Question

In the best interest of shareholders, compensation packages should be structured in a way such that managers have an incentive to maximize thelong-term value of the company's common stock price long-term short-term In addition to well-designed executive compensation packages, other motivational forces can align the interests of managers with those of their shareholders. Which of the following actions could be used to reduce the potential for these agency conflicts and ensure that the firm's managers will pursue the long-term wealth interests of their shareholders? Let the manager know that he or she will be fired if the company's stock does not reach a certain target by the end of the year. O Let the manager know that a takeover is possible if he or she doesn't perform well. Suppose a new law made it more difficult to stage a hostile takeover. Which of the following groups would benefit the most? Q Institutional investors O Management O Activist investors

Please answer

Answer 1

Increase the LONG TERM value of the company's common stock. stock holders look for long term appreciation in the stock price. when pay packages will designed in such way, managers will work to increase the long term value of Stock

Let the manager know that a takeover is possible if he doesn't perform well. Management loses control over the operations in a takeover. Hence, managers are not in favour of takeovers. He will work in the right direction if he knows that a takeover is possible.

Management will benefit the most if the takeover becomes difficult. As explained above, management resists takeover and will be happy if it doesn't happen.