n order to encourage management to act in the best interests of shareholders, a company should

Question

a. decrease the restrictions on stock compensation.
b. prohibit the sale of stock if the company is acquired.
c. prohibit the awarding of stock options.
d. require managers to reduce their holdings in company stock.
e. tie stock option awards to long-term performance.

Answer 1

To encourage management to act in the best interests of shareholders, the best option is:

e. tie stock option awards to long-term performance.

This approach aligns the interests of management with those of shareholders, as it incentivizes managers to focus on the company's long-term success rather than short-term gains. By linking compensation to long-term performance metrics, management is encouraged to make decisions that enhance shareholder value over time.