Value Based Corporate Governance And The Impact Agency Theory

Executive compensation has been at the forefront of discussion for a long period of time. Analyzed by academics, highlighted by the media, questioned by Congress, and scrutinized by the general public, the topic warrants much debate. In the 1990’s, total executive compensation increased substantially as companies began offering stock option programs; CEO’s of S&P 500 saw an average increase of 150%.

The primary objective of the manager is to please the stockholder by maximizing stockholder wealth.

Directors have awarded compensation packages that go well beyond what is required to attract and hold on to executives and have rewarded even poorly performing executives. These executive pay excesses come at the expense of shareholders as well as the company and its employees. Furthermore, a poorly designed executive compensation package can reward decisions that are not in the long-term interests of a company. Excessive CEO pay is essentially a corporate governance problem. When CEOs have too much power in the boardroom, they are able to extract what economists' call "economic rents" from shareholders (Economic rent is distinct from economic profit, which is the difference between a firm's revenues and the opportunity cost of its inputs). The board of directors is supposed to protect shareholder interests and minimize these costs. At approximately two-thirds of US companies, the CEO sits as the board's chair. When one single person serves as both chair and CEO, it is impossible to objectively monitor and evaluate his or her own performance.

The departments are: Acquisitions, Resources, and Audit. Each of these departments are separated into their own enclaves with the addition of a wireless enclave. The entire network also has an overarching critical business function.

. The potential, punctual, dedicated, benevolent, and sincere candidates can avail such opportunities. The match in qualities, qualifications, set of skills, and ethics is deemed to be perfect. This perfection leads to a step ahead in ladder in hierarchy of promotion. In hierarchy, however, CEO remains at the top. The general manager comes after CEO at strategic apex. All four functional departments have a general manager. Four main functional departments are: Research, Outreach, Admin and Finance, and Projects. Every manager is reported by a team consisting of a project manager and a coordinator. At middle level there are managers and assistant mangers. While at operational core there are officers and assistants. Details are produced graphically in Appendix 1.

The finance department is responsible for managing the MCO’s money. The finance department has the responsibility of working with the all the departments within the MCO to track or ascertain the movement of all monies within the organization and the movement of all monies out of the organization to providers or for other overhead expense. For example, it is imperative that the finance department in collaboration with the billing and enrollment department reconciles the amount of money paid by their clients (individuals, employers or government agency etc.) against the amount of money the financial department thinks should be collected based on the total enrollees in their various programs. Then, the department now follows the trail of money to determine how all funds in all categories of services are dispersed.

It is with this background of wide discrepancies in compensations between executives and other employees and the fact that executive receive huge compensation packages despite their performance that critics have raised the issue of equity and ethical concerns. The free market system has a culture of rewarding employees based on their ability, merit and performance but executive compensation defies this culture (Mullins, 2007). The equity issues are compounded considering that in countries such as America many workers earn in a year what there bosses earn in an evening (Mullins, 2007). Even among stock investors and anti-globalization campaigners, the issue of pay package is a shared concern with claims that executives pay is extremely high. Recent examples include Freddie Mac CEO, Richard Syron, who received $14.5 million in 2007 and where $2.2 million of this amount was a “performance bonus” (Encyclopedia of Management, 2009).

The maintenance and security department is responsible for the cleanliness of the place, taking care of the outside look of the company and in charge of delivering and distributing the mail. In addition, it is responsible for supplying the department with the office and electrical materials and make sure that the whole place is secure.

5. What is the cause of the agency problem and how do we try to solve it?

Departments in businesses all partake in important roles, departments such as human resources, accounting and finance, production amongst others remain vital to the company so it can work progressively. However, there are key departments which are desired more than others.

The principals (the shareholders) have to find ways of ensuring that their agents (the managers) act in their interests.

The vision of the department is to “help KPMG in attaining the largest market share in audit by converting every target into client”. Department’s major focus area is “Business Development”, which is fuelled by an organized department structure, a well thought-out methodology for approaching potential clients and building strong relationships with existing clients.

As explained by Schelker (2013), the agency problem between the owners and the management of a firm is at the heart of the corporate governance literature. Hence, there is a need for a

They make sure that the organisation is run or operating well in every department of the organisation.

Heads of Departments are responsible for implementing and co-coordinating their areas of operations. FAM will rely on external auditors for evaluating compliance and effectiveness of the accounting procedures and controls.