Which of the following is (are)effective in controlling the agency problem?
A)Tie a large part of managements' compensation to company profit
B)Offer numerous perquisites
C)Employ auditors to periodically review company books
D)Both a and c

Question

Quizplus · Accepted Answer

A - Tying a large part of management's compensation to company profits aligns the interests of management with those of the shareholders. This makes them more likely to work towards maximizing shareholder value.
B - Offering numerous perquisites does not necessarily align the interests of management with that of the shareholders. These are usually unrelated to the financial performance of the company and may, in fact, increase costs for the company.
C - Employing auditors to periodically review company books serves as a check on management and reduces the likelihood of fraudulent activity. This enhances the confidence of shareholders and investors in the company. 
D - Both tying management compensation to company profits and employing auditors to periodically review company books are effective in controlling the agency problem as they align the interests of management with those of the shareholders and limit the ability of managers to act in their own interest rather than in the best interest of the company and its shareholders.

Which of the Following Is (Are)effective in Controlling the Agency