A Disadvantage of Using Stock Options to Compensate Managers Is

question 40

Multiple Choice

A disadvantage of using stock options to compensate managers is that

• A) it encourages managers to undertake projects that will increase stock price.
• B) it encourages managers to engage in empire building.
• C) it can create an incentive for managers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firm's true prospects.
• D) All of the above.

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Definitions:

Strategic Leadership

The ability of influencing others towards the achievement of organizational goals through long-term visioning and by setting a high-level strategic direction.

Corporate Governance

The framework of rules, practices, and processes by which a company is directed and controlled.

Strategic Implementation

The process of executing plans and strategies to achieve long-term goals within an organization.

Defender Strategy

A business approach focusing on defending existing market positions and focusing on product or service quality and reliability to retain customers.