When Managers' Compensation Plans Are Tied in a Meaningful Manner

question 5

Multiple Choice

When managers' compensation plans are tied in a meaningful manner to the profits of the firm, agency problems:

• A)Can be reduced.
• B)Will be created.
• C)Are shifted to other stakeholders.
• D)Are eliminated entirely from the firm.

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Definitions:

Usury Law

Legislation that sets a maximum interest rate that may be charged on loans to prevent predatory lending practices.

Shortage

A situation where the demand for a product or service exceeds the available supply, often leading to higher prices.

Loanable Funds

The money available for borrowing, which comes from savings in the economy and influences interest rates through supply and demand dynamics.

Interest Rate

The cost of borrowing money, typically expressed as an annual percentage of the principal.