What is one way to reduce the negative effects of an agency problem?

Increasing the number of managers does not inherently resolve agency problems; in fact, it may complicate governance and dilute accountability. More managers can lead to additional layers of decision-making, which may ultimately distance the interests of management from those of stockholders rather than align them.

While pay raises might motivate managers, they do not necessarily align their interests with those of the shareholders. Without a performance-based connection to the company’s success, higher salaries alone can lead to complacency and do not address the fundamental issue of divergent interests between managers and stockholders.

Higher sales commissions may incentivize managers to boost sales, but they can also lead to short-term thinking and decisions that prioritize immediate profits over long-term company health. This approach might exacerbate agency problems if managers focus solely on meeting commission targets without considering broader shareholder interests.