Question

When managers' compensation plans are tied in a meaningful manner to the profits of the firm, agency problems:

a.can be reduced.
b.will be created.
c.are shifted to other stakeholders.
d.are eliminated entirely from the firm.

Answer 1

When managers' compensation plans are tied to the profits of the firm, it can reduce agency problems.

Step-by-step explanation:

When managers' compensation plans are tied to the profits of the firm, it can reduce agency problems. By aligning the interests of managers with the success of the firm, managers are encouraged to make decisions that benefit the company as a whole. This can lead to improved performance and reduced conflicts of interest between managers and shareholders.