The Agency Conflict occurs when a manager puts self serving interests before the interests of the organization it helps to manage. This doesn't necessarily only go for business, but really goes for anything that may cause personal interests and the interests of the represented party to conflict.

Traditionally, this had been solved through financial compensation. For example, managers, CEOs, or other high-power positions (such as accountants) are paid more to keep them acting straight. But this has provided mixed results...although some people are more than happy to walk away with a six or seven digit paycheck and call it done, and yet the amount of corruption in high power positions is still increasingly high. On the flip side to this, positions of high power that are not promptly compensated for their works still show tendencies for corruption - such as underpaid policemen taking bribes. As such I rarely see much causality between salary and fair play. There are other ways that use monetary compensation outside of just a salary. Two examples would be by making commissions or by making a bonus.

So companies are trying to come up with better compensation that both furthers whatever the organization's mission is as well as keep their executives and high power positions happy. We discussed this a lot in my degree program, and since I want to own a fairly awesome sized business one day I've thought about ways on how to curb the conflict while keeping everyone happy.

I'm fairly convinced that it is a mix of things that will do it. But...what exactly is beyond me. I do believe that upper tier employees deserve higher compensation to a better extent than lower level employees. I do think that the income should be tied to how their subordinates preform. However, what that might lead to is what we saw at Enron - people panicking to make the numbers look good so that their supervisors were happy, and other annoying practices such as quotas, and that's why I think there should be some other form of compensation in addition to monetary, but I don't know what. Honestly I've always seen stock options and such as kinda flimsy, and other forms of compensation as well. I think it helps to have something that can be 'taken away' due to poor performance. As such I don't think it'd make much sense to build health care into a way to combat the agency conflict, because I think that'd be punishing any family over the guy that caused the problems to begin with

So...any thoughts? With something like this there is honestly no right answer. I think businesses are still trying to figure out the best way - and of course there is no one way to "beat" it.

The best thing I can come up with, is make the hiring process extremely selective and only hire honest people.

When your employees and business is doing good.. you get paid good.
When your employees and business is doing bad.. you get paid bad.

Checks and balances, The board of directors needs to be more powerful and better informed about the CEO.