How Can a Company Align the Interests of Owners with Managers

question 4

Multiple Choice

How can a company align the interests of owners with managers through executive compensation?

• A) By significantly reducing executive pay across the board
• B) By linking compensation to company performance and achievement of goals
• C) By setting executive compensation at a level equal to the industry average
• D) By capping executive compensation at ten times that of the lowest paid employee
• E) By basing salaries on seniority with the company in order to increase longevity

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Definitions:

Contribution Margin

The amount remaining from sales revenue after variable costs are subtracted, showing what's left over to cover fixed costs and generate profit.

Sales Volume

This refers to the total number of units of a product or service sold over a specific period.

Account Analysis

A method for analyzing cost behavior in which an account is classified as either variable or fixed based on the analyst’s prior knowledge of how the cost in the account behaves.

Mixed Cost

An expense that contains both fixed and variable components, changing in total with the level of activity though containing a constant element.