How can executive pay be linked to organization performance?
What will be an ideal response?
From an agency theory perspective, the goal of owners (shareholders) is to encourage the agents (managers and executives) to act in the best interests of the owners. This may mean less emphasis on noncontingent pay, such as base salary, and more emphasis on outcome-oriented "contracts" that make some portion of executive pay contingent on the organization's profitability or stock performance. Among midlevel and top managers, it is common to use both short-term bonus and long-term incentive plans to encourage the pursuit of both short- and long-term organization performance objectives. Indeed, the bulk of executive compensation comes from restricted stock, stock options, and other forms of long-term compensation. Putting pay "at risk" in this manner can be a strong incentive. However, agency theory suggests that while too little pay at risk may weaken the incentive effect, too much pay at risk can also be a problem if executives take too big of risks with firm assets.
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A. individualism–collectivism B. masculinity–femininity C. power distance D. uncertainty avoidance
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