The board of directors of CamCell, Inc., wishes to design a CEO compensation plan that will align the personal interests of the CEO with the interests of the shareholders in long-term firm performance.The board wishes the CEO to take more short-term risks in order to achieve potentially higher long-term returns.Consequently, the board has decided on an incentive plan that involves payout based on the firm's performance five years in the future.CamCell is presently searching for a new CEO.Which of the following statements is true?
A) This plan will be very attractive in luring candidates for the CEO position.
B) CamCell may have to over-compensate its CEO in order to offset the personal risk a CEO would undertake under this plan.
C) Institutional investors disapprove of long-term executive incentive plans and they may sell their blocks of stock in CamCell.
D) This type of plan is likely to cause the CEO to underinvest in R&D in order to boost CamCell's long-term profitability.
Correct Answer:
Verified
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