Question

Which of the following help convince managers to work in the best interest of the stockholders?

I. compensation based on the value of the stock
II. stock option plans
III. threat of a proxy fight
IV. threat of conversion to a partnership
A. I and II only
B. II and III only
C. I, II and III only
D. I and III only
E. I, II, III, and IV

Answer 1

E. I, II, III, and IV

Step-by-step explanation:

Managers are hired and trusted with the responsibility of serving and making decision for the best interest of stockholders. This involves investing in projects that only add value to shareholders. One incentive to make them maintain this is through allowing managers to own company stocks, have stock options plans; that way they would know any risky decisions will directly affect their share value. Additionally, managers faced with threats of proxy fight and conversion of the company to partnership will have low incentives to pursue their own self interests because the new company policies may not be as favorable.