Which of the following statements about stock-based managerial compensation is correct?
A) It may cause dysfunctional behavior in the short-run as managers try to drive up the company's stock price.
B) Exercising the option as soon as it is granted will leave the manager better off from a cash standpoint.
C) Stock options are always guaranteed to increase in value over time.
D) Managers always prefer to receive stock options instead of year-end bonuses.

Question

Quizplus · Accepted Answer

Stock-based managerial compensation may cause dysfunctional behavior in the short-run as managers try to drive up the company's stock price, which may not be in the best interest of the company in the long-term. Additionally, stock options do not always increase in value over time, and managers may actually prefer year-end bonuses over stock options in some cases. Exercising the option as soon as it is granted may not necessarily leave the manager better off from a cash standpoint, as the stock price may decrease after the option is exercised.

Which of the Following Statements About Stock-Based Managerial Compensation Is