Question

Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.

Compensation based on the value of the stock
Stock option plans
Threat of a company takeover
Threat of a proxy fight
Increasing managers' base salaries

Answer 1

Increasing managers' base salaries is the least effective way to encourage managers to work in the best interest of stockholders, as it doesn't align their incentives with company performance.

Step-by-step explanation:

The item from the list that is least likely to help convince managers to work in the best interest of the stockholders is increasing managers' base salaries. Compensation methods such as stock options, the threat of a takeover, or a proxy fight are performance-based incentives or deterrents that align managers' interests with those of stockholders, making them more effective. In contrast, increasing base salaries provides no direct tie to company performance or stockholder interests.Increasing managers' base salaries is the least effective way to encourage managers to work in the best interest of stockholders, as it doesn't align their incentives with company performance.