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If a company’s board of directors wants management to maximize shareholder wealth, should the CEO’s compensation...

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Finance

If a company’s board of directors wants management to maximizeshareholder wealth, should the CEO’s compensation be set as a fixeddollar amount, or should the compensation depend on how well thefirm performs (that is, the company's performance)? If it is to bebased on performance, how should performance be measured? Would itbe easier to measure performance by the growth rate in reportedprofits or the growth rate in the stock’s intrinsic value? Whichwould be the better performance measure? Why?

Answer & Explanation Solved by verified expert
3.6 Ratings (485 Votes)
The compensation should be linked to the performance of the firm This would provide a strong incentive to the CEO to perform well A fixed dollar compensation would not provide a    See Answer
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