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Shareholders of Major League Electronics, a Cleveland-based electronics firm, have recently noticed that compensating Richard Vaughan, the...

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Economics

Shareholders of Major League Electronics, a Cleveland-based electronics firm, have recently noticed that compensating Richard Vaughan, the firm's CEO, with stock grants to give Vaughan incentives to make decisions that will maximize the firm's value, has created an unintended result where Vaughan became unwilling to make high-risk investment that are needed for innovations that are essential in keeping the company competitive. What would be the best option for Major League Electronics to give Vaughan an incentive to take risks, and why?

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