Conflict between Managers Compensation and Shareholder Value Maximization The issue of compensation for managers within numerous organizations has continued to raise debate between shareholders and management of organizations. However, the issue of compensation for managers varies depending on the nature of the organization i.e. whether private organization or an organization operating under the directives of a central government. Setting Managers Compensations Although most shareholders in organizations always lean towards setting a fixed annual salary for managers, such a move is rather risky for success of an organization. This is due to numerous factors some of which include risk of losing productive managers to competitors. One of the major driving for managerial performance is anchored on the compensation s(he) gets. In the event a competitor organization discovers that you have fixed compensation for your managers, it’s easier for the competitor to come up with an attractive package hence ˜poaching’ the managers. Hence changing market rates makes it unattractive for managers to work in organizations with fixed compensation packages. Experience and Training It’s important to note that one of the key roles shareholders undertake in most organizations is electing personsholding management positions. By electing individual to a company’s board such as board of directors is a clear indication that the shareholders have accessed the concerned persons and have faith in his/her performance, they entrust the persons with their investments. This coupled with meeting held between the management and shareholders serves as an avenue where managers explain the performance of the company and any adjustments made with regards to compensations. It’s necessary to take note of the fact that although the shareholders are the owners of the company, it’s the managers who are the custodians of the organization; therefore poor compensation may compromise their outputs (Harris & Raviv,2007). It’s therefore important to let them do their work and compensate them with reference to the prevailing market rates. Quality of Work Setting compensation packages for managers is a risky undertaking for an organization. For instance, if there areincreased sales that translate to more profits, the head of the concerned docket with his/her team members should be motivated by e.g. increased commission. In the event the company is operating under fixed budgets that does not offer room for such the employees plus their manager can be easily demoralized since they are assured of their fixed compensation. Hence it’s important to consider such factors since good quality performance from the management increases the value of an organization’s share which trickles down to the shareholders. Compensation Law It’s important for companies to ensure they operate within the legislations that govern compensation at different levels of an organization. The compensation for managers is normally the highest in organizations. The law gives the manager a lee way to set the policies and guidelines which govern the operations of the organizations with regards to all its operations. Improving incentive link between managers and shareholders Among the major factors used in evaluating the success of an organization is the existence of good relationship between the management and the shareholders. However since in most organizations the management set the compensation packages, problems and conflicts normally arise when managers put in place incentives that benefit them at the expense of the shareholders. In order to minimize conflict arising from the mentioned managerial shareholding is an approach that can be used in creating a link between the shareholders and the manager (Knoeber&Charles, 1985). In the event a company stock is doing well in the market, the manager being a stockholder is likely to ensure minimal expenditures are incurred in terms of compensation since s(he) will be targeting to make more out of the stocks than what is offered as compensation. It’s important to note that this is one of the approaches that can be used to create a link between managers and shareholders. The only challenge that faces this approach is that it tends to be tricky when some managers are not shareholders. Application of managerial shareholding works best in organizations where managers and the shareholders have coinciding interest. When managers are part of the shareholders, their reliance on compensation is more likely to be minimal as compared to when he/she is not a shareholder. This is due to the fact that managers are also human beings and they are more likely to respond to more positively to what’s beneficial to them. In order to enhance good relationship between the managers and shareholders, managers should be compensated based on the value of the business. This means that in the event a business is performing well due to managerial inputs, the compensation to the management should be increased and vice versa. The other approach that can be employed in creating a link between the shareholders and the managers is by monitoring the actions of the managers. However it’s important to take note of this approach since the monitoring mechanisms will translate to increased expenditure that consequently can lower the share value. This is due to the fact that the managers will develop a feeling of not being fully trusted with the responsibilities bestowed on them by the shareholders. Conclusion The success of any company is anchored on effective execution of strategic plan and motivation of the workforce through means such as offering good compensation packages. However, there are some managers who have taken advantage of the positions their positions to exaggerate their compensation packages with excuse being the amount of responsibility they have to take care of. Consequently this puts pressure on the shareholders who are the major financers especially in public companies. Since managers like shareholders are human beings hence want their interest considered first, there are legislations that set standards on the nature of compensation for every level of operators in an organization from the highest paid to the least paid. However, the implementation of such laws prove tricky since the managers are the ones who set pay scales especially in private organizations, hence the shareholders are less advantaged. In orders to minimize conflict between the managers and the shareholders on compensation packages different approaches are employed most of which are based on performance of the company which consequently is a reflection of how effective and efficient the management is performing their duties. References Knoeber,R&Charles,F,(1985).Managerial Shareholding.The Journal of Industrial Economics. 00221821 No.1 Harris,M &Raviv,A,(2007).Control of Corporate Decisions: Shareholders vsManagement. chicago GBS. Northwest University.