EXPLAIN Agency Problem. Also EXPLAIN, how it can be addressed.

Though in a sole proprietorship firm, partnership etc., owners participate in management but in corporates, owners are not active in management so, there is a separation between owner/ shareholders and managers. In theory managers should act in the best interest of shareholders however in reality, managers may try to maximise their individual goal like salary, perks etc., so there is a principal agent relationship between managers and owners, which is known as Agency Problem . Agency Problem can be addressed through following efforts: Managerial compensation is linked to profit of the company to some extent and also with the long term objectives of the company.Employee is also designed to address the issue with the underlying assumption that maximisation of the stock price is the objective of the investors.Effecting monitoring can be done.