Problems of Agency

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Drink-Up Company makes the most refreshing soft drinks that please people. This dream is accomplished through the creation of products capable of defeating established brands. The company has been able to deliver widely recognized goods on the market for many years now. These goods stand out in the very competitive market because of their uniqueness. I got a deeper insight into the basic concepts of running a business working at this organization in the southern part of California.
Problems of an organization, in particular if the shareholder's interests and management disputes, are likely to arise (Firth et al., 2014). The function of management is to run the business in such a manner that the shareholders will be satisfied. However, sometimes the managers pursue their interests, and this gives a severe problem in the company. Despite the company using a lot of money in ensuring that the executives are well compensated, some agency problem arose. The executives took it upon themselves to use the company money in pursuing their interests. They used the company assets in underwriting their loans. Others received loans from the company at meager interest rates to be able to develop their projects. All these amounts were not being recorded or reported in the executive compensation, and this did not come to the notice of the shareholders until the audit of the year’s operations was done.

The leading cause of such kind of an agency problem in the company is the fact that the managers received compensation packages that were not appealing to them (Firth et al., 2014). Most managers work tirelessly to ensure the best performance of the company. As such, they expect to be sufficiently rewarded for keeping being motivated to work in the business. Poor compensation system in the company pushed the managers into using the company assets to meet some of their debts. It is the desire of every manager who works for a prestigious company to live a good life. Therefore, when the compensation is not able to meet all their needs, they end up using the company assets. The other cause of this agency problem was increased threats of being fired by the stockholders. In this case, the managers were left worrying every day that they might lose their jobs. Such pressure made them feel very insecure and as such to avoid losing the job without fully settling their loans; they decided to use the company assets to be able to clear their debts.

The only solution to this problem would have been to provide the employees with better compensation packages. For most employees, excellent compensation package translates to loyalty and satisfaction in the workplace. For the company, they would have provided excellent insurance scheme as well as better salaries so that the management does not have to use their pay in meeting some of these expenses. Such a package will ensure that the employees are motivated to work and deliver best results. The other solution to this problem is that the shareholders should understand that the management requires being driven as opposed to being threatened. The company rewards the best performing individuals so that they keep performing well as well as motivating the non-performing individuals to play better. This approach develops a better relationship between the management and the shareholders and thus results in better performance of the company.

The job dimensions that are most emphasized in the firm are skill variety and task identity. The skill variety is the use of different talents in the performance of the activity by an employee (Freeney & Fellenz, 2013). It enables the employee to be able to complete the tasks fast and accurately. Task identity is the ability to carry out a process and be able to come up with a tangible final product. In a company, it is essential that the workers can show the work which they have done by showing a positive output (Freeney & Fellenz, 2013). This approach is not conducive for the firm because the employees are under so much pressure to show the work they are doing as opposed to ensuring that the company performs well in every aspect.

Improving the job design of the company is one approach that may be used to ensure that best performance is achieved. Some of the things that can be done to make the job design better in the company include providing autonomy, feedback and task significance. Feedback is the information that is received from the employees on how active their current duties are in achieving the best results. Taking input from the employees enables the company to know the areas which need improvement and the grievances of the employees (Freeney & Fellenz, 2013). Autonomy is the degree of freedom provided by the employee in scheduling and the processes required to be performed. Task significance refers to the impact the work has on the people whether internally or externally. These factors increase the level of job satisfaction of the employees and improve performance.

The compensation package within the organization determines how satisfied the employees feel while working in the company. It involves some incentives as well for insurance. In the Drink-Up group, the executive compensation package includes a base salary, health insurance that provides for the family members, transport allowance, house allowance as well as paid annual leave. All these aim at increasing the performance of the workers. However, this package is not satisfying to the employees because it involves some lower amounts that are not attractive to the employees. The house allowance is little such that the employees prefer to take personal loans to acquire their property. Some of the things that can be done to improve the employee compensation package include increasing the house allowance to a level that the employees can meet their accommodation expenses, including some short-term incentives. These are the rewards that are given to the executive because of their efforts in reaching the company’s business strategies within the year. Such packages help to keep the employees motivated and well aligned with the vision of the firm.

Some of the individual performance measures by the company executives include the profit, cost, customer satisfaction and retention and number of customers. Earnings in the company are an indication of the difference between the value of the sale of goods and the cost of producing the products. Most enterprises run by considering the profits that they are making because without this then it is easier to operate in losses. In the company, each of the executives works towards ensuring that the company makes right profit margins. The cost involved in the acquisition of the raw materials is another factor that is highly considered in the business. This is because a high value will increase the cost of production and in effect, it will result in high prices which may reduce the market share of the product. The number of customers in the company determines the profitability of the business. An increase in the number of customers directly translates to the rise in the revenue. The executives in the group are supposed to work towards ensuring that there is a high rate of customer retention as one of the measures of performance. However, these factors alone cannot be fully capable. Incorporating the aspect of the customers alone and the profits cannot result in the best performance of the organization. It is better to integrate other elements too.

The employee turnover rate and the employee satisfaction are also some factors that can be used to measure the performance of the executive. Turnover rate is the rate at which the employees are recruited and leave the firm. Increased turnover rate occurs when the workers abandon the company shortly after being hired (Parmenter, 2015). Such an aspect increases the cost of staffing in the organization and also shows that the employees are not performing well. Employee satisfaction is the measure of how contended the employee is in the company. Several factors can contribute to employee satisfaction such as good salaries as well as the good working environment (Parmenter, 2015). Satisfied employees will perform better and will work towards achieving the goals of the company. One of the ways to measure their satisfaction is through performance evaluation.


Firth, M., Lin, C., Wong, S. M. L., & Zhao, X. (2014). Hello, is Anybody There? Corporate Accessibility for Outside Shareholders as a Signal of Agency Problems.

Freeney, Y., & Fellenz, M. R. (2013). Work engagement, job design and the role of the social context at work: Exploring antecedents from a relational perspective. Human Relations, 66(11), 1427-1445.

Parmenter, D. (2015). Key performance indicators: developing, implementing, and using winning KPIs. John Wiley & Sons.

July 24, 2021

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