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:

Cash Acquisition

A method of acquiring another company by purchasing its shares or assets using cash as the form of compensation.