Which of the following is most likely to motivate executives to maximize shareholder wealth?
A) Tying bonuses to cost reductions and meeting budget goals.
B) Offering them relatively high salaries.
C) Tying annual bonuses to increases in annual profits.
D) Compensating them with stock options that can only be exercised after five years.

Question

Quizplus · Accepted Answer

Compensating executives with stock options that can only be exercised after a certain period of time (five years in this case) greatly incentivizes them to maximize long-term shareholder wealth, as their payout is directly tied to the company's long-term success. Tying bonuses to cost reductions and meeting budget goals (A) or offering high salaries (B) may motivate executives to cut corners or prioritize short-term goals, while tying annual bonuses to increases in annual profits (C) may lead to short-term decision making at the expense of long-term sustainability.

Which of the Following Is Most Likely to Motivate Executives