Can the Design of CEO Rewards Be Relied upon to Overcome the Agency Problem Created by the Separation of Ownership and Control?

Abstract

The structure and design of executive compensation arrangements has become a very sensitive and diverse topic in recent years. The pressure to get executive pay right is attracting great attention higher than before especially in the UK, due to the current political environment triggered by the Brexit (Lang, 2016). This article is the brief analysis on the CEO rewards to overcome the agency problem created by the separation of ownership and control. The analysis carries forward through the agency theory, human theory and expectancy theory. Additionally, this article answering the agency problem due to the separation of ownership and control. After the extensive analysis identified in this journal, even though the design of executive remuneration is a partial remedy to this menace, it is apparent that the performance-related pay is considered as the solution to mitigate the principal-agency conflicts.Additionally, an extra layer monitoring at executive board level may ensure the goal congruence of a firm.