Many people believe that CEOS are paid too much for the services they provide. They receive compensation that is far higher than workers pay within their firms. Average pay of CEOs at Americas top 350 firms in 2018 was $17.2 million with CEO-to-typical-worker compensation ratio of 278-to-1. From 1978 to 2018, inflation-adjusted compensation of the top CEOs increased 940.3%. The increase was more than 2533% greater than stock market growth and substantially greater than the painfully slow 11.9% growth in a typical workers annual compensation over the same period (Mishel & Wolfe, 2019). However, CEOs may have undue influence over director selection and various company decisions including selecting the compensation advisors. This practice creates an unhealthy conflict of interest. Others believe that skilled CEOs can positively affect company performance and the firm needs to offer high compensation to attract the best talent.

1. What unethical activities might managers/executives engage in because of the agency problem?

2. How the corporate governance system reduces the agency problems?