Aligning Stockholder and Management Interests (Lab Report Sample)
Stockholders and managers want the same thing, don't they? Theoretically, yes, but in reality, it does not always work that way. Too often, managers' personal goals compete with shareholder wealth maximization. Sometimes, managers pay themselves excessive salaries or bonuses that are at odds with the idea of shareholder wealth maximization. How many times have you seen in the news examples of CEO excesses or outlandish spending on events or things that definitely do not help the overall goal of stockholder wealth maximization?
To prepare for this Discussion, think about a time in your professional experience when a decision was made that seemed to benefit a specific manager or small group of managers and not the overall corporation. If you do not have professional experience directly related to this topic, research a situation in the news where this theme is demonstrated. Consider the outcomes of such an imbalance between manager and stockholder interests, and research how to avoid such a situation.
BY DAY 3
Post:
Describe the situation from either your professional experience or your research.
Explain two or more motivational tools that can aid in aligning stockholder and management interests.
Explain how your selected tools are effective in resolving potential conflicts among managers and stockholders.
General Guidance: Your initial Discussion post, due by Day 3, will typically be 2–3 paragraphs in length as a general expectation/estimate. Refer to the rubric for the Week 1 Discussion for grading elements and criteria. Your Instructor will use the rubric to assess your work.
Aligning Stockholder and Management Interests
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Aligning Stockholder and Management Interests
The agency perspective of the corporation postulates that the decision powers of the corporation are committed to the manager to take action in shareholders' interests. In part because of corporate management processes incorporate a structure of controls aimed to help line up managers' incentives with those of shareholders (Anson et al., 2004). The main agent challenge or agency dilemma, advanced in economic theory, covers the challenges in motivating one party (management), to take action on behalf of another (stakeholders).
One example of a conflict between stakeholders and management over CEO compensation is the case of Walt Disney Co shareholders and the company's CEO, Bob Iger (CNBC, 2018). The shareholders dismissed an executive remuneration plan that sought to reward Chief Executive Officer Bob Iger with up to $48.5 million annually over four years in addition to an equity grant amounting to approximately $100 million (Richwine, 2018). This case demonstrates how the interests of the shareholders can clash with those of managers.
Some effective motivational tools can be effected to ensure the interests of stakeholders and management are aligned. One of these tools is the establishment of an executive remuneration strategy to guide directors and executives in compensating the principal employees. Financial remunerations and bonuses for successful employees should be promoted. However, the rewards should be based on be performance. Another tool motivational tool is the implementation of guidelines for option plans. Such guidelines should include several long-term incentive vehicles, along with sensible annual incentives. These two motivational tools work by ensuring that the managers are focused on performance and reward them following their results. In this way, the
