Remember, an agency relationship can degenerate into an agency conflict when an agent acts in a manner that is not in the best interest of his or her principal. In large corporationsythese conflicts most frequently involve the enrichment of the firm's executlyes or managers fin the form of money and perquisites or power and prestige) at the expense of the company's shareholders. This usurping and reallocation of shareholder wealth is most likely to occur when shareholders do not have sufficient information about the decisions and arctions being made by the firm's management. Consider the following scenario and determine whether an apency conflict exists: Michael owns Michael's Tantalizing Tees, a T-shirt shop in a small college town in New Hampshire. With a staff of three part-time employees, Michael operstes the business in accordance with his personal goals, dreams, and capabilities. Does Michael have an agency confict to deal with? No; by having part-time, as opposed to full-time, emplovees, Michael is prevented from experiencing an agency contlict. Yes; there is always an inherent conflict of interest between owners and operators (managers). No: as both the owner and operator of Michael' Tantalizing Tees, Michael has not created the necessary agency relationship throwgh which an adency conifict can exist. Yes; as both the owner and operator of Michaels Tantalizing Tees, Michael has created the necessary agency relationshilp through which an agency confilist can exist. Which of the following adtions will help ease agency contlicts and better align managers' oblectives with the firmis shareholder wealth? Pay the manager a combination of sadary and stock options (phased in over several years) that fewaris him or her for cansistently. increading shareholdey wealth. Pay the manager a large base salary with a hoge stock option parkage that matures on a single date. Sinith 6 Jones Inc's stockholders are mostly individual investors, and there is relatively little institutional ownorstip. If several penoion and mutual funds were to take large positions in Smith a lones Incis stodk, drrect shareholder intervention would be > lacely to motivate the firm's management