Subject: Strategic Management

Salary, bonuses, and long-term incentives are used for the purpose of aligning managers' and share-holders' interests. A firm's board of directors is responsible for determining the effectiveness of the firm's executive compensation system. An effective system results in managerial decisions that are in shareholders' best interests.

If you were appointed as a member of a firm's board of directors, how would you convince other members of the board how each of the three internal governance mechanisms ownership concentration, boards of directors, and executive compensationwould be used to align the interests of managerial agents with those of the firm's owners?