Corporate governance and the role of executive incentives Essay

Corporate constitution and the role of executive incentives - Essay ExampleThe paper seeks to determine the role and effectiveness of executive incentives in corporate governance drive of an organization and draws the conclusions from various research findings to anchor the understanding of the concept. Inclusion of current life cases assists the application of theories in practical sense.Separating management and ownership is one problem that has always be serious challenges for corporate form of an organization. The fundamental problem of conflict of interests where managers focusing on personal gains autocratic shareholders interest gets severe in loosely governed organization. Corporate governance is a lance which aims to align the interest of all parties and stakeholders in the organization and provides a strategic direction to the performance and mark functions by ensuring order and decision making process are done effectively.In this regard, areas where most of the confl icts find within an organization are related to recruitment and compensation of CEOs and top level management. Based on the above conflicts a detailed theory has been developed which is known as Agency-theory (Jensen and Meckling 1976).The theory describes various types of be which are incurred owing to the different type of conflicts between shareholders, managers and debt owners. Agency court is defined as the impart of monitoring cost, bonding costs and residual loss. Other two types of costs are agency cost of equity and agency costs of debt where former arise due to conflict of interests between managers and shareholders whereas latter arises due to conflict between shareholders and debt holders. Corporate governance is a system that brings more transparency and control in the organization. The approach involves setting accountabilities and linking managements compensation with shareholders value.There are many another(prenominal) mechanisms that can be applied to