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Calum, Heidi and Jonas are managers for Zip Co. They have been told that their salary will be based on company performance and that a bonus scheme will also be introduced. The bonus will also be related to company performance.
Which of the following theories describes the approach to governance that Zip Co is using?
Stewardship theory
Agency theory
Stakeholder theoryAnswer is agency theory.
How it is an agency theory. It is when Directors are looking at their interest while leaving the Shareholders’ interest.
Here, Manager will do something which will not do agency problem. If he manipulated the profits so both shareholders and manager will enjoy in short term (while in long term shareholder will suffer).I don’t think the scenario clearly points to any governance approach.
It is more to do with motivation theory.
Don’t fret about it!
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