According to agency theory,when a compensation system aligns the interests of the agent with the principal's own interests,the compensation system should
A)be behaviour oriented.
B)reduce agency costs.
C)be outcome oriented.
D)reduce risks.

Question

Quizplus · Accepted Answer

According to agency theory, the main goal of a compensation system is to align the interests of the agent (employee) with those of the principal (employer). This can be done effectively by reducing agency costs, which are the costs that arise from conflicts of interest between the agent and the principal. By minimizing these conflicts, a compensation system can create a more efficient and productive workplace while also ensuring that both parties are incentivized to act in the best interests of the company. Therefore, reducing agency costs is the best choice for this question.

According to Agency Theory,when a Compensation System Aligns the Interests