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4. Does the observation that the stock price increases when the firms increase incentive pay for...

4. Does the observation that the stock price increases when the firms increase incentive pay for CEOs suggest that most CEOs do not receive enough incentive compensation? Explain.

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CEO(Chief Executive Officer) is the major head and also owned a large share of the company. In comparative shareholders, the CEO had more percentage of shares in the company. If the company got dividends, first they will distribute to the shareholders later they offer to the CEO because the role is the head of the company. In some occasions, they will offer the incentives to CEO after distributed the dividends to all shareholders. At that instance, the stock price increases to the respective company due to the company rolling in profits as well as distribute the incentives to CEO.

This is really a good sign of increasing the stock price so this impact will fetch the market and the trading will be done well accordingly. In most of the cases, CEO’s will not get incentives more due to the company acquired fewer profits so it is sufficiently distributed to shareholders only. In any company, shareholders have a great value of the company so as per the norms the priority giving more to shareholders rather than CEO’s. This is the main cause to get the less incentive compensation for CEO.

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