Linking rewards to performance ________.
A) helps to motivate managers
B) allows companies to charge premium prices
C) should only be based on financial information
D) enhances agency costs

Question

Quizplus · Accepted Answer

Linking rewards to performance can help motivate managers to work harder and achieve better results. This is because the promise of a reward provides an incentive for them to put in extra effort and perform well. This can be especially effective if the reward is tied to specific metrics or goals that are directly related to the company's overall success.

B and C are incorrect choices because they are not necessarily true. While it is possible that linking rewards to performance could allow companies to charge premium prices, this would depend on a variety of factors and is not guaranteed. Additionally, rewards should not be based solely on financial information, as this could lead to a narrow focus on short-term financial gains rather than broader goals like customer satisfaction and long-term value creation.

D is also incorrect because linking rewards to performance can actually help reduce agency costs. By aligning the incentives of managers with those of the company, it can reduce the risk of opportunistic behavior and improve the overall effectiveness of corporate governance.

Linking Rewards to Performance ________