Which of the Following Is True of Excessive Compensation Packages

question 71

Multiple Choice

Which of the following is true of excessive compensation packages?

• A)When executive compensation is tied to stock price, executives have a strong incentive to focus on long-term corporate interests rather than short-term stock value.
• B)When huge amounts of compensation depend on quarterly earnings reports, there is a strong incentive to manipulate those reports in order to achieve the money.
• C)Economic fairness and personal morality always exists in executives receiving lofty compensation packages.
• D)Excessive compensation packages serve corporate interests when they provide an incentive that is not based on executive performance or accomplishments.

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Definitions:

Market Illiquidity

A situation in which an asset cannot be easily sold or exchanged for cash without a substantial loss in value.

Book-to-market Ratio

A valuation metric comparing the book value of a company to its market price.

Momentum

An investment strategy that involves buying securities that have had high returns over a certain period and selling those that have had poor returns, based on the belief that trends will continue.

Turnover

Turnover refers to the total volume of shares or securities traded within a particular timeframe or the rate at which inventory is sold and replaced in a business.