CFA Practice Question

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CFA Practice Question

Which one of the following actions would likely reduce conflicts of interest between shareholders and managers?
A. A manager accepts a project with a negative net present value.
B. A manager's compensation is linked to the company's stock performance.
C. A manager who is near retirement focuses on short-run performance and customer satisfaction.
Explanation: Linking the manager's compensation to stock performance aligns the manager's interest with that of shareholders, and reduces conflict.

User Contributed Comments 3

User Comment
awellman Except that it may entice a manager to focus on short-term, cosmetic changes or even cheat
mordja I think the implication here is that the manager is being linked to long term stock performance. Even though a senior manager may be able to affect short term share performance, long term share price will always mean revert.
nmech1984 R.E.D.U.C.E., need glasses asap.
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