Question

For the past 40 years, companies have attempted to attract, retain, and encourage managers by developing attractive compensation packages. These compensation packages have also been intended to reduce potential agency conflicts between these managers and the firm’s shareholders. In the best interest of shareholders, compensation packages should be structured in a way such that managers have an incentive to maximize the _____ value of the company’s common stock price.

Answer 1

Answer: Long term

Step-by-step explanation: In simple words, long term value refers to the value of the company over an extended time period by making certain decisions in the present.

The shareholders of any company always look for long term benefits as their money is stuck in the company for the perpetuity. The short term benefits are only enjoyed by the managers as their performance looks superior with tasks and incentives meeting on time.

Therefore, the packages of managers should be set in the way that it benefits the organisation in long term.