Discuss the advantages and disadvantages of the following forms of managerial compensation in terms of mitigating agency problems, that is, potential conflicts of interest between management and shareholders. a. A fixed salary. b. Stock in the firm that must be held for five years. c. A salary linked to the firm’s profits.

a. A fixed salary allows the manager to focus on long-term and safe company operations. However, it does not offer any incentives for maximizing the value of the company.

b. Company stock as a form of compensation helps align the manager’s interest with the interests of shareholders. However, this option is risky for the manager should the company’s stock prices go down. Their salary would depend on the company’s performance and it alone, with not enough diversification to compensate for the risks.

c. A salary linked to the company’s profits offers the manager an incentive to maximize short-term profits. However, it also provides an opportunity for accounting fraud. The manager would be compelled to artificially increase the company’s earnings to increase their personal gains.

Further research on topic
Answer by Academic.tip's expert
An answer to this question is provided by one of our experts who specializes in management. Let us know how much you liked it and give it a rating.

Cite this page

Select a citation style:

References

Academic.Tips. (2022) 'Discuss the advantages and disadvantages of the following forms of managerial compensation in terms of mitigating agency problems, that is, potential conflicts of interest between management and shareholders. a. A fixed salary. b. Stock in the firm that must be held for five years. c. A salary linked to the firm’s profits'. 25 November.

Reference

Academic.Tips. (2022, November 25). Discuss the advantages and disadvantages of the following forms of managerial compensation in terms of mitigating agency problems, that is, potential conflicts of interest between management and shareholders. a. A fixed salary. b. Stock in the firm that must be held for five years. c. A salary linked to the firm’s profits. https://academic.tips/question/discuss-the-advantages-and-disadvantages-of-the-following-forms-of-managerial-compensation-in-terms-of-mitigating-agency-problems-that-is-potential-conflicts-of-interest-between-management-and-share/

References

Academic.Tips. 2022. "Discuss the advantages and disadvantages of the following forms of managerial compensation in terms of mitigating agency problems, that is, potential conflicts of interest between management and shareholders. a. A fixed salary. b. Stock in the firm that must be held for five years. c. A salary linked to the firm’s profits." November 25, 2022. https://academic.tips/question/discuss-the-advantages-and-disadvantages-of-the-following-forms-of-managerial-compensation-in-terms-of-mitigating-agency-problems-that-is-potential-conflicts-of-interest-between-management-and-share/.

1. Academic.Tips. "Discuss the advantages and disadvantages of the following forms of managerial compensation in terms of mitigating agency problems, that is, potential conflicts of interest between management and shareholders. a. A fixed salary. b. Stock in the firm that must be held for five years. c. A salary linked to the firm’s profits." November 25, 2022. https://academic.tips/question/discuss-the-advantages-and-disadvantages-of-the-following-forms-of-managerial-compensation-in-terms-of-mitigating-agency-problems-that-is-potential-conflicts-of-interest-between-management-and-share/.


Bibliography


Academic.Tips. "Discuss the advantages and disadvantages of the following forms of managerial compensation in terms of mitigating agency problems, that is, potential conflicts of interest between management and shareholders. a. A fixed salary. b. Stock in the firm that must be held for five years. c. A salary linked to the firm’s profits." November 25, 2022. https://academic.tips/question/discuss-the-advantages-and-disadvantages-of-the-following-forms-of-managerial-compensation-in-terms-of-mitigating-agency-problems-that-is-potential-conflicts-of-interest-between-management-and-share/.

Work Cited

"Discuss the advantages and disadvantages of the following forms of managerial compensation in terms of mitigating agency problems, that is, potential conflicts of interest between management and shareholders. a. A fixed salary. b. Stock in the firm that must be held for five years. c. A salary linked to the firm’s profits." Academic.Tips, 25 Nov. 2022, academic.tips/question/discuss-the-advantages-and-disadvantages-of-the-following-forms-of-managerial-compensation-in-terms-of-mitigating-agency-problems-that-is-potential-conflicts-of-interest-between-management-and-share/.

Copy