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Remuneration Programs

A Principal Agent Theory perspective of CEO Remuneration Programs

Written by D. Erixon, E. Folkesson & E. Hendeby

Paper category

Bachelor Thesis

Subject

Business Administration>Management

Year

2007

Abstract

Bachelor Thesis: Philosophy of Science When writing a thesis, it is important to consider what philosophy of science is used to support the work of the thesis. When talking about philosophy of science, two very different methods are usually mentioned, positivism and hermeneutics. Positivists believe that knowledge in the world is absolute knowledge, which can only be obtained through observation and logic. On the other hand, hermeneutics believes that people can gain knowledge by interpreting situations, thereby creating understanding for situations of interest (Thurén, 1996). When considering the purpose and purpose of this paper, it is clear that the authors will use the Interpretive Science Philosophy to support their work and help them make choices throughout the process. Therefore, it is important to be aware of the possible shortcomings of this philosophy. Research conducted in the way of hermeneutics is largely based on the author's previous knowledge and experience. It is with this knowledge and experience that the author explains the situation and then draws a conclusion. Therefore, it is doubtful that two different authors at different times and different backgrounds will explain and summarize the same situation in a similar way (Thurén, 1996). All authors have been educated in business schools, and of course their way of reasoning is also influenced by their education. However, the three authors have different backgrounds at the time of writing this paper, and their experiences in finance, accounting, marketing, and politics complement each other. It is hoped that this will help the authors maintain a broad perspective and analyze problems. From many different angles. 2.2 Qualitative and quantitative In order to achieve the purpose of this article, empirical research has been carried out. The most suitable method for this purpose is the qualitative method of interviewing a few companies. The reason for choosing qualitative research methods over quantitative research methods is that the research aims to understand the behavior of smaller sample groups, rather than drawing general conclusions from larger groups (Trost, 2005). Therefore, only five companies were selected and will be considered in depth. According to Jensen and Meckling (1976), by understanding these five companies, the author will try to understand whether it is possible to make any general conclusions about whether the compensation plan affects conflicts that occur within the company. 2.3 Collection of primary and secondary data In order to achieve the goal, the author collected primary and secondary data. Raw data refers to data that has not yet included any interpretation and analysis by others (Bell, 1995). In this paper, the main dates are derived from questionnaires sent out and interviews conducted. On the other hand, second-hand data are analyzed data, including someone's interpretation of the data (Bell, 1995). In order to achieve the purpose of this article, the auxiliary data needed and collected are mainly annual reports, journal articles and textbooks. When searching secondary data search engines, such as Google Scholar, Emerald, Busi-ness Source Premier and Jstor have been used. The keywords used on these search engines that have generated useful information are: • principal-agent theory • compensation plan • management power • incentives • CEO compensation 2.4 Inductive and deductive methods Authors can draw conclusions by using inductive or deductive methods. When using inductive methods, the author makes observations and tries to generalize and contribute new theories. If you switch to deductive methods, the author will test existing theories, use hypotheses and use observations to test hypotheses (Blaikie, 1993). In order to achieve the purpose of this article, the author will use induction. The author aims to create new knowledge, not to test existing knowledge. An important risk to consider when using the inductive method is that the authors may already have biases in their way of thinking, so they inadvertently point and strive to advance the research to the predetermined goals, so as to avoid the emergence of new and interesting inventions and ideas in the subject. (Patel and Davidson, 2003). Considering that the prejudiced ideas that may interrupt the creation of these knowledge are unintentional and difficult to resolve. After all, the authors are all business students and are influenced by their studies. The author does believe that the ongoing debate on compensation plans is a risk of exaggeration, and therefore has a slightly positive attitude towards these plans, and believes that they do affect principal-agent conflicts. However, the authors are aware of this problem and actively oppose it through a lively discussion of the paper and its content. 2.5 Sample selection In order to be able to complete the study, a sample of companies must be selected. Since a qualitative method will be used, the sample size must be suitable for the method. First, an e-mail was sent to eight companies, which were paid, and the other three did not ascertain whether they were willing to participate in the study. The companies selected and contacted by the author represent the companies of the Stockholm Stock Exchange. Therefore, this means that different industries such as banking, IT, and forestry, as well as companies with and without variable wages, are represented. Several companies have shown interest in this research, but are reluctant to provide information on sensitive topics. Read Less