- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 3. Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits
- Subject 1. Shareholder Conflicts and Management
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. |