Under PAT,a Firm Is Aware That Managers Are Likely to Behave

question 40

Multiple Choice

Under PAT,a firm is aware that managers are likely to behave rationally.Which of the following mechanisms will be the appropriate course of action for shareholders to price protect against self-interested managers?

• A) Compensate managers at a fixed rate.
• B) Compensate managers at a fixed rate plus bonus on the basis of performance.
• C) Compensate managers at a fixed rate with extra perquisites.
• D) Include debt covenants in the management compensation contract.

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Definitions:

Sense of Self

An individual’s perception of their own identity, including their beliefs, values, and recognition as a distinct person.

Social Organization

The structured arrangement of relationships and roles within a group or society, facilitating cooperation and order.

Appliances

Electrical or mechanical machines designed for a specific function, commonly found in homes or businesses, such as refrigerators, washing machines, or ovens.

Upper-upper Class

The segment of society that holds the highest level of wealth, influence, and prestige.