Executives whose bonuses are based on long-term outcomes (rather than short-term outcomes) by the firm are often relatively overcompensated because executives are reluctant to take on the additional risk.

Question

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Executives are more likely to make decisions that prioritize long-term growth and stability if their bonuses are based on long-term outcomes. However, they may also be hesitant to take on too much risk in pursuit of those outcomes, which can result in higher compensation to offset that reluctance.

Executives Whose Bonuses Are Based on Long-Term Outcomes (Rather Than