Theoretical perspective to the bonuses formulation process

Designing and implementing an incentive program in the right way requires sufficient knowledge of theory and theoretical perspectives to the type and structure of incentive plans and executives reward administrators. Because motivational programs without theoretical backing or without consistent with the theoretical foundations, necessarily will not be lead to a reduction of agency problems and therefore the motivation to maximize corporate value and the interests of all stakeholder groups. The main reason from rewarding is that the design of remuneration to managers who are responsible for organizational responsibilities and create an incentive for better performance of managers. Existing theoretical approaches to explaining management’s bonus contracts, can be useful for design a contract that provides the interests of all stakeholder groups. That Executive compensation contract is to minimize agency costs or result in the power management in formation and how they are paid, Determining a company's value changes. For if properly designed to minimize agency costs, it enhances the company's value and if the result of administrative power, rarely will increase the company's value.