ncial Management of the company is one such domain where the management of the company can maximize the value for its shareholders by adopting various practices and policies which can help achieve them their highest goal. However there are also theoretical frameworks i.e. Agency theory which suggest otherwise that the managers and shareholders can conflict with each other when pursuing their individual goals and that the managers can engage into practices where they may take actions which may not help maximizing the shareholders value and rather work in their own benefits.
Executive compensation is one such domain where modern executives are largely being criticized for taking high compensations mostly on the pretext that money spent on their compensation could have been utilized for creating value for the shareholders.
This essay will look into how the financial management theories and practice can help managers to maximize the value for the shareholders and how it is achieved in practice besides providing a brief outline of how the managers may not, in practice, do things which can help maximize the value for the shareholders.
The issue of executive compensation needs to be viewed in the historical context of the way modern businesses developed. The era during 1990s saw a slow and steady increase in the overall median compensation of the CEOs from 1992 to 2000 increased from USD 2.335(m) to USD 6.549(m)- a general increase of 180%1 suggesting the direction of the overall increase in the executive compensation. (Murphy). Similarly, despite the overall decline in the performance of financial sector due to subprime crisis, Goldman Sachs CEO Lloyd Blankfein has been able to gross up a bonus of $70million which is 30% more than what he got in previous year.
The research conducted on the executive compensation subtly points towards the fact the executives exercise substantially degree of power over the board besides showing the attitude of grabbing opportunities at ...