By designing compensation plans with performance bonuses, stock-based compensation, and stock options, corporate boards are attempting to make the payoff function for managers look similar to the payoff function for stockholders.

Question

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By offering performance bonuses, stock-based compensation, and stock options, corporate boards aim to align the interests of managers and shareholders by making the manager's payoff function more closely resemble that of the stockholder. This encourages managers to make decisions that are beneficial to the company and its shareholders, allowing them to reap the rewards of the company's success.

By Designing Compensation Plans with Performance Bonuses, Stock-Based Compensation, and Stock