HR Management Essay Paper Sample on Three types of Stocks

Question one

Three types of stocks

Different categories and parameters on the classification of stock exists, for example, classifications based on the company specifics, size and ownership rights and privileges (Fernández and Pablo 23). Other classifications are based on the industrial risk, payment of dividend and volatility of the market forces. For example, the common stock aims at sharing and representing the security of ownership in a business establishment. Under common stocks, shareholders possesses the exclusive rights and privileges that emanates from their rightful claim of the company asserts. They possess authority and control on the operations, management, actions, and decisions such as election of the overseer board of management and or directors.

They feature prominently on the hierarchy or structure of collective ownership of establishments and have voting rights. Compared to other types of stocks, common stocks attracts higher returns and are mostly preferred by investors. Similarly, the investors possesses the proprietor rights on a portion of the dividend and profits that accrues from common stocks. However, just like any other investment portfolios, common stocks are risky to hold given that in case of a bankruptcy, liquidation and dissolution, the common stakeholders bear all the risks and losses incurred at the expense of the bondholders and creditors (Fernández and Pablo 26).

Correspondingly, preferred stock are associated with some level of ownership unlike the common stocks and are have higher claims on the assets. Under preferred stocks, the shareholders do not possess the voting rights but are entitled to dividends. Notably, preferred stockholders are more prioritized compared to the common stockholders in terms of earning and asserts in case of a liquidation (Fernández and Pablo 29). The privileges the preferred stakeholders enjoy includes a guarantee of a fixed dividend and gains and are paid before the common shareholders in case of bankruptcy.

Similarly, the Blue-chip stocks that are mostly preferred by more established companies who operates on an expanded economies of scale. Such large institutions are more stable in their line of operations and experience low percentage growth rates. The Blue-chip stocks can be sold during slump and depression seasons when the growth prospects have reduced in the small and medium sized firms that are largely susceptible to market forces.

The suitability of a stock for pension fund and investment depends on the prospects of gain and volatility and implications during the times of stress. Therefore, common and preferred stocks would fit in pension plan fund unlike blue-chip that is prone to manipulations from the market forces

Question two

In managing the pension plan assets, the Investment Sub-committee should aim at ensuring a return that is capable of paying out the pension benefits to members. Therefore, the pension plan assets should be managed efficiently through a well stipulated Statement of Investment Policies (SIP). The SIP explicitly outlines such relevant procedures the Investment Sub-committee may use for selecting and observing the progress of the investment portfolio (Anantharaman, Divya, and Yong 330). The Statement of Investment Policies provides viable investment objectives and lists those activities that are more likely to bring more return from the plans investment assets.  Depending on the relevance of the pension laws, the Statement of Investment Policies (SIP) entails appropriate and relevant pension plan funds management practices (Anantharaman, Divya, and Yong 333).

However, the Investment committee should design efficient ways of minimizing and controlling risks that is associated with any investment plan. For instance, the committee may delegate certain tasks that are considered risky to external persons or firms but with strict monitoring and progress assessment unit. Notably, by effective monitoring of the pension plan funds investment portfolios, the committee will ensure that the performances of the funds are according to the stipulated investment objectives as outlined in the Statement of Investment Policies (SIP). The Statement of Investment Policies acts as a benchmark or index of the expected performance of the pension plan funds over a specified period of time (Anantharaman, Divya, and Yong 336).

These investment plans are frequently reviewed by the trustee board members to eliminate any contingency that may ensue in the process. As a way of minimizing risks, the committee should consider alternative investment in less risky assets to ensure a return on the venture. For instance, the committee may consider investing in infrastructure (permanent assets), private equities or on such activities are more likely to have quick and high returns (Anantharaman, Divya, and Yong 338). By expanding their diversification strategies, the Investment Sub-committee shall have ensured that the liabilities are spread evenly and that the pension portfolio is articulately cushioned from any shock. Remarkably, the committee should be well versed with the merits and demerits often associated with alternative investment assortments. For instance, the committee will be obliged to incur extra costs in the monitoring and evaluating the alternative investment venture and any potential loss will be detrimental to the pension plan funds members.

Correspondingly, by investing in socially responsible ventures, the committee should be well informed about the social issue the investment will be addressing. This will entail a thorough risk assessment and analysis of the investment portfolio to confirm its feasibility. In socially responsible investment, the primary goals and objectives are to realize higher returns while maintaining adherence to certain social values. For instance, the University’s pension plan may design an inclusive policy that favors investments on certain companies operating on particular social values in the manufacture of certain products (Anantharaman, Divya, and Yong 339). The targeted group by the pension plan may be sensitive to certain social issues for instance, tobacco and alcohol consumption. Therefore, in arriving at an investment plan, the committee must take into consideration such sensitive issues that may either pull more clients to the pension plan fund or drive even the existing ones away.

From the Statement of Investment Policies and Procedures (SIPP), broad investment policies and techniques to be undertaken by the committee in the management and investment of the pension trust funds are explicitly stated. The SIPP policies provides framework for the effective and efficient investment of the pension funds in accordance with the Pension Benefits Acts Ontario (Canada). Therefore, based on the SIPP, the Investment Sub-committee at the university develop an investment plan with explicitly stated scopes, ownership and authorities. For instance, the roles and responsibilities of the employees and shareholders should be precisely stated. In addition, the committee should appoint external experts, monitor and direct the investment processes.

The committee should also define their diversification policies and asset mix to effectively spread risks often associated with capital investments (Woods, Claire, and Roger 33). The SIPP policies stipulates that the Investment Sub-committee first consider the investment currently on progress and analyze future contributions and accrued liabilities. The maturity of the annuity disposition and the probable cash flow necessities should be taken into consideration when designing the investment plan. The committee should further stipulate the benefits and costs of the suggested investment to the members to gain their goodwill and loyalty. Additionally, the investment constraints should be stated precisely to make members comprehend the associated risks.

The committee, based on the provisions stated under SIPP guidelines, should specify specific voting rights that are attached to the planned investments. The SIPP recommendations also outlines the best and most appropriate socially responsible investments that will realize greater profitability. University’s Statement of Investment Policies (SIP) should be purely based on fiduciary obligations and commitment of all stakeholders. Responsible investing of the pension plan funds should be the top most priority for the university to realize positive returns (Woods, Claire, and Roger 36).     

Question three

Costs and benefits of socially responsible investing

In any viable business establishment, the primary social responsibility is to maximally utilize its resources in those activities that increases its ability to make more profits and gain a competitive advantage (Cox and Samuel 587). Most of these businesses aims at increasing the awareness on the role of the environment, social and corporate governance (ESG) on their pension fund investment decisions. However, all the stakeholders in any establishment must be made aware of the potential costs and benefits of such socially responsible investment (SRG). For instance, to some investors, the motivation is not the economic benefits, but on the social issues their investment will be addressing (Cox and Samuel 589).

Maintaining a socially responsible investment portfolio can be challenging in a competitive market. By incorporating such corporate social responsibility programs, an establishment is more likely to gain a competitive advantage due to a potential improvement of the public perception and approval. Similarly, corporate social responsibility is more likely to influence the joining decision of members to the pension plan due to the company’s increased role in social and environment issues. In designing a comprehensive Pension plan, the Investment Sub-committee should equally concentrate on investing on socially responsible endeavors (Berry, Thomas C, and Joan 709).

As a result, more, more members are likely to be attracted to the pension plan offered by the company, and are twice as likely to subscribe to the policies. The only notable disadvantage of this type of investment is that a thorough cost benefit analysis must be carried before committing to any venture. Correspondingly, poor environmental and social controls may be detrimental to the overall productivity of the endeavor and subsequent loss to the investors. 

Recommendation to the Investment Sub-committee

The Investment Sub-committee should first carry a risk assessment analysis on the socially responsible investments before committing the pension plan funds on it (Berry, Thomas C, and Joan 710). The Investment Sub-committee should then establish an inclusive performance index to the identified investment opportunity. Once the decision to commit the pension plans funds is made, the Investment Sub-committee should constantly review the venture to identify potential loopholes. Since focusing on socially responsible investments will subsequently bring in new membership to the company’s annuity plan, the committee ensure responsible ethical, financial and social stewardship over the investment portfolio. Similarly, the Investment Sub-committee should design risk aversion strategies to effectively cushion any eventually on the investment plans (Berry, Thomas C, and Joan 712).

Correspondingly, the Investment Sub-committee should always struggle for an expansion of the gamut of investment plans through the identification of viable alternate security plans that are may result into relatively high returns. In essence, any investment of the pension plan funds should aim at accruing relatively high on investment and enhancing investment divergence in the company. Any of the stipulated substitute plans can be amalgamated in the overall investment strategies to assist in spreading investment hazards (Berry, Thomas C, and Joan 715).

 The committee should also carry out an all-inclusive corporate awareness among its employees and stakeholders on the socially responsible investments. As a result, the pension plan investment policy will be in a better position to get the best return their investment endeavors. Also, the committee should possess a rational and feasible basis for the investment plan decision that is backed by effective and efficient investment strategies.

For a consistent, effective and efficient socially responsible investment, an investor must strive at investing in such companies or businesses that uphold certain social issues in the society (Cortez, Maria, Florinda Silva, and Nelson 256). For instance, a socially sound investor will avoid any investment in the alcohol, cigarettes, and on weapons. To such investors, such as the investment sub-committee, investing in such programs that aims at improving some of the social issues such as the environment is top priority.         

The pension plans Draft policy

Purpose

The purpose of this draft policy is to stipulate the guiding principles in the investment and administration of the company’s pension plan funds. This policy aims at ensuring appropriate investment in the socially responsible endeavors.

Strategic objectives

The pension plan fund should be invested purposely to ensure the maintenance of a long-term real purchasing power of the funds while realizing relatively high returns from the investment.   

Performance Benchmarks

The investment committee should carry a constant risk evaluation analysis on the socially responsible investment to ensure efficient utilization of the pension funds. Correspondingly, the Investment Sub-committee plan against a set benchmark so enable frequent review of the socially responsible investment plans.    

Approaches to Investment

The investments on socially responsible endeavors of the pension plan funds should be diversified to limit any potential loss that may result from concentrating on specific investment portfolio.

Responsibilities 

When making any pension plan fund investment plan, the committee analyze the general economic conditions and the relationship between the invested asset and the purpose of the company. Similarly, the committee is solely responsible for any loss of the pension plan upon a potential failure on the socially responsible investments.    

Work Cited

Anantharaman, Divya, and Yong Gyu Lee. “Managerial risk taking incentives and corporate pension policy.” Journal of Financial Economics 111.2 (2014): 328-351.

Berry, Thomas C., and Joan C. Junkus. “Socially responsible investing: An investor perspective.” Journal of business ethics 112.4 (2013): 707-720.

Cortez, Maria Céu, Florinda Silva, and Nelson Areal. “Socially responsible investing in the global market: The performance of US and European funds.” International Journal of Finance & Economics 17.3 (2012): 254-271.

Cox, Samuel H., et al. “Managing capital market and longevity risks in a defined benefit pension plan.” Journal of Risk and Insurance 80.3 (2013): 585-620.

Fernández, Pablo. “Company valuation methods.” Available at SSRN 274973 (2013).

Rice, James J., and Michael J. Prince. Changing politics of Canadian social policy. University of Toronto Press, 2013.

Woods, Claire, and Roger Urwin. “Putting Sustainable Investing into Practice: A Governance Framework for Pension Funds.” The Next Generation of Responsible Investing. Springer Netherlands, 2012. 27-48.