Tying Salaries of Top Managers to the Profits of the Firm

question 84

True/False

Tying salaries of top managers to the profits of the firm is a way to reduce the effect of the principal-agent problem.

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Definitions:

Income Sharing

An arrangement where generated income is distributed among participants or partners, often in proportion to their investment or contribution.

Capital Balances

The amount of equity in a company or partnership owned by shareholders or partners, respectively.

Interest

The cost of borrowing money, typically expressed as a percentage of the principal, paid to the lender over a period of time.

Cash Investment

A financial contribution made in the form of cash, often to purchase securities, assets, or fund business operations.