Business Economics (Principal Agent Theory) Essay

Business Economics (Principal Agent Theory) - Essay Example Indeed examiners and the average folks were shocked at the high hazard attempted by such huge organizations as Lehman Brothers Holdings Inc. Truth be told Bear Stearns Cos. was gained by JP Morgan Chase and Co regardless of being the for the biggest venture bank at one purpose of time. Specialists have since quite a while ago censured such absence of premonition in hazard taking. Anyway one significant factor which are not regularly raised in the examinations of this issue is the pay of administrators particularly those which are motivating force based. As examined by the specialists, years before this emergency occurred, the officials attempted the drawn out monetary security as a bet to play with and concentrated more on momentary monetary profits. (Keller and Stocker, 2008) Understanding this issue may forestall future risks and in this manner address the issue of insolvency by structuring better pay plans. The issue of pay can be investigated with the assistance of representing t he instance of Lehman Brothers and Bear Stearns as delineated in the work â€Å"The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000-2008† by Lucian A. Bebchuk, Alma Cohen and Holger Spamann in 2010. A board of business and strategy specialists hated this absence of spotlight on long haul worth and unfaltering quality and the weight on momentary advantages. The National Association of Corporate Directors (NACD) recommended that the attention should lie on execution arranged pay as opposed to estimating the exhibition of the firm dependent on stock costs. Anyway the hole between such remuneration and the worth added to the American organizations started to increment. In 2007 in any event, when the home loan emergency advanced further, the rewards of Wall Street was at $33.2 billion, simply 2 percent underneath the elevated levels of 2006. The fall of Bear Stearns shows the issues achieved by the tendency towards momentary achievement. (Keller and