Need a reply to the following by 6 am Saturday 8/20 to the following:

1.

Christal Willems RE: Discussion 1 - Week

Agency cost is internal cost for an organization, some of which is at times are paid to an agent for acting on behalf of the principal (Investopedia, n.d.).

Compensation percentage

This method is used by my organization where the agents receive a benefit additionally to their salary. The incentives work as a percentage of sales, where the agent can collect its compensation on a daily basis. The agency cost attached to this method is the percentage received by the agents. The method is imposed to motivate the agents to work towards sales increase. An increase in sales is seen after the implementation of this method according to the companys records. The agents are informed about up sale and maintaining ethical standards when making sales. In case the sales are not made according to the ethical standards of the company. This method may get agents somewhat not motivated at times when the economy goes down. The method may also create conflicts among agents as they will try to help the client first to attain the sales commission. These may affect the overall work of the agents and may create disputes that prevent teamwork work and not benefit the company and the shareholders interests.

External audit

The company includes work obligations in contracts of agents and monitors on a regular basis the progress of the agents. The method is effective in the way that the agent knows and must perform the duties in time and the principle can control the work done and the progress. The agency cost is that constant meetings are called, which may result time-consuming and the payment of the auditors. The meetings take away time from to actually work towards the benefit of the company. However, the meetings are also effective as they align the obligations, set priorities, handle concerns of the agent and come with eventual solutions to perform effectively and efficiently. The companys ethical standards are maintained as the agents perform according to the organizations rules and international standards. This method allows principals to track if the agent is working towards the companys goals and enhance its value. The agents might feel pressured at times and too many meeting may not give the agent time to work efficiently on his obligations.

Award

Another program funded by the organization is the issuance of an award to the agent that performs the best on quarter basis. Agents performances are measured by their management outcomes. The most outstanding performance is awarded a certificate of indicating his excellence for the period and along with a small financial reward. This method motivates the agents to perform a good job to get the chance to receive the award. This has definitely a positive effect for the company as jobs are performed timely and effectively. Agents that feel they worked hard and gave their almost and which are not awarded may get disappointed or become angry and disputes may be a consequence. They would work less hard then because they think their work is are not valued as it should be which has a negative effect the company.

Reference:

Investopedia (n.d.). Agency Costs. Retrieved from http://www.investopedia.com/terms/a/agencycosts.asp

2,

Nameer JiwaRE: Discussion 1 - Week

Agency theory has long been debated by management experts and often includes being faced with ethical issues which need to be examined to determine if a particular course of action was right. In the context of business management, agency relationships are observed in virtually any public or private firm of any size. Larger firms often have a Board of Directors which serves as an intermediary body between the parties of an agency relationship which includes the principal (i.e. shareholders / owners) and the agent (i.e. senior management). In my organization, we have some programs that are funded by the firm which have certain agency costs. These costs are the consequences of either direct or indirect agency problems which can arise when there are conflicts of interest between the parties of an agency relationship (Bhatnagar & Trimm, 2011). The programs at my organization are structured to mitigate these conflicts and keep the agency relationship functional and purpose-driven. The agency costs of these programs are the internal expenses that are paid by the firm and which are intended to mitigate the self-interest behaviors of agents which may compromise a companys values and objectives. The first program at my organization is our Annual Bonus Incentive Plan. This plan is funded entirely by the organization and has two components: a personal component and a professional component. The professional component of the bonus plan is the agency cost associated with this program. The manner in which the professional component is calculated for senior managers is very different from the way it is calculated for lower-level workers. In addition to the monetary compensation provided to senior managers such as the CEO, CFO and President, these parties are also given stock options by the company which add significant value to their bonus plans. As such, senior managers are given the opportunity to buy (or sell) the companys stock at preferred prices relative to the market (Bhatnagar & Trimm, 2011). The firm also provides senior executives with an opportunity to increase their ownership percentage of the firm by buying stock well below its FMV. This program is effective because it is rewards-based and serves to ensure that senior managers will work towards the best interests of the firms shareholders if they are accordingly compensated very generously. This program is also effective in that it prevents senior managers from taking on any controversial or self-interest actions to enhance the firms value. The potential shortcomings of this program include the fact that the amount of sufficient managerial compensation for executives is subjective and one management teams idea for an appropriate bonus plan may be quite different from another teams idea. This may lead to senior managers engaging in questionable behaviour all in an effort to make the firm look more valuable or profitable than it actually is. The second program at my organization is our internal auditing process which is called the Financial Reporting and Controls Framework (FRCF). This program is funded by the organization with the intention of providing error-free and bias-free financial information to the firms stakeholders. As part of our internal policy, the head of FRCF will not recommend that the companys financial statements are ready for public auditing and the release of market information until all control processes have been tested and completed by FRCF. The agency costs of this program are the expenses incurred by the firm to continuously run it so that key controls and risks as observed by senior management can be separately monitored to ensure fairness and accuracy to both parties. The FRCF body also serves to ensure that senior management has prepared financial information thoroughly and objectively. This process also ensures that financial performance has been documented without material errors to prevent the firms stock price from rising (or falling) any more than what is necessarily justified. This is done in case senior managers intend to take advantage of any situation by prematurely exercising their stock options thereby earning above-average returns (Jensen & Meckling, 1979). This program is effective because it increases the integrity of our control processes and provides the necessary assurance to shareholders that the financial information which is prepared and presented to public auditors is free from material misstatement. This program also promotes ethical behaviors to be undertaken by senior management in the production of corporate information through supported documentation pertaining to the financial status of the company. By engaging in effective control processes which enhance the value of the firm, senior managers are held in higher regard and are often the subject of greater demand in the labor market compared to other types of senior managers who may promote self-interest tactics to enhance corporate performance (Jensen & Meckling, 1979). The potential shortcomings of this program include the fact that business relationships between the FRCF body and senior managers can become less formal over time. As such, there is a possibility that someone in FRCF may modify the expected standards or bend the rules for certain agents as a personal favor. This would severely compromise the integrity of the team and would also defeat the purpose of having an oversight committee to provide a guarantee of financial information being produced from a strict controls-based environment. The third program at my organization is our Data Platform Upgrade. This program is funded by the organization with the purpose of ensuring that all systems, servers, programs etc. are routinely and regularly reviewed and upgraded to allow the company to take advantage of the latest technology available to ultimately benefit from the increased efficiency and productivity levels. The agency costs incurred as part of this program are meant to ensure that senior management has been provided with the most updated technology with the expectations that exemplary and optimal performance will be provided in the course of their duties (Duchin & Sosyura, 2013). This investment made by the company serves to maintain an open and candid relationship between the parties in the agency relationship. This program is effective because it helps to provide better working conditions and a more technology-savvy environment within which work can be completed. It also helps the users of upgrades to become acquainted with the latest technology so that new skills can be learned and applied to problem-solving in the organization. The potential shortcomings of this program include the fact that continuous upgrades are an extremely high cost to the company. Further, there is no guarantee that investing in the latest technology will prevent senior managers from engaging in deceptive and self-interest behaviors to raise the market value of the firm. In extreme cases, information about the technology being used at an organization can be leaked which causes speculation in the market about the status or performance of a company (Duchin & Sosyura, 2013). In all cases, firms must ensure senior managers have flawless track records so that proper decisions about who can be trusted can be made. Senior managers and executives who aim to decrease agency costs between them and a companys stockholders bring added value to any organization. Nameer Jiwa References:

Bhatnagar, C. S., & Trimm, Q. A. R. (2011).Executive compensation, firm performance and risk in the financial crisis period 20062009: An analysis of NASDAQ companies. International Journal of Business, Humanities & Technology, 1(2), 7278.

Duchin, R., & Sosyura, D. (2013). Divisional managers and internal capital markets.Journal of Finance,68(2), 387429. Retrieved from the Walden Library databases.

Jensen, M. C., & Meckling, W. H. (1979).Theory of the firm, managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3, 305360. Theory of the Firm, Managerial Behavior, Agency Costs, and Ownership Structure by Jensen, M.; Meckling, W., in Journal of Financial Economics, Vol. 3/Issue 4.