Stockholders and managers want the same thing, don’t they? Theoretically, yes, but in reality, it does not always work that way. Too often, managers’ personal goals compete with shareholder wealth maximization. Sometimes, managers pay themselves excessive salaries or bonuses that are at odds with the idea of shareholder wealth maximization. How many times have you seen in the news examples of CEO excesses or outlandish spending on events or things that definitely do not help the overall goal of stockholder wealth maximization?
To prepare for this Discussion, think about a time in your professional experience when a decision was made that seemed to benefit a specific manager or small group of managers and not the overall corporation. If you do not have professional experience directly related to this topic, research a situation in the news where this theme is demonstrated. Consider the outcomes of such an imbalance between manager and stockholder interests, and research on how to avoid such a situation.
Describe the situation from either your professional experience or your research.
Explain two or more motivational tools that can aid in aligning stockholder and management interests.
Explain how your selected tools are effective in resolving potential conflicts among managers and stockholders.
Support your discussion with appropriate academically reviewed articles. Use APA format throughout.
Part 2: Application of Concepts/Time Value of Money
Review the video links below. Based on the materials presented in these videos, discuss how you will use the time value of money concepts in managerial decision making. Be specific and give examples based on your experience or research.
Time Value of Money & video
1) Original Post = 300 words (Including Part 1 & Part 2)
2) 3- Responses needed = each response should 150 words
3) 3 References
4) Citations with in the body
Part 1. Conflicts between the management and a company’s shareholders are very common (Kumar, 1988). Whenever managers award themselves with hefty salary or benefit increments, the shareholders always feel that the managers are deviating from the goals of a firm. Recently, when I was working as a junior employee in a quoted company, our managers held a meeting prior to the annual general meeting (AGM). By then, our sales had stagnated and the company had just been fined in a lawsuit filed by one of our clients. The management raised their salary by 18 percent. When they presented the idea in the AGM, the shareholders were angry and threatened to replace some of the executives.
There are motivational tools that can align the interests of both parties. The first one is drawing performance contracts. The contacts should indicate the expected performance level, which must be realistic and outlines reasonable benefits for achievements. For instance, they can peg the management’s compensation to their performance. This tool is effective in that managers would work harder to meet the terms of the contract and also gain more benefits(Burkart&Panunzi, 2006). Another method would be to giving the management some ownership in the company. This can include share option plans. Managers who have stakes in a firm will make sure that the firm performs well and they will make decisions that reflect the interest of the firm.
Part 2. A company or any other investment should favor a dollar today than one to be received in the future (Ahmad & Hassan, 2006). These present values should then be invested in areas that will give higher returns in the future. When giving out loans, it is better to consider the time value of money before arriving at the interest rate. Future values of an asset that have little certainty should be highly discounted to get the present value.
Choosing companies to invest in is not easy accomplishment. As an investor, you want to be sure that the company’s executives maximize long-term, sustainable wealth for their shareholders. In fact, corporate directors are bound by fiduciary duties and standards which include acting to promote the value of the corporation for the benefit of its stockholders.
Today, many people follow the method of investments by buying what they know. But just because the parking lot at your favorite retail store has cars packed to the brim whenever you visit, doesn’t mean that it’s necessarily a good investment. It’s more important to look for strong businesses with a competitive advantage and lasting value. (Hinderstein, 2018)
Huge businesses would need to be honest and reliable, stimulating and innovative, giving people real opportunity to develop to their complete possible and hopeful them to participate in decision making at all levels. Five issues at the center of whether a business will “flourish or dump” in the years ahead: values, innovation, adaptability, passion and ideology. They’re all people-based factors which, together, ratchet up corporate performance to winning. It’s precisely out of style.
Organization experts today, at least the vast mainstream, believe in something quite different. They are taught to be, and have become, dedicated followers of their bounden duty, they believe, is to maximize the wealth of shareholders, having no other social responsibility than that.
Unaware of the fact that maximizing any one thing necessarily results in the neglect and disadvantage of everything else, taught that the persistent pursuit of shareholder value will end with the best result in the best of all possible worlds. (Pearson, 2012)
The time value of money is also related to the concepts of inflation and purchasing power. Both factors need to be taken into consideration along with whatever rate of return may be realized by investing the money.
Because inflation constantly destroys the value, and therefore the purchasing power, of money. It is best demonstrated by the prices of supplies such as food. If, for example, you were given a certificate for $100 of free grocery in 2000, you could have bought a lot more grocery than you could have if you were given $100 of free grocery a decade later. (Time Value of Money, 2019)
Region 1: Budgetary specialists and the experts Premiums
The standard point and goal of the affiliations are to get progressively undeniable advantage and wealth by building up their reputation. To achieve that the director and cash related specialists need to verify that can fight with more wealth. In setting on the presentations of the delegates and various works we need to pay the compensation, and, in a manner of speaking, they have to pay an extra total as to some degree a reward. The managers need to reveal their capacities subject to the presentation criteria everything considered goal of financial specialist can be widened. In the information progress and programming industry conflicts between the chiefs and agents is normal. All around, the alliance’s affiliation needs to consider the costs and other office issues proposed by the scholars. With the money related expert’s affiliations are vital for less-wary surveys with banks, customers and suppliers. Notwithstanding the route that in the more unobtrusive association with office related conflicts interminably deal with the corporate affiliation (Bierman Jr, 2012).
Part 2: Time Estimation of Money
The time estimation of money just accumulates that money in your grip straightforwardly at present is worth in excess of an identical degree of money that you will get later on. This inside standard of store holds that gave money can win premium, any degree of money is worth more the sooner it is gotten. The time estimation of money is a thought that studies the estimation of money through time. The time estimation of money sees that a dollar today is worth more than a dollar one year from now. The general open need to satisfy present needs when showed up contrastingly in association with future targets in order to oversee issues including pushes that can lease, and so forth (Damodaran, 2010).
Alright give me a thousand dollars today and see return separate in ten years of a comparative thousand dollars? I unequivocally expect not. The estimation of a $ now is worth more than a $ later on. Regardless of whether expenses are going down the money is starting at as of late worth more now than later on. Starting at now, it could put money covered each time we will get amped available (Overwhelming, 2012).