Risk Aversion by Managers Should Be Recognized When Revising Compensation

question 17

Multiple Choice

Risk aversion by managers should be recognized when revising compensation plans because:

• A) Compensation mix (salary, bonus) can influence a manager's risk aversion.
• B) Most companies want risk averse managers.
• C) Most companies want risk taking managers.
• D) It costs less to pay risk averse managers.

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Definitions:

Pension Expense

The total amount a business reports on its financial statements for contributions to pension plans for its employees.

Service Cost

The actual cost incurred to provide a service, including labor, materials, and overhead expenses.

Cumulative Unrecognized

Accumulated amounts of certain expenses or revenues that have not yet been recognized in a company's financial statements.

Amortization

The process of gradually writing off the initial cost of an asset over a period, often used for intangible assets.