Question

Which is most apt to create an AGENCY CONFLICT?

A. Compensating a manager based on their division's net income
B. Giving all employees a bonus if a certain level of efficiency is maintained
C. Hiring an independent consultant to study the operating efficiency of the firm
D. Rejecting a profitable project to protect employee jobs
E. Selling an underproducing segment of the firm

Answer 1

Compensating a manager based on their division's net income is most apt to create an agency conflict.

Step-by-step explanation:

An agency conflict refers to a situation where there is a conflict of interest between the managers of a firm and its owners. In this case, the most apt to create an agency conflict would be option A, compensating a manager based on their division's net income. When managers are incentivized based on the division's net income, they may engage in activities that prioritize short-term gains at the expense of the long-term interests of the firm.