A Manager's Compensation Plan That Offers Financial Incentives for Increases

question 8

Multiple Choice

A manager's compensation plan that offers financial incentives for increases in quarterly profitability may create agency problems in that:

• A) the managers are not motivated by personal gain.
• B) the board of directors may claim the credit.
• C) short-term, not long-term profits become the focus.
• D) investors desire stable profits.

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Definitions:

Flinch

A quick, involuntary movement or draw back, often from fear or pain.

Random Assignment

The process of allocating individuals randomly to groups in an experimental study to ensure that each group is similar at the start of the study, reducing bias and increasing the validity of the results.

Positive Correlation

A connection between two variables wherein a rise in one leads to a rise in the other.

Experimental Group

In an experiment, the group that is exposed to an independent variable.