b) Ways to Encourage Managers to Achieve Stakeholder Objectives:

1. Share Option Schemes:
   • The agency problem arises due to the separation of ownership and control, where managers may pursue personal objectives rather than stakeholder objectives, such as maximizing shareholder wealth.
   • Share option schemes align managerial objectives with those of stakeholders by turning managers into shareholders, thereby increasing goal congruence.
   • Careful consideration must be given to the criteria for awarding shares to ensure alignment with stakeholder objectives.
2. Performance-Related Pay (PRP):
   • A portion of managers’ remuneration can be made conditional upon achieving specified performance targets.
   • Example: Increasing earnings per share to maximize shareholder wealth or improving environmental quality to meet government objectives.
   • Long-Term Incentive Plans (LTIPs) are considered more effective than traditional PRP, especially when company performance is benchmarked against competitors.
3. Corporate Governance Codes of Best Practice:
   • These codes guide companies in key areas of governance, such as executive remuneration, risk management, auditing, internal control, and board accountability.
   • They emphasize the role of non-executive directors in supporting independent judgment and ensuring adherence to governance regulations.
4. Stock Exchange Listing Regulations:
   • These regulations aim to create a fair and efficient market for securities, encouraging the disclosure of price-sensitive information to reduce information asymmetry.
   • Enhanced transparency provides stakeholders with a clearer understanding of managerial decisions and their alignment with stakeholder objectives.
5. Monitoring:
   • Reducing information asymmetry by monitoring managerial decisions and performance, such as auditing financial statements, ensures that the information provided to stakeholders is accurate and reliable.