From an agency theory perspective,linking executive pay to organization performance may mean
A)more emphasis on non-contingent pay and less emphasis on outcome-oriented contracts.
B)less emphasis on non-contingent pay and more emphasis on outcome-oriented contracts.
C)more emphasis short term compensation and less emphasis on long term compensation.
D)more emphasis on base pay and less emphasis on stock performance.

Question

Quizplus · Accepted Answer

From an agency theory perspective, executives are seen as agents who may not always act in the best interest of the company's shareholders. Linking executive pay to organization performance through outcome-oriented contracts can align the interests of executives with those of the shareholders, thereby reducing agency costs. Non-contingent pay, such as base salary, is less effective in incentivizing executives to improve performance. In terms of short-term versus long-term compensation, it depends on the specific goals of the company and the performance metrics used to evaluate executives. Finally, stock performance is often used as a key metric in executive pay contracts precisely because it aligns the interests of executives with those of shareholders.

From an Agency Theory Perspective,linking Executive Pay to Organization Performance