Question One: The Relationship between the CEO and the Owners of the Business.
The CEO who is the Chief Executive Officer is usually an agent of the shareholders. This is due to the fact that shareholders are the owners of the business and they employ the Chief Executive Officer to be the manager who runs and foresees business on their behalf. For that reason, the owners are the principals in the agency where the CEOs are the agents. The agency relationship is about how the shareholders expect the manager to conduct business for them. Conflicts may arise however since the managers may have conflicting objectives from those of the owners. The owners’ main aim may be to maximize their wealth but the manager may aim at meeting his own interests first and not consider the objectives of the owners.
Question two (b): Determination of Compensation for the chief Executive Director
This is done by the shareholders who may put in place various incentives and bonuses for compensation of the CEO. They determine his pay since they are the owners of the corporation. They may decide a basic salary for him plus other benefits and allowances if he achieves certain stipulated goals. The main aim of the shareholders is to maximize their wealth. If the manager achieves the goal, he may be awarded monetary compensation. The CEO should be properly paid so as to recognize the work he does and also give him incentive to work better. He undertakes various responsibilities that justify his high pay compared to other employees; he supervises and ensures work is duly done.
The CEO conducts very challenging and risky jobs too. For this reason, a higher compensation is required. Also to mark a distinction between the leaders and other employees, the shareholders may resolve to remunerate the CEO handsomely. Achievements by the CEO should be recognized and rewarded. This encourages him to work even better the following time. Bonuses and other various motivational rewards are necessary to the CEO for appreciation of the effort applied.
Question two(c): Effectiveness of the Board of Directors
It is increased in various ways. The Board of Directors (BOD) is a group of individuals who are usually well trained and well informed about the business the organization involves in. The board consists of various parties who include the CEO, in some instances, the retired CEOs, insiders like a few employees to represent others, outsiders among others. Its effectiveness is increased by effective nomination of committee members and removing the unproductive members. Since the Board oversees all actions carried out by the company, it is important for it to have competent members. Members who have the proper skills and knowhow of conducting the organizations activities are the ones who are most preferred. However those who are unproductive should be done away with and more hardworking individuals brought in. Planning for rotation and ensuring that the Board of Directors are does not have very few members are also ways of ensuring it is as effective as it can. If the board is too small, it may not handle all issues at hand whereby the individuals present may be overworked and never get time to handle all available opportunities. Rotation ensures the board is not composed of the same individuals; it gives a chance to test new ones.