Which of the following is most likely to motivate executives to maximise 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 (usually five years) encourages them to make long-term decisions that will increase the company's value and therefore increase the value of their stock options. This aligns their interests with those of the shareholders and is more likely to motivate them to maximise shareholder wealth rather than short-term profits. The other options (tying bonuses to cost reductions, offering high salaries, and tying bonuses to annual profits) may incentivize executives to focus on short-term goals that may not be in the best interest of the shareholders in the long run.

Which of the Following Is Most Likely to Motivate Executives