please see attached document.
PLEASE READ ARTICLE BELOW AND DISCUSS AND SUMMARIZE.
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This week’s article has to do with executive compensation and the agency problem. In Managerial compensation can be used to encourage managers to act in the best interest A 1993 study performed at the Harvard Business School indicates that the total return Carefully crafted compensation packages can reduce the conflict between management Stockholders technically have control of the firm, and dissatisfied shareholders can oust
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chapter 1 we learned that the objective of financial managers should be to maximized
shareholder wealth. In order to align managers interests with this goal, company’s often
compensate managers with stock shares and stock options.
of stockholders. The idea is that if management has an ownership interest in the firm,
they will be more likely to try to maximize owner wealth.
to shareholders is closely related to the nature of CEO compensation; specifically, higher
returns were achieved by CEOs whose pay package included more option and stock
components.
and stockholders. In 2007 it was widely publicized that many firms had “backdated”
options in an attempt to provide “in-the-money” compensation to executives. Clearly,
this system doesn’t always provide the desired result.
management via proxy fights, takeovers, etc. However, this is easier said than done.
Staggered elections for board members often make it difficult to remove the board that
appoints management.