economics

An article in The Wall Street Journal discusses a trend among some large U.S. corporations 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 problem between mangers and shareholders as a whole? Why could directors be more efficient than shareholders at improving managerial performance and changing their incentives?

  1. 👍 1
  2. 👎 0
  3. 👁 297
  1. If the company does better the shareholders get happier.
    The directors have direct say in decisions about paths the company takes. Outside directors of course often are officers in other corporations and know how to run companies batter than most shareholders do. If you pay them more when your company does better, they will focus on your company doing better.

    1. 👍 0
    2. 👎 0

Respond to this Question

First Name

Your Response

Similar Questions

  1. math

    A playground is on the flat roof of a city school, 5.8 m above the street below (see figure). The vertical wall of the building is h = 7.30 m high, to form a 1.5-m-high railing around the playground. A ball has fallen to the

    asked by anonymous on February 14, 2012
  2. statistics

    Customers arrive at a movie theater at the advertised movie time only to find that they have to sit through several previews and prepreview ads before the movie starts. Many complain that the time devoted to previews is too long

    asked by sean on November 16, 2014
  3. college Physics

    A playground is on the flat roof of a city school, 5.2 m above the street below (see figure). The vertical wall of the building is h = 6.50 m high, forming a 1.3-m-high railing around the playground. A ball has fallen to the

    asked by Katie on January 29, 2010
  4. business math

    A condo is advertised in The Wall Street Journal for $350,000. It states in the ad that a 20% down payment is required. The rate of interest is 11% on a 25-year mortgage. What would be (A) the monthly payment along with (B) the

    asked by tracie on August 31, 2012
  5. Statistics PLEASE HELP ME!

    The Wall Street Journal reported that automobile crashes cost the United States $162 billion annually (The Wall Street Journal, March 5, 2008). The average cost per person for crashes in the Tampa, Florida, area was reported to be

    asked by Vanessa on April 22, 2014
  1. Business Statistics

    Customers arrive at a movie theater at the advertised movie time only to find that they have to sit through several previews and prepreview ads before the movie starts. Many complain that the time devoted to previews is too long

    asked by Noah on October 22, 2014
  2. English

    Identify the correct sentence. A. Large corporations and small businesses today believe that "going green" is of paramount importance. B. Large corporations along with small businesses today believes that "going green" is of

    asked by Susan on May 13, 2014
  3. Critical thiinking

    (1) It is an article of faith among some economists that the significant inventions of the contemporary world are the results of the innovative genius of big business organizations. (2) Yet in the United States, the current trend

    asked by Jackie on July 4, 2008
  4. Economics

    An article in The Wall Street Journal discusses a trend among some large U.S. corporations to base the compensation of outside members of their boards of directors partly on the performance of the corporation. “This growing

    asked by Anonymous on February 12, 2017
  5. Managerial Economics

    An article in The Wall Street Journal discusses a trend among some large U.S. corporations to base the compensation of outside members of their boards of directors partly on the performance of the corporation. “This growing

    asked by Anonymous on February 12, 2017

You can view more similar questions or ask a new question.