Return to the Situation with the Executive from the Previous

question 12

Multiple Choice

Return to the situation with the executive from the previous question. Now assume that shareholders cannot observe effort,so cannot specify how hard the executive works in the contract but must induce it through the incentive scheme. Which of the following wage contracts would work out best for shareholders in equilibrium?

• A)A flat wage w = 2,500 with no profit share.
• B)A share of 35% of the gross profits.
• C)A share of 55% of the gross profits.
• D)A share of 70% of the gross profits.

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Definitions:

Different Skills

The range of abilities and competencies that individuals possess, which can vary widely from one person to another, including technical, interpersonal, and cognitive skills.

Team Cohesion

The level of camaraderie and unity among members of a team, affecting their cooperation and collective efficacy.

Communication Styles

The characteristic ways in which individuals convey their thoughts, feelings, and ideas to others, which can vary widely among people or cultures.

Task-Irrelevant Messages

Information presented that is not directly related to the task at hand, potentially impacting attention and cognitive processing.