Which of the following is the most effective way of rewarding managers if the company adopts a value- based approach?
A) For meeting long- term objectives based on accounting rates of return
B) For meeting short- term objectives based on accounting rates of return
C) For contributing to shareholder value over a short time horizon
D) For contributing to shareholder value over a long time horizon

Question

Quizplus · Accepted Answer

A value-based approach focuses on creating long-term shareholder value, rather than just short-term gains. Therefore, rewarding managers for contributing to shareholder value over a long time horizon would be the most effective way of incenting them to make decisions that align with the company's value-based strategy. Rewards based on short-term objectives, such as meeting accounting rates of return, may encourage managers to make decisions that prioritize short-term gains over long-term value creation.

Which of the Following Is the Most Effective Way of Rewarding