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 incentivizes short-term increases in profitability may lead managers to focus solely on achieving immediate results, rather than taking actions that would be more beneficial for the company in the long-term. This creates an agency problem, as the managers' goals no longer align with those of the shareholders, who are interested in long-term profits and stability. In addition, such a plan may encourage managers to engage in risky or unethical behavior in order to achieve short-term profits, which could ultimately harm the company's reputation and financial performance.

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