A Good Compensation Scheme

question 154

Multiple Choice

A good compensation scheme:

• A) ties rewards to actions that an agent does not control.
• B) ties rewards to actions that an agent controls.
• C) will not increase performance in a poor economy.
• D) is based on luck.

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Definitions:

Gross Profit

Represents the difference between revenue and the cost of goods sold before deducting other expenses.

Earnings Per Share

A financial metric calculated by dividing a company's net income by the number of its outstanding shares, indicating profitability on a per-share basis.

Corporate Tax Rate

The percentage of corporate income that companies are required to pay to the government as tax.

EBIT

A profitability metric that accounts for all of a company's expenses except for interest and income taxes, reflecting the firm's profit.