Incentive Compensation. Salary and bonus payments tied to short-term performance often constitute a large part of the annual total compensation package earned by top management. Thus, top managers, like the chief executive officer (CEO), typically have huge personal incentives to turn in favorable year-to-year growth in revenues, profits and earnings per share. This can sometimes have the unfortunate effect of focusing managerial attention on near-term accounting performance to the detriment of long-term value maximization.
A. Identify some tools companies use to combat such myopic behavior.
B. Explain the pluses and minuses of stock options versus stock ownership as effective incentive devices.

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The Answer of Incentive Compensation. Salary and bonus payments tied to short-term performance often constitute a large part of the annual total compensation package earned by top management. Thus, top managers, like the chief executive officer (CEO), typically have huge personal incentives to turn in favorable year-to-year growth in revenues, profits and earnings per share. This can sometimes have the unfortunate effect of focusing managerial attention on near-term accounting performance to the detriment of long-term value maximization.
A. Identify some tools companies use to combat such myopic behavior.
B. Explain the pluses and minuses of stock options versus stock ownership as effective incentive devices.