CEOs may be paid as much as, or more than, Ronaldo, but, with vanishingly few expectations, they are not in his league”. Andrew Hill, FT
Big financialised firms are usually very powerful. They trade their stocks on the market, they analyze share price instead of market share, because of the protection of shareholder value. The agency problem occurs when the manager of the company and the share- or stockholders have different objectives.
The fact is that the objective, as itself is similar – make more money, but that defines the agency problem – the shareholders’ interest is to gain more money by having a profitable company with high share price. The CEO’s objective other than the development of the company is to make more money for the personal use. But in my opinion, having a good reputation is very important for a CEO for their further career.
In the FT article “Four ways to bring galactic executive pay back down to earth” Andrew Hill suggests several ways, on how to avoid or minimize the agency problem. According the article, it is very important to minimize the complexity of the paying system, – the CEO should understand, how his paycheck number will/should be calculated. But the most important advice was to link the paying system to the performance of the company. It could happen by giving the chief executives shares or by having several levels of payment system, depended on the results and the performance of the company. This should be well analyzed, because if the CEO has shares in the company, it means he is a shareholder and that could cause another type of the agency problem toward other shareholders.