Preview

Sime Darby Agency Problem

Good Essays
Open Document
Open Document
1055 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Sime Darby Agency Problem
Different mechanisms are used in order to reduce and to limit the agency costs. In fact, firms use individual mechanisms to control agency problems that are unique to those individual firms. These plans are often substitutable and same mechanisms may provide different incentives. The efficiency depends on the firm’s characteristics and the selection of the appropriate portfolio. If I was a CEO I will create same changes:

Stock Ownership

Managerial ownership of a firm’s stock helps align the interests of managers with those of stockholders by increasing the costs to managers of shirking or excessive asset use. It also helps attenuate the horizon problem if share prices quickly adjust to reflect changes in corporate value. On the other hand, large managerial ownership may increase operational efficiency by improving managerial incentives.

Compensation

Compensation contracts are composed in order to provide managers with incentives and to motivate them at the lowest cost to stockholders. However, these contracts should be enough attractive for managers when they make decisions that create value for stockholders. Therefore, compensation contracts are more important when managers make a lot of decisions that can not be easily controlled. Managerial compensation should be in line with the performance of the management to overcome problems due to lack of mutual interest between shareholders and management. Exessive payment that are being paid to directors should be regulated and should be wholly determined by firm performance.

Remuneration
Remuneration mechanism can provide incentives to managers when it is used effectively. Indeed, remuneration has to be well determined according to performance measures and they should represent the real performance of managers. Moreover, renegotiations of remuneration according to those measures of performance may be an effective way, especially for young managers for whom the present value of future income is large

You May Also Find These Documents Helpful

  • Best Essays

    Milkovich, G. T. (1987). A strategic perspective on compensation management (CAHRS Working Paper #87-01). Ithaca, NY: Cornell University, School of Industrial and Labor Relations, Center for Advanced Human Resource Studies. http://digitalcommons.ilr.cornell.edu/cahrswp/444…

    • 1775 Words
    • 8 Pages
    Best Essays
  • Powerful Essays

    finance 340 exam study guide

    • 2722 Words
    • 11 Pages

    We would expect agency problems to be less severe in other countries, primarily due to the relatively small percentage of individual ownership. Fewer individual owners should reduce the number of diverse opinions concerning corporate goals. The high percentage of institutional ownership might lead to a higher degree of agreement between owners and managers on decisions concerning risky projects. In addition, institutions may be able to implement more effective monitoring mechanisms than can individual owners, given an institutions’ deeper resources and experiences with their own management. The increase in institutional ownership of stock in the United States and the growing activism of these large shareholder groups may lead to a reduction in agency problems for U.S. corporations and a more efficient market for corporate control.…

    • 2722 Words
    • 11 Pages
    Powerful Essays
  • Better Essays

    Dunlap Case

    • 815 Words
    • 4 Pages

    The compensation package achieved Sunbeam’s goals of maximizing shareholders wealth. It motivated Dunlap to drive up the price of the stock. Although the short term profits benefited shareholders, no incentives to create a long term, profitable company existed. In fact, it gave Dunlap an even bigger incentive to sell the company once the stock price reached a high, favorable value. Dunlap’s compensation package consisted of little to no risk and had a ten year term. The restricted stock rewards became vested in two years. His purchase of 244,898 shares indicated that profits would drastically increase. Dunlap’s compensation package affected thousands of employees at Sunbeam. The compensation package favored shareholders but disfavored employees. They had no value in this model. The compensation package only protected shareholders wealth. The structure of Dunlap’s compensation package was aligned his views of shareholder primacy. He sacrificed values for a boost in stock price and economic efficiency. The stockholders of Sunbeam greatly profited, and Dunlap reaped a majority of the benefits. The compensation package should relate to performance in order to produce the right incentives. The compensation package provided Dunlap with an excessive amount of shares of stock and stock rewards, but at least it provided an…

    • 815 Words
    • 4 Pages
    Better Essays
  • Best Essays

    The case study as presented in Managing Human Resources, Sixteenth Edition by Snell and Bohlander brings to mind the fact that during 2011, Ford CEO, Alan Mulally, received $53.5 million in stock awards.2 Many discussions can be derived from this statement. However, a basic understanding of modern corporate compensation structures must first be realized. Along with understanding these compensation structures, knowledge of the views on economic rent and optimal contracting must also be developed.…

    • 2571 Words
    • 11 Pages
    Best Essays
  • Good Essays

    Asr Assignment 1

    • 920 Words
    • 4 Pages

    As Deegan (2010) suggested the ways that managers are compensated such as share of profit of the firm or better performer will get higher salaries and are promoted. Also, managers are rewarded when share price in the market increasing because managers are compensated with the option to buy share of the company at fixed price that usually below the market price so higher share price, higher compensations they earn.…

    • 920 Words
    • 4 Pages
    Good Essays
  • Good Essays

    References: Henderson, R. I. (1998). Compensation management: rewarding performance. ( 2nd Ed.). Reston Pub. Co.…

    • 516 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    The primary source of agency costs is the “separation of ownership and control” (Berle & Means, 1991), which becomes more apparent as the ownership of firm’s shares is wide spread and this is generally the case in large firms. To eliminate the agency costs and the agency problems, firms use minority share ownership plans as a way of monitoring because this reduces the gap between principal and agent…

    • 1761 Words
    • 8 Pages
    Powerful Essays
  • Good Essays

    This paper will examine setting the stage for strategic compensation and bases for pay. There are three main goals of compensation departments: internal consistency, market competitiveness, and recognition of individual contributions. Internally consistent compensation systems define the relative value of each job among all jobs within a company. (Martocchio, pg. 22, 2011) With this system companies want employees to be paid more based on their qualifications and responsibilities. They believe someone with less experience should be paid differently. To determine such evaluation companies use job analysis in order to provide job descriptions. The job evaluation is to determine pay according to a particular position. Market-competitive pay systems attract and retain the most qualified employees. (Martocchio, pg. 22, 2011) By obtaining a strategic analysis and compensation surveys companies can determine who is most beneficial to the company based on the results. Strategic analysis examines long term growth and outlines the company’s profile to keep them in the market. Compensation surveys are collected and reviewed to determine different pay and which benefit packages are best needed. Compensation surveys are important because they enable compensation professionals to obtain realistic views of competitors’ pay practices. (Martocchio, pg. 22, 2011) Finally, recognizing individual contributions determines pay structures, pay grades, and pay ranges. The pay structures focuses on the difference in an employees’ contribution to company. With this structure it helps the company determine which employee has greater knowledge of the job their performing which leads to better pay. Companies with similar job groups use pay grades to determine compensation. Pay ranges start at the bottom and reach the maximum allowed depending on the job.…

    • 948 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Executive Pay

    • 313 Words
    • 2 Pages

    It would be highly important for shareholders to connect closely as is possible to management and the available information about employee performance, and the compensation for that performance. I would recommend encouraging executives to make business decisions that will benefit shareholders’ by offering incentives for meeting performance goals. For instance, offering stock options as an incentive could discourage top-level management from keeping profits or bonuses acquired from sell of company…

    • 313 Words
    • 2 Pages
    Good Essays
  • Better Essays

    Compensation and Benefits comes in many different forms. The major goal for compensation and benefits is to reward employees for services provided by an individual for the benefit of the organization. It’s a set of programs, aiming to achieve and attract capable workers to a particular business. Compensation and benefits also helps motivate employees towards superior performance and retaining these services for a long period of time. There is a wide range of different types of compensation and other benefits. This paper will focus on three of many, Share based compensation to include stock options and restricted stock, Base Compensation and Pension Plans. Throughout this research project; there will be observance of the accounting treatments and disclosures along with the benefits, advantages and disadvantages to employees, share holders and investors. This will allow and develop a better understanding as to why compensation and other benefits are so important to employers, employees and shareholders.…

    • 1189 Words
    • 4 Pages
    Better Essays
  • Powerful Essays

    Pay Without Performance: Overview of the Issues A Remedy for the Executive Pay Problem: The Case for “Compensation Discussion and Analysis” Developments in Remuneration Policy Corporate Culture and the Problem of Executive Compensation Taking Shareholder Protection Seriously? Corporate Governance in the U.S. and Germany University of Rochester Roundtable on Corporate M&A and Shareholder Value…

    • 15821 Words
    • 64 Pages
    Powerful Essays
  • Good Essays

    Hank Adamson Case Summary

    • 560 Words
    • 3 Pages

    The move would increase transparency and keep the management team truthful with the company’s compensation system without personal bias. Moreover, if it implements correctly, it would increase the trust, critical feedback, reduce turnover, and improve motivation within the organization since all employees must earn their keep. Furthermore, the model had been successfully used by the Whole Food Market with tremendous success. However, there is some drawback such as personal privacy issue and without addressing the fundamental issues of pay structure, it may be difficult to…

    • 560 Words
    • 3 Pages
    Good Essays
  • Best Essays

    Background:
Agency theory (Jensen & Meckling 1976) has provided useful insight into the financial dealings between an enterprise (principal) and its stakeholders (agents). It is unlikely that the economic interests of these parties will be exactly the same because it is human nature to maximise one’s own benefit even at the expense of others. (Peacock, p278)…

    • 2526 Words
    • 8 Pages
    Best Essays
  • Good Essays

    Compensation Strategy

    • 919 Words
    • 4 Pages

    Pay can either be an asset or a liability to a company. Stated another way, it can either drive growth or hinder it– fuel performance or diminish it. Is that placing too big a burden on compensation to produce results? I don’t think so. In fact, my experience and observation has been that most businesses don’t set high enough expectations for their rewards programs. The evidence is they don’t involve compensation in other strategic discussions. The result is there is little to no link established between pay and the key success measures the company needs to reach.…

    • 919 Words
    • 4 Pages
    Good Essays
  • Powerful Essays

    Pso Research

    • 5986 Words
    • 24 Pages

    Managerial success is important for firms in the modern world to be successful in achieving shareholders goals and objectives as well as those of other stakeholders. The modern corporation has compounded the problem of ensuring managerial success since ownership and control has been largely divorced which has led to what has become known as the agency problem (Grant, 2002). This exists whereby the separation of ownership and control can lead to managers of the firm pursuing their own goals at the expense of those of the shareholders who appoint them as stewards of their investments. Remember that managerial success is not just earning high returns for shareholders but also ensuring that these returns are concurrent with the long term risk and return objectives of the shareholders (BPP, 2011).…

    • 5986 Words
    • 24 Pages
    Powerful Essays