Scenario 13.1 John Davis, a Human Resource Manager for a Medium-Size Chain

Scenario 13.1
John Davis, a human resource manager for a medium-size chain of hotels, is trying to motivate the company's employees with an updated compensation plan. There are two groups of operating employees. Line employees are responsible for dealing directly with customers, and their performance objectives are related to providing high-quality customer service. To do this, line personnel must undergo regular training to update their customer service skills. Operating managers are responsible for monitoring the activities of the line personnel and providing instructional/developmental support when needed. Currently, the line personnel are paid on an hourly basis, while the operating managers are paid salaries. If employees earn adequate performance appraisals, they can receive generous bonuses and pay raises. However, when performance evaluations are unacceptable, employees do not receive any rewards. John believes that his new plan to give employees shares of profit and stock on the basis of the results of performance evaluations will further motivate employees and managers.
-Refer to Scenario 13.1. Agency theory predicts that profit and stock awards will increase the efforts of employees directed toward increasing firm profitability, because the

A) stock options align the interests of all employees and stakeholders.
B) stock options increase compensation, especially when the firm's stock price is low.
C) stock options make the employees into owners, who will work harder in their self-interest.
D) employees know that stock options can be very valuable and they work harder when they know the firm values their efforts.
E) employees perceive greater equity with employees who receive stock options at other firms.