Management Risk

Which of the following is not an example of a principal-agent relationship

• Shareholders and Board of Directors

• Client and Solicitor

• CEO and Market Regulator

• Investors and Fund Managers

The main problem with agency problem is contrasting utility maximisation function, if the utility of the principal and agent can be expressed using the same function it mitigates the problem

• True

• False

All the following are components of executive compensation except

• Base Salary

• Annual Bonus

• Severance pay

• Use of corporate assets for personal matters

All the following are problems with excessive reward except

• Excessive Risk Taking

• Pursuing corporate objectives with zeal and tenacity

• Herd like behaviour

• Over ambitious strategies

The following are reasons shareholders are disinterested in managerial behaviour except

• Benefits that accrue from managerial misbehaviour

• Often shareholders are institutions

• Protection of market liquidity

• Dispersed shareholders have no power over decisions

The arguments on CEO pay and performance indicate that higher CEO remuneration often results in higher performance

• True

• FALSE

The decisions of management could have profound impact on the outcome of all stakeholders. The following are measures proposed to limit excessive CEO compensation and management risk

• Enacting legislation that protect executive pay as well as pursuing tax policies that encourage excessive compensation

• Increasing transparency by requiring the publication of all directors' salaries

• Encouraging a wider range of people onto company boards, including academics, lawyers, public servants and those who have never served on a board before

• Requiring all companies to introduce "clawback" policies, allowing them to recoup bonuses in cases where they are later shown to be unwarranted.

The argument against excessive CEO compensation implies exceptional chief executives should not ask for pay commensurate to their skill and expertise

• True

• False