By tying the salaries of top corporate managers to the price of the corporation's stock, corporations hope to avoid Select one: a. the principal-agent problem. b. corporate governance. c. conflict between the CFO and the CEO d. paying high salaries to their managers.

Question

Gaven Meza

Business

19 February, 12:58

By tying the salaries of top corporate managers to the price of the corporation's stock, corporations hope to avoid Select one: a. the principal-agent problem. b. corporate governance. c. conflict between the CFO and the CEO d. paying high salaries to their managers.

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Answers (1)

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Nikhil Bell · Answer 1

the principal-agent problem.

Explanation:

The principal agent problem occurs when an agent who is entrusted with an asset is having conflicting interest with the principal (asset owner).

For example management of a company are the agents of the stockholders of the company.

The main goal of the stockholder is to make profit. So if the salaries of the top management is tied to price of the company's stock, the manager's will work to ensure stocks remain profitable.

This aligns the goals of the management and the shareholders thereby avoiding the principal agent problem.