Which of the Following Bonus Schemes Would Be Appropriate for the Managers

question 1

Multiple Choice

Which of the following bonus schemes would be appropriate for the managers of a biotechnology research company?

• A) A market-based bonus scheme, as it is more appropriate to reward the manager in terms of the market value of the firm's securities, which are assumed to be influenced by expectations about the net present value of expected future cash flows, and the manager will be given an incentive to increase the value of the firm.
• B) A fixed basis scheme, so that the managers would not take great risks, reject risky projects, and be reluctant to take on optimal levels of debt as it may be beneficial to those with equity in the firm.
• C) An accounting-based bonus scheme as this will be in the interest of the manager, as that manager will potentially receive greater rewards and will not have to bear the costs of the perceived opportunistic behaviours.
• D) A combination of fixed basis and accounting-based scheme, as assuming that self-interest drives the actions of the managers, it may be necessary to put in place remuneration schemes that reward the managers in a way that is, at least in part, tied to the performance of the firm.

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Definitions:

Labour Force

The total number of people employed or actively looking for employment in a specific area or economy.

Outsourcing

The practice of hiring third parties to perform services or create goods that were traditionally performed in-house by the company's own employees and staff.

Human Resources Accounting

Involves the identification, measurement, and reporting of investments in human capital and their economic impacts on an organization.

Executive Salaries

Compensation packages designed for top-level management and executives of an organization, often including base salary, bonuses, and other benefits.