Final answer:
Compensation plans should incentivize managers to maximize shareholders' value, aligning with the primary objective of corporations to increase profits for shareholders, in accordance with the principle of shareholder primacy.
Step-by-step explanation:
The key objective of compensation plans is to encourage managers to act in the best interest of the company's shareholders. Given that corporations have a fiduciary obligation to maximize profits for their shareholders, it makes sense that compensation plans should incentivize managers to maximize the value of the firm to the shareholders. Although efforts and long working hours are appreciable, they are secondary to the ultimate goal of increasing shareholder wealth. In practice, some advocate balancing the interests of all stakeholders in accordance with stakeholder theory, but the traditional viewpoint has been one of shareholder primacy, wherein the company's success is measured by its profitability and value to the shareholders.