Stock options granted to a corporation's managers are primarily designed to:
A)reduce agency costs.
B)increase current profits.
C)replace salary increases.
D)reward long-term employment.
E)replace promotions.

Question

Quizplus · Accepted Answer

Stock options granted to managers align their interests with those of shareholders, reducing agency costs by incentivizing them to make decisions that will increase the stock price in the long run. This is because stock options provide a potential payout only if the stock price rises, thus encouraging the managers to work for the benefit of the shareholders. Stock options are not primarily designed to increase current profits, replace salary increases, reward long-term employment or replace promotions.

Stock Options Granted to a Corporation's Managers Are Primarily Designed