Question

Which one of the following situations is most likely to create an agency conflict? Multiple Choice

a. Providing managers with stock options
b. Providing a bonus to employees if a certain level of efficiency is maintained.
c. Awarding managers a bonus based on how long they have been employed.
d. Designing manager compensation based on their division's net income
e. Firing employees during a slack period.

Answer 1

The most likely situation to create an agency conflict is designing manager compensation based on their division's net income.

Step-by-step explanation:

An agency conflict occurs when there is a conflict of interest between the owners (shareholders) and the managers of a company. The most likely situation to create an agency conflict is option d. Designing manager compensation based on their division's net income. This is because managers may prioritize short-term profitability of their division over the long-term interests of the company as a whole, which can lead to a misalignment of goals with the shareholders.