How can the interest of managers(agents) be brought in line with the interests of the shareholders (principals). list and explain two ways in which this can be done?

1. Performance-based compensation: One way to align the interests of managers with shareholders is to tie the compensation of managers to the performance of the company. This can be done by offering bonuses, stock options, or other incentives based on specific performance metrics such as profitability, revenue growth, or stock price. By linking compensation to company performance, managers are incentivized to make decisions that are in the best interest of shareholders, as their own financial rewards are directly tied to the success of the company.

2. Share ownership: Another way to align the interests of managers with shareholders is to encourage managers to own shares in the company. When managers have a personal stake in the company, they are more likely to make decisions that benefit shareholders, as they stand to gain financially from the company's success. This can be done by offering stock options or grants as part of the manager's compensation package, or by requiring managers to purchase shares in the company using their own funds. By becoming shareholders themselves, managers are more likely to act in the best interest of the company and its shareholders.