1. The manager of your company's pension fund is compensated entirely based on fund performance; he earned over $1.2 million last year. As a result, the fund is contemplating a proposal to cap the compensation of fund managers at $250,000. Provide an argument against the proposal. You must give an explanation.

2. When the owner of a business is also the manager, is there a principal - agent problem? Please explain.

3. Would commission based compensation, where an employee is paid a commission on her total sales, give an incentive to the employee to control costs? Please give an explanation.