Question

Leah, the CEO of SteadyResults Corp., feels that she is underpaid, so she hires a compensation consultant to survey actual competitors of the company. According to agency theory, if SteadyResults performs poorly, her salary will most likely:

Answer 1

increase in order to retain her

Step-by-step explanation:

First of all, the corporation must seek to minimize the conflict between Leah and the board regarding her compensation level. Incentives, usually monetary, are used to redirect the behavior and actions of a CEO so that they align with the corporation's best interests. In this case, since SteadyResults is performing poorly, the board can offer Leah a raise in case the corporation's poor results are reversed and it performs better. Changing a CEO is never easy, especially when business is a little rough.