Posted by air on .
An article in the Wall Street Journal discusses a trend among some large US Corporation to base the compensation of outside members of their boards of directors partly on the performance of the corporation. “This growing practice more closely aligns the director to the company. (Some) companies link certain stock or stock-option grants for directors to improved financial performance, using a measure such as annual return on equity.”
How would such a linkage tend to reduce the agency problems between managers and shareholders as a whole? Why would directors be more efficient than shareholders at improving managerial performance and changing their incentives?