At Hottie Potatee,the famous potato bar chain,the CEO,CFO,and COO are each paid a salary and stock options.As with other large,publicly traded companies,the strategy behind structuring executive compensation packages in this way is:
A)Stock options are paid out of after tax earnings.The company has already paid taxes on these earnings.
B)The practice keeps executives from earning more than 20 times the pay of the average company employee.
C)It conveniently eliminates golden parachutes and other incentives.
D)It becomes an incentive because when profits go up,stock prices usually go up.

Question

Quizplus · Accepted Answer

Stock options serve as a motivation for executives to maximize company profits because as the profits increase, so does the stock price. This aligns the interests of executives with those of the shareholders and the company as a whole. Option A is incorrect as stock options are not paid out of after-tax earnings. Option B is incorrect as there is no legal requirement to limit executive pay in this way. Option C is incorrect as stock options do not eliminate other forms of compensation such as severance packages.

At Hottie Potatee,the Famous Potato Bar Chain,the CEO,CFO,and COO Are