Clare, the CEO of Femica Inc., reports to the board of directors appointed by the shareholders...
Clare, the CEO of Femica Inc., reports to the board of directors
appointed by the shareholders
of Femica. Based on shareholder suggestions, the board ties Clare's
compensation to the
performance of Femica. Due to this pressure, Clare begins devoting
extra time to projects and
undertakes other activities to ensure that she has job security and
that she receives adequate
compensation. The reasons why the board ties Yelena's compensation
to firm performance is to overcome
A. shareholder capitalism scenario.
B. inside director-outside director conflict.
C. fiduciary responsibility oversight.
D. principal-agent problem.
Homework Answers
Answer
The reasons why the board ties Yelena's compensation to firm performance is to overcome
✓ D) principal agent problem
(Principal agent problem occurs when the managers and shareholders Interest are different, and they try to maximize their own profitability or income instead of focusing on the performance and company's benefits. To eliminate this problem, the board tied the compensation of the CEO who is an agent to act for the betterment of the firm and manage the projects and affairs of the company so that shareholders value is also maximised and stocks are highly valued, to the performance of the company. To increase the incentives and payment the CEO will definitely take the performance seriously and act effectively)
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