Risk aversion by managers should be recognized when revising compensation plans because:
A) Compensation mix (salary, bonus) can influence a manager's risk aversion.
B) Most companies want risk averse managers.
C) Most companies want risk taking managers.
D) It costs less to pay risk averse managers.

Question

Quizplus · Accepted Answer

Compensation mix, including the balance of salary and bonus, can have an impact on a manager's risk aversion. Therefore, recognizing risk aversion when revising compensation plans is important to ensure that the compensation mix aligns with the desired level of risk-taking behavior for the organization. Choices B, C, and D are incorrect because they do not reflect the importance of considering risk aversion in compensation planning.

Risk Aversion by Managers Should Be Recognized When Revising Compensation