1. Explain several dimensions of the shareholder-principal conflict with manager agents known as the principal-agent problem. To mitigate agency problems between senior executives and shareholders, should the compensation committee of the board devote more to executive salary and bonus (cash compensation) or more to long-term incentives? Why? What role does each type of pay play in motivating managers?
Whenever the principal has the agent do a service on his/her behalf and cannot entirely monitor the agent's activities, a ‘principal-agent problem' arises. To minimize agency problems between shareholder-principal and principal-agent is necessary adequate monitoring and adequate motivations need to be