whether the organization is achieving or not the assigned
objectives. By shifting analysis, where the possible shifting
between objectives and results is analyzed, corrective actions
regarding implementation are taken, in order to optimize the
organizational behaviour against the planned objectives.
ii. Planning – Planning is defined by the set of objectives with
specific expected results. These objectives need to be
understandable, agreed, and measurable in extent and time,
reachable, consistent with one another and achievable with the
available resources taking into account the internal and external
restraints with the organization.
iii. Implementation of the plans – Implementation of the plans
constitute allocation of required resources and monitoring to see
that the resources are deployed in effective and efficient manner
for the achievement of the planned objectives.