Why Are Performance Measures Vital in Incentive Plan Design

question 79

Multiple Choice

Why are performance measures vital in incentive plan design?

• A) because they drive profitability
• B) because they ensure management support
• C) because they communicate the importance of the organizational goals
• D) because they are fair and equitable

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Definitions:

Risk Premium

The excess return required from an investment in a risky asset over a risk-free investment.

Flotation Costs

The costs associated with issuing new securities, including underwriting, legal, registration, and other expenses.

Securities

Investment assets that denote a shareholding in a publicly-listed company (stock), a bondholder’s claim against a corporation or government, or ownership rights as outlined in an option contract.

Project Costs

Project Costs include all expenses incurred during the execution of a project, including materials, labor, and overhead.