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UARK MGMT 2103 Wilmot topic 10 Questions with Accurate Answers
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UARK MGMT 2103 Wilmot topic 10
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UARK MGMT 2103 Wilmot topic 10compensation - answer- organization have discretion in deciding how to pay employees
- pay can be based on individual performance, profits, seniority, or other factors
- regardless of cost differences, different pay programs can have different
consequences for productivity and return on investment
incentive compensation - answer- a wide variety of pay practices that seek to provide
"incentives" to employees to behave in a particular way
- it can be sole basis of pay or a reward given on top of base pay
- Theoretically, pay acts as a method of aligning interest of principal and agents
Theoretical explanations - answer- pay influences individual employees
- three theoretical explanations of effects of compensation
Agency Theory - answerPrincipal
- Individual attempting to influence agent into engaging in specific behavior
- Usually owners of business
- Can apply to upper management but they are also agents
Agent
- Employee whose behavior is needed to make good or provide service on behalf of
principal
Agency Problem - answerSelf-interest
- Principals and agents are self interested, and each seeks to maximize their own
benefit
- Interests are not inherently consistent
- aligning interests
- principals seek to align interests of agent with their own
- Usually, costs involved in aligning both sets of interests
Agency Costs - answer1. Goal incongruence
2. Information asymmetry
- Agency costs minimized by principal choosing a contracting scheme that aligns
interest of agents with those of principals
1. goal incongruence - answerPrincipals and agents may have different goals
2. Information asymmetry - answerPrincipals have imperfect information on degree to
which agent pursuing and achieving goals of principals
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