Consider the following scenario and determine whether an agency conflict exists:

Jacob owns Jacob's Tantalizing Tees, a T$-$shirt shop in a small college town in Virginia. With a staff of three part$-$time employees, Jacob

operates the business in accordance with his personal goals, dreams, and capabilities.

Does Jacob have an agency conflict to deal with?

Yes; there is always an inherent conflict of interest between owners and operators $($managers$).$

No; by having part$-$time, as opposed to full$-$time, employees, Jacob is prevented from experiencing an agency conflict.

Yes; as both the owner and operator of Jacob's Tantalizing Tees, Jacob has created the necessary agency relationship through which an

agency conflict can exist.

No; as both the owner and operator of Jacob's Tantalizing Tees, Jacob has not created the necessary agency relationship through which

an agency conflict can exist.

Which of the following actions will help ease agency conflicts and better align managers' objectives with the firm's shareholder wealth?

Pay the manager a combination of salary and stock options $($phased in over several years$)$ that reward him or her for consistently

increasing shareholder wealth.

Pay the manager a large base salary with a huge stock option package that matures on a single date.

Smith & Jones Inc.$\text{'}$s stockholders are mostly individual investors, and there is relatively little institutional ownership. If several pension and mutual

funds were to take large positions in Smith & Jones Inc.$\text{'}$s stock, direct shareholder intervention would be

likely to motivate the firm's

management.