Agency theory is of particular value in compensation management because of its emphasis on the _____ trade-off.
A)performance-reward
B)risk-reward
C)motivation-reward
D)ability-reward

Question

Quizplus · Accepted Answer

Agency theory focuses on the relationship between principals (such as shareholders) and agents (such as managers). One of the key trade-offs in this relationship is the risk-reward trade-off, as agents may be incentivized to take on higher levels of risk in order to potentially receive higher rewards. In compensation management, understanding this trade-off is important in designing compensation packages that incentivize agents to act in the best interests of the principals. Therefore, option (B) is the best choice. Option (A) is not incorrect but does not provide sufficient emphasis on the aspect of risk. Option (C) and (D) are not directly related to the trade-off emphasized by agency theory.

Agency Theory Is of Particular Value in Compensation Management Because