To reduce Agency problems,executive compensation should be designed to
A) be paid baased on quarterly sales
B) create incentives so that managers act like owners of the firm
C) avoid making the executives own shares in the company
D) be an increasing function of the firm's expenses
E) all of the above

Question

To reduce Agency problems,executive compensation should be designed to
A) be paid baased on quarterly sales
B) create incentives so that managers act like owners of the firm
C) ​avoid making the executives own shares in the company
D) ​be an increasing function of the firm's expenses
E) ​all of the above

Quizplus · Accepted Answer

Executive compensation should create incentives so that managers act like owners of the firm. This helps align their interests with those of the shareholders, and reduces agency problems. Paying based on quarterly sales, avoiding share ownership, or making compensation an increasing function of expenses may not necessarily align the interests of the managers with those of the shareholders. Thus, B is the best choice.

To Reduce Agency Problems,executive Compensation Should Be Designed to