executives were paid based on relative performance:
A)compensation would largely be based on luck.
B)there would be less volatility in executive pay.(True Answer )Correct
C)stockholders would find it more difficult to monitor how much the executives are being paid.
D)executives would have less incentive to work hard since ability risk is now high.

Question

Quizplus · Accepted Answer

If executives are paid based on relative performance, there would be less volatility in their pay because their compensation would be tied to the performance of their peers and competitors rather than just the performance of their own company. This would create a more stable system of executive compensation. Choice A is incorrect because luck would still play a role in relative performance, but it would be less significant than in a system based solely on individual performance. Choice C is incorrect because stockholders would still be able to monitor executive pay by comparing it to the pay of executives at other companies. Choice D is incorrect because executives would still have an incentive to work hard to outperform their peers and competitively position their company.

Executives Were Paid Based on Relative Performance