To reduce Agency Problems,executive compensation should be designed to:
A)create incentives so that managers act like owners of the firm.
B)avoid making the executives own shares in the company.
C)be an increasing function of the firm's expenses.
D)be an increasing function of the sales revenue received by the firm.
E)all of the above

Question

Quizplus · Accepted Answer

The best way to reduce agency problems is to design executive compensation that creates incentives for managers to act like owners of the firm. This aligns their interests with those of the shareholders, thereby reducing the likelihood of reckless decision-making or other forms of behavior that can harm the company. Avoiding making the executives own shares in the company, or making compensation an increasing function of expenses or sales revenue, is unlikely to be as effective as creating ownership incentives.

To Reduce Agency Problems,executive Compensation Should Be Designed To