The compensation theory seeks to explain how managers differ from owners in using pay and other forms of compensation to effectively run the organization.

Question

Quizplus · Accepted Answer

The compensation theory, specifically agency theory in the context of corporate governance, primarily explains the conflicts of interest between owners (principals) and managers (agents), and how compensation can be used as a mechanism to align the interests of managers with those of the owners, rather than explaining differences in the use of pay and other forms of compensation.

The Compensation Theory Seeks to Explain How Managers Differ from Owners