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ACCA Strategic Professional · Strategic Business Leader · Governance scope and approaches

Sunil owns a quarter of the shares in Marlow Co and sits on its board as an executive. He is concerned that the remaining managers, who hold no shares, are taking decisions that suit them. Which measure most directly reduces the agency problem by aligning managers' interests with shareholders'?

A long-term share-based incentive plan with multi-year performance conditions best aligns managers with shareholders, because managers share in the value they create over time. Higher fixed salary does not link pay to performance, and cutting non-executives or delaying the AGM weakens or does not affect oversight.

  1. AIncreasing the fixed salaries of managers
  2. BIntroducing a long-term incentive plan that awards shares to managers subject to multi-year performance conditionsCorrect
  3. CMoving the annual general meeting to a later date
  4. DReducing the number of non-executive directors to cut costs

Explanation

Long-term share-based incentives give managers a stake in shareholder outcomes over a multi-year horizon, aligning interests. Higher fixed pay does not link reward to performance. Fewer non-executives weakens monitoring, and delaying the AGM is irrelevant.

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