Which of the following is true of rewarding managers on the basis of residual income?
A) Managers are paid a fixed amount for his services regardless of the risk involved.
B) Managers' efforts are easily measured.
C) Managers taking less risk should be rewarded more since more risk can lead to huge losses.
D) Managers' rewards are dependent on their own efforts and other local economic factors.

Question

Quizplus · Accepted Answer

Managers' rewards on the basis of residual income are dependent on their own efforts (in generating profits) and other local economic factors (such as interest rate, tax regime, etc). The choice A is incorrect as managers are not paid a fixed amount but a variable amount based on the residual income. The choice B is incorrect as measuring managers' efforts may not be easy. The choice C is incorrect as managers taking more risk should be rewarded more as it can lead to higher residual income.

Which of the Following Is True of Rewarding Managers on the Basis