After the government of Haitchland decided to privatise its monopoly gas supplier (transferring it from government control to private ownership by issuing and selling shares), there was a period of transition as the new board took shape. A great deal of internal reorganisation and culture change was deemed necessary as the company moved to the private sector. The new company, called Dale Gas, set up a committee structure in readiness to comply with stock exchange listing rules. During this transitional period, some directors left and new ones, more familiar with operating in listed companies but unfamiliar with the gas industry, joined the board. It was unanimously agreed by the new board that the previous chief executive, Helen Evans, should continue in her role after the privatisation. Tom Nwede, a fund manager at XY Investments, one of the company’s major new institutional shareholders, said that the company would be exposed to higher market risk if she were to leave the company, so it was very important that she stayed on. She was seen as a highly competent CEO with excellent strategic and communication skills. She commanded the confidence and trust of the employees and also the new institutional investors. One of the first actions of the new remuneration committee was to propose a doubling of Mrs Evans’s salary. The committee said that she had been underpaid when the company was state-controlled because of government constraints on the salaries of public servants. The committee said that she now needed to receive a salary commensurate with the importance of the job and in line with other public listed companies of similar size. This proposal was widely publicised. Some criticised it on the basis that if her previous salary was considered sufficient then, why was it now felt necessary to double her rewards after privatisation? Her new salary was put to the vote at the company’s first annual general meeting after privatisation. Although many small shareholders (some protesting at the AGM itself) voted against her salary increase, it was easily passed by the proxy votes of the large institutional shareholders who did not attend the meeting in person. Tom Nwede, the XY Investments fund manager, said that the votes of the institutional shareholders were crucial in ensuring that Mrs Evans was retained, thereby mitigating market risk. Required: (a) Explain the purposes of a chief executive’s reward package and review the factors that might influence the level of reward for Mrs Evans after the privatisation. (10 marks) (b) Define ‘market risk’ and justify, giving reasons, Tom Nwede’s belief that retaining Mrs Evans was crucial in mitigating market risk. (10 marks) (c) Define, and explain the advantages of, ‘proxy voting’ in the context of the case. (5 marks)