How Does Linking Executive Pay to Stock Performance Lead to Unethical

question 50

Multiple Choice

How does linking executive pay to stock performance lead to unethical behavior?

• A) Executives can use the advantage of knowing the company's inside information to buy or sell stock and create huge personal gains.
• B) Executives can roll in the stock price into their base pay to avoid paying a huge tax.
• C) Executives will lower the stock prices in order to enjoy bonuses.
• D) Executives can use the employee stock ownership plan to buy their company if it is experiencing financial problems.
• E) The executives can obtain as many shares as they need at a price that is much lower than the market rate.

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Definitions:

Shareholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, essentially representing the owners' claim on the company.

Book Value

The net value of a company's assets found on its balance sheet, calculated as total assets minus intangible assets and liabilities.

Fair Market Value

The price at which an asset would change hands in a transaction between a willing buyer and seller, both having reasonable knowledge of all relevant facts.

Legal Parent

refers to the entity that owns or controls another entity through shareholding or other means, effectively having a controlling interest in another company.