What Happens When a Company Ties Manager Compensation to the Company's

question 66

Multiple Choice

What happens when a company ties manager compensation to the company's stock performance?

• A)It creates a significant amount of risk because of a lack of diversity since the performance indicator is based on just one stock - that of the company.
• B)It has the risk that a company's stock can fluctuate widely based on factors over which the manager has no control.
• C)It is accomplished through issuing stock options which shields some of risk.
• D)All of the answers are correct.

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Definitions:

Profit-maximizing

The process or goal of adjusting the production and sale of goods or services to achieve the highest possible profit.

Quantity Discounts

Price reductions given to buyers purchasing large quantities, intended to encourage bulk buying.

Competitive Market

A market structure characterized by many buyers and sellers, free entry and exit, and products that are similar, leading to prices being determined by supply and demand.

Marginal Cost

The cost incurred by producing one additional unit of a good or service.