Essay Example | Topics and Well Written Essays - 500 words - 164

Essay ExampleThis happens as a result that the managers bunk to be motivated by their own self- fill and their interests differ most with the stakeholders interest. In this bailiwick the stakeholders are the principal while the managers are the agents. This problem is referred to as principal-agent problem.I agree with this claim beca intent managers use the power and authority allocated to them by the shareholders for their own personal benefits. This problem is very difficult to deal with in most cases. However, the cost of dealing with this problem is far much expensive that the shareholders may end up losing a lot of money in the effort to ensure that they deal with the problem and eradicate it completely. stressful to do away with this conflict may outweigh the results of the managers. on that pointfore, the principal who are the shareholders opt to use several(prenominal) mechanisms to reduce this problem through several mechanisms which ensure that the results of the manage rs who are the agents in this case are non outweighed.In a company, shareholders expect the managers to maximize their wealth by making good decisions in the interest of the shareholder. However, the managers work hard and coiffe decisions that that will best suit them and maximize their own personal wealth. There are several mechanisms that can be of good use to realize this conflict. One of the mechanisms used to solve this principal-agent problem is through the use of incentives types of compensation based on performance of the managers. This motivates the managers to work hard and make decisions that lead to maximization of the shareholders wealth. This mechanism ensures that the managers understand the risk of undertaking any pricey actions which may lead to losses. The second mechanism of solving this problem is the threat of firing of the managers if they do not perform in the best interest of the shareholders. This mechanism helps in shaping the Essay Example Topics and well up Written Essays - 250 words - 38Essay Example