A manager's compensation plan that offers financial incentives for increases in quarterly profitability may create agency problems in that:

Question

Quizplus · Accepted Answer

A compensation plan that offers financial incentives for increases in quarterly profitability may lead managers to focus solely on short-term profits, rather than long-term sustainable profitability. This can create agency problems as managers may prioritize their own interest in achieving the financial incentives over the long-term health and success of the company. Furthermore, this approach may not align with the goals or desires of investors who may prioritize stable profitability over short-term gains.

A Manager's Compensation Plan That Offers Financial Incentives for Increases