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Ageny theory&Director remuneration

Q: Horizon disparity (agency problem) how to avoid this problem in some industries and common remuneration structures do to counter this new agency problem.
Discuss or explain it using agency theory, research and practical examples

Important note: there are two ways of solving these problems. A BOUNS PLAN incentive would encourage manager to act in the best interest of the shareholders, but at the same time, they could possibly engage in earning management in order to achieve those bonuses. This would have a direct relationship with PAT because PAT is based on the assumption that managers would chose accounting policies which would lead them to manipulate earning.
 # Should refer to the Productivity Commission Report for research
 # May be countered or modified by incorporating moral sensitivity (Stevens & Thevaranjan 2009) into the traditional agency model
 # Results from differing aims when owners and managers are separated
◦ The company then spends money to bond the agent’s interests to the owners
◦ The aim of the bonding of interest is to resolve agency problems
# plz in each body paragraph provide practical example ( better if it is recently example (whats happing now related to this agency problem ) because the question ask you to provide practical example and research (Productivity Commission Report for research) in each body paragraph should include
# plz answer the question well very important for me you should explain your argument in detail providing ( example , research , supporting from article)
# PLZ It should be short introduction and conclusion but in introduction you tell the reader what’s your arguments. 3 body paragraph first one how Risk aversion is caused or why is agency problem. Second body paragraph, The risk aversion problem can be countered via remuneration control agency problem& bond interest = long term incentive = link remuneration to share price =control horizon disparity. Third one, The risk aversion problem can be countered via remuneration control agency problem = long term incentive= positive accounting theory= may encourage earning management. Therefore, plz link this body paragraph to positive accounting theory as one of the solution.
# Horizon Disparity – Shareholders want what’s best for the company in the long where are the managers often only are concern for the period in which they are managing. This is a problem especially when the manager only plans to stay for a short time. They undertake activities and objectives which are not beneficial in the long run. = PAT=Goal congruence
very important notes: # director remuneration control agency problems via bond interest —–long term incentive control horizon disparity —- via linking bonus to share price reward in the form of shares & share options.
#Bouns linked to share price
# rewarding in the form of shares or share options
# Horizon disparity * long term economic decision

� Important to use practical examples and research and agency theory
� Also plz see the mind map It will help you to understand more about the relationship between the agency problem and director remuneration

Plz read this carefully to help you to understand the situation.
Horizon disparity can be easily linked to long term bonus incentive in order to overcome this problem. This is particularly a problem if the manager expects to stay with the company for a short period of time and is concerned with the performance of the company while they manage it. After they leave , they will have no interest in the company .( Drever et al, 2007). To avoid this problem by ensuring that the manager takes a longer-term view, their bonuses are linked to share price or reward in the form of shares.
For above problems discussed, bonus incentive is a common solution to keep managers/directors motivated to act in the best interest of the principal. This would also reduce risk aversion and horizon disparity problem. A director‘s remuneration package and other bonus incentives could easily be linked to PAT (positive accounting theory). PAT, developed by Watts and Zimmerman(1986) is based significantly on particular assumption that all individual action is driven by self-interest and that , individuals will act in an opportunistic manner to increase their utility. This opportunistic choice of accounting policies by managers to achieve bonus incentives could encourage them to engage in earning management. Earning management is activities that lead managers to adopt accounting policies that would shift reported income from future to the present periods. Therefore, PAT can be linked to director’s remuneration package because it explains manager’s choice of accounting methods in term of self-interest in order to achieve the bonus plan(bonus plan hypothesis).
Note: Positive accounting theory = Goal congruence
Important note: there are two ways of solving these problems. A BOUNS PLAN incentive would encourage manager to act in the best interest of the shareholders, but at the same time, they could possibly engage in earning management in order to achieve those bonuses. This would have a direct relationship with PAT because PAT is based on the assumption that managers would chose accounting policies which would lead them to manipulate earning.

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