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 stock-based compensation.
C) Manager compensation should always be either cash-based or stock-based.
D) Stock-based manager compensation does not guarantee a future cash benefit to managers.

Question

Quizplus · Accepted Answer

Stock-based manager compensation may provide managers with future cash benefits, but it is not guaranteed. The value of the stock could decline, resulting in lower future cash benefits. Additionally, stock-based compensation may motivate managers to focus on short-term gains to boost the company's stock price, rather than making decisions that are best for the company in the long run. Therefore, a combination of cash and stock-based compensation may be most effective in motivating managers to act in the company's best interests.

Which of the Following Statements About Managerial Compensation Is Correct