Tying Salaries of Top Managers to the Profits of the Firm

question 84

True/False

Tying salaries of top managers to the profits of the firm is a way to reduce the effect of the principal-agent problem.

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Definitions:

Variable Costs

Costs that vary directly with the level of production or sales volume, such as raw materials or commissions.

True Performance

The actual output or results achieved by an employee, as opposed to perceived or estimated performance.

Canadian Companies

Businesses or corporations that are registered, based, or operate primarily in Canada.

Variable Pay

Compensation that is based on performance or outcomes, differing from fixed salaries and can include bonuses, commissions, or profit-sharing.