Question

compare and contrast the two theories of executive pay: human capital theory and the agency theory. discuss/compare the following two points when answering:

1. competitive or nonconpetitive market for executove talent and executive pay

2. negotiation of contracts between executives and shareholders at arm's length or not at arm's length

Answer 1

Two hypotheses of official compensation for execution are

- Principal-specialist model where firms try to plan the most productive pay bundles conceivable so as to pull in, hold, and propel executives.Shareholders choose the compensation structure being the head of the association.

- Managerial force hypothesis where free directorate has significant job in giving fitting official remuneration designs and adjusting the CEO pay to firm execution.

In both model there is competitive market for official ability and official compensation. Shareholders or autonomous chiefs they realize the market is competitive for human asset and on the off chance that they don't pay as needs be, at that point official will scan for different spots.

Exchange of agreements among executives and shareholders are at a manageable distance. The two executives and shareholders are in equivalent balance and free.

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