Question

By tying a manager's compensation to the performance of the firm relative to that of its competitors, corporate stockholders and directors create incentives that tend to resolve the A. principal–agent problem. B. hidden agenda scenario. C. possibility of bankruptcy. D. firm's opportunity costs.

Answer 1

The correct answer is letter "A": principal-agent problem.

Step-by-step explanation:

The principal-agent problem arises when a principal employs an agent to perform duties that conflict with the agent's best interests. The problem typically occurs when the principal provides the agent with incentives that act in the principal's interest but is for the agent a conflictive agenda. In the managerial world, the principal-agent problem usually occurs between stockholders and the CEO (Chief Executive Officer).