Question

Which action would likely encourage a firm’s managers to make decisions aligned with shareholders' interests?

1.Offering substantial bonuses based on short-term profits
2.Adopting a long-term incentive plan tied to company stock performance
3.Implementing a strict directive to cut all employee benefits
4.Focusing solely on quarterly financial targets

Answer 1

Adopting a long-term incentive plan tied to company stock performance would likely encourage a firm's managers to make decisions aligned with shareholders' interests.

Step-by-step explanation:

Out of the options provided, adopting a long-term incentive plan tied to company stock performance would likely encourage a firm's managers to make decisions aligned with shareholders' interests.

This is because this option directly links the managers' compensation to the company's stock performance, which incentivizes them to make decisions that will increase the value of the stock and benefit the shareholders.

In contrast, options like offering substantial bonuses based on short-term profits or focusing solely on quarterly financial targets may lead to short-sighted decision-making that prioritizes immediate gains over long-term shareholder value.