Which of the following statements about managerial compensation is correct?
A) Compensating managers with year-end cash bonuses always motivates managers to do what is best for the company as a whole.
B) From a manager's standpoint,cash compensation is always preferable over share-based compensation.
C) Manager compensation should always be either cash-based or share-based.
D) Share-based manager compensation does not guarantee a future cash benefit to managers.

Question

Quizplus · Accepted Answer

Share-based compensation, such as stock options or restricted stock units, does not guarantee a future cash benefit to managers as the value of the shares may fluctuate in the market. This can be a risk for managers, but it can also align their interests with those of the shareholders if the stock price increases in the future. Choices A and B are incorrect as there is no guarantee that year-end cash bonuses or cash compensation in general will always motivate managers to act in the best interest of the company, and some managers may prefer share-based compensation over cash. Choice C is incorrect as there is no one-size-fits-all approach to manager compensation and a combination of cash and share-based compensation may be appropriate depending on the company's goals and circumstances.

Which of the Following Statements About Managerial Compensation Is Correct