Thème 3 - Governance and corporate social responsibility V The Agency theory and executive compensations The Agency Theory is a management and economic theory (théorie de l'agence) developed by economists Jensen and Meckling developed in the 1970s. Within a company, the shareholders or investors are " the principals " who are represented by the company's executives, the agents: - the principals have no other choice than to delegate their decision- making power to their agents; - their interests always diverge, though. Shareholders seek short- term profitability to collect dividends whereas management may opt for operations involving long- term engagements e.g., to expand the business; - management being directly involved in the company's operations have more information than the shareholders. Information is asymmetrical; - the difference in priorities between principals and agents is known as the principal- agent problem. Source : Agent dictionary definition, https://1investing.in/agent- dictionary- definition/ To resolve those disputes, to " reduce agency loss " , executives have been offered financial incentives such as tying their compensation packages to the current company profits and being awarded stock options. Thus, executives could adopt a shareholder's point of view on their company's operations. The countereffect can be an obsession with rapid results. & TECHNICAL TERMS Stock options 176 Des stock- options, des options sur actionshttps://www.1investing.in/agent