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how can you relate the compensation design with a principal agent relationship in a firm? what cost does ESOPs ( employee stock options) tend to reduce, explain and why is there a need to reduce these costs?
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- Explain in detail the effects of equity on compensation in an organization.Answer the following sub-questions using economic theory, the principal agent theory and empirical evidence. Most UK and American CEOs are paid significantly more than the average employee of their firms. Does this fact suggest that CEOs are overpaid? French and German CEOs earn considerably less than US CEOs, does this suggest that US CEOs are overpaid? The firm’s stock market price is uncorrelated with the FTSE100 index. In economic terms, does it make sense to pay the firm’s CEO based on the FTSE100 index? Explain. Taking into account the article by Bebchuk et al “The Wages of Failure”, discuss the advantages and disadvantages of incentive pay and the problems of incentive pay in the case of Bear Stearns and Lehman Brothers. Also discuss reforming incentive pay to deal with the problems unearthed at Bear Stearns and Lehman BrothersWhat is the principal-agent problem? Have you ever worked in a setting where this problem has arisen? If so, do you think increased monitoring would have eliminated the problem? Why don’t firms simply hire more supervisors to eliminate shirking?
- What is the principal-agent problem? Have you ever worked in a setting where this problem has arisen? If so, do you think increased monitoring would have eliminated the problem? Why don’t fifirms simply hire more supervisors to eliminate shirking?Explain what you take to be the strongest argument in defense of an employee’s right to participate in managerial decision making. Explain what you take to be the strongest argument against such a right.As an organizational asset, human capital is easier to measure than financial capital. True or false
- How does the theory of the firm provide an integrated framework for the analysis of managerial decision making across the functional areas of business?Discuss how economic forces influence decisions about pay. Do U.S. companies pay their chief executive officers too much? Why or why not? What steps should be taken to ensure pay equity? Lastly, rather than focusing on past performance in a yearly review, should employee performance evaluation systems incorporate continuous feedback?Refer to the diagrams. The firm: Group of answer choices A) has a principal-agent problem. B) has a constant marginal resource cost of $5. C) has a marginal resource cost that exceeds the wage rate for each worker. D) will fail to maximize profits if it hires 5 workers.
- In Chapter 5 of Managerial Economics, Froeb discusses post-investment holdup as a sunk cost problem associated with contract-specific fixed investments. The modern theory of contracts is sometimes called the theory of joining wills, which simply means when parties make an agreement they are joining together to complete an endeavor of mutual interest. The problem with all contracts that endure over time is that not all potential challenges can be anticipated. The idea of joining wills is that parties will attempt to seek accommodations to advance their mutual interest, so long as the return on the invested activity pays off. Froeb illustrates the idea by the example of marriage as a contract. Review the three scenarios below. Look for which, if any, of these scenarios presents an example of post-investment holdup. Your firm conducted a search for a new chief financial officer and hired a highly qualified candidate with a yearly salary of $250,000. After six months, the person left to…What is the impact of Adam Smith’s book Wealth of Nations on Management ? Explain in detailDescribe the principal-agent problem between firm owners and managers. Make sure you identify the principal and the agent and discuss the information asymmetries and different goals of the two players.
