How does linking executive pay to stock performance lead to unethical behavior?
A) Executives can use the advantage of knowing the company's inside information to buy or sell stock and create huge personal gains.
B) Executives can roll in the stock price into their base pay to avoid paying a huge tax.
C) Executives will lower the stock prices in order to enjoy bonuses.
D) Executives can use the employee stock ownership plan to buy their company if it is experiencing financial problems.
E) The executives can obtain as many shares as they need at a price that is much lower than the market rate.

Question

Quizplus · Accepted Answer

When executives are stockholders, they have a dual role as owners and managers. This places them at an advantage over others who want to invest in the company. An individual, a pension fund, or other investors have less information about the company than its managers do. An executive who knows about these activities could therefore reap a windfall in the stock market by buying or selling stock based on knowledge about the company's future.

How Does Linking Executive Pay to Stock Performance Lead to Unethical