According to Agency Theory, an agency problem exists when an agent, such as a CEO has established an agenda which conflicts with the interest of the stockholders. Agency problems are most likely to occur when an executive has no financial interest in the outcomes of the decisions made. Therefore, one way to avoid agency problems would be to reward executives on the basis of financial returns to shareholders. However, with the growing salaries of executives, stockholders seem to be more convinced than ever that there is no connection between executive pay and corporate performance. The relationship between performance and CEO compensation for a sample of firms in the computer and electronics industry is examined.
"A Study of the Relationship Between Company Performance and CEO Compensation,"
American Business Review: Vol. 18
, Article 1.
Available at: https://digitalcommons.newhaven.edu/americanbusinessreview/vol18/iss1/1