The Rationale Behind Golden Handcuffs Is That the Plan

question 66

Multiple Choice

The rationale behind golden handcuffs is that the plan:

• A) Promotes longer executive tenure than other forms of compensation
• B) Offsets the limitations of focusing on market-based measures of performance
• C) Offers an incentive for executives to remain with the firm
• D) Provides incentive for the executive to create wealth for shareholders as measured by increase in the firm's share price

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Definitions:

Financial Leverage

The use of borrowed capital or debt to increase the potential return of an investment, amplifying both potential gains and losses.

Operating Leverage

A measure of how sensitive a company’s operating income is to a change in its sales volume, emphasizing the cost structure between fixed and variable costs.

EBIT

A gauge of company profits, Earnings Before Interest and Taxes, leaves out the charges for interest and taxes to show raw earnings.

Sales

The transactions involved in selling goods or services in the normal course of business, generating revenue for the company.