Incentive compensation schemes are more likely to be value enhancing if:
A)they are designed to minimize the principal's average cost.
B)they can accurately account for the dysfunctional behavior of the principal.
C)they are designed to limit the agent's gaming behavior.
D)they can minimize the administrative cost borne by the agent.

Question

Quizplus · Accepted Answer

Incentive compensation schemes aim to align the interests of the principal (e.g., shareholders or owners) with those of the agent (e.g., managers or employees). By limiting the agent's ability to manipulate or "game" the system for personal benefit, these schemes can more effectively encourage behaviors that enhance the value of the organization.

Incentive Compensation Schemes Are More Likely to Be Value Enhancing