Poll Results
Please login to vote and see the results.
Participate in Poll, Choose Your Answer.
With Regard to remuneration policies, which of the following practices is least likely to align executive compensation with shareholder interests ?
Write explanation also.
Executive compensation structure
Fixed component – Base Salary
Variable component – Profit sharing, stock options, stocks
Typically, executive compensation includes a variable component tied to company or stock performance. Since shareholders seek to maximize stock value in the long run, proper remuneration policies ensure that executives focus on long-term company gains rather than short-term profits. One way of doing so is to grant executives performance shares instead of stock options.
Performance shares are typically awarded when long-term company performance objectives (eg. targeted earnings per share) are met. In contrast, employee stock options (ESO) can be exercised immediately to the holder’s benefit anytime the company’s stock price rises above the option’s strike price. For this reason, ESO can lead management to overly focus on short-term performance.
Other alignment mechanisms include clawback provisions and shareholder “say on pay” rights. Clawbacks allow companies to retract prior compensation if executives miss certain corporate objectives (Choice A). “Say on pay” rights allow shareholders to vote on remuneration matters
(Choice B).
Things to remember:
Proper executive remuneration policies can align the interests of executives with stakeholder objectives and company performance. Ways to ensure alignment include granting performance shares, imposing clawback provisions, and giving shareholders “say on pay
Answer is Option C.
Please explain if possible
Please go through the audio