Question

Which is most apt to align management's PRIORITIES with shareholders' interests?

A. Increasing employee retirement benefits
B. Compensating managers with shares of stock that must be held for three years before they can be sold
C. Allowing a manger to decorate their office once they've been in that office for three or more years
D. Increasing the number of paid holidays that long term employees are entitled to get
E. Allowing employees to retire early with full benefits

Answer 1

The most appropriate method to align management priorities with shareholders' interests is to compensate managers with shares of stock that are required to be held for an extended period, as this aligns management's financial incentives with the company's long-term performance.

Step-by-step explanation:

To align management's priorities with shareholders' interests, the most effective approach is compensating managers with shares of stock that must be held for a certain period before they can be sold. This method, referred to as stock-based compensation, ensures that the management's financial interests are directly tied to the company's performance, which is measured by the stock's value. This alignment incentivizes managers to work towards increasing the company's value, which in turn benefits the shareholders.

Option B, "Compensating managers with shares of stock that must be held for three years before they can be sold", aligns with the objective of ensuring that management's decisions are made with a long-term perspective that corresponds with the shareholders' desire for sustainable growth and profitability.