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One solution to the moral hazard problem relating to owner-manager conflicts is to link managerial compensation to performance measures that are correlated with managerial effort.
One solution to the moral hazard problem relating to owner-manager conflicts is to link managerial compensation to performance measures that are correlated with managerial effort. If, however, the manager is paid only a fixed salary and no other form of compensation, which of the following will occur? An effort-averse manager will engage in insider training. An effort-averse manager will exert minimal effort. A risk-averse manager will undertake earnings management activities. A risk-averse manager will want to bear compensation risk
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