Final answer:
Boards of directors can address the agency problem by tying executive compensation to company performance and implementing stock options to align executives' interests with those of shareholders.
Step-by-step explanation:
The question pertains to how boards of directors can address the agency problem related to executive compensation. To align executive actions with shareholder interests, the board can tie executive compensation to company performance, for example, through performance bonuses or other incentives that are linked to the success of the company. Another method is implementing stock options, which gives executives an ownership stake in the company, thereby aligning their interests with those of the shareholders. Offering excessive bonuses without regard to performance or providing fixed salaries can, however, exacerbate the agency problem, as they might not incentivize executives to focus on the long-term success of the company.