Owner-manager conflict can result in loss of productivity, cause waste, and even make the firm go out of business. There are at least five sources of conflict that can arise between owners and managers

  • Choice of Effort. Additional effort by managers generally increases the value of the firm, but since the managers expend the effort, additional effort reduces their utility.
  • Perquisite Taking. It is in the interest of owners to pay sufficient salaries and bonuses to attract and retain competent mangers. However, owners do not want to overpay managers. In contrast, managers are likely to want not only higher salaries but also perquisites such as exclusive club memberships, lavish office furniture, luxurious automobiles, stimulating day care for children, and expensive French confections. Managers can be overpaid while the lower employees are underpaid thus resulting in a conflict between all involved which can cause loss of productivity and eventually even the result of the…

Source by Nathan E Peterson

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