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The Role of Law in Equity Incentives

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Questions and Answers

What is the main concern regarding high-powered equity compensation according to the text?

Shareholders triggering a revolt or political intervention (correct)

Managers maximizing long-term corporate value

Insufficient monitoring by shareholders

Inconclusive empirical literature

What is the primary question regarding incentive compensation?

Whether it results from insufficient monitoring by shareholders

Whether it is influenced by inconclusive empirical literature

Whether it motivates managers to maximize long-term corporate value

Whether it is a partial substitute for close monitoring by shareholders (correct)

How do fiduciary standards relate to the protection of shareholder interests according to the passage?

They facilitate the evaluation of managerial performance through share prices

They are directly linked to the inconclusive empirical literature

They impose very broad duties on corporate directors to take responsible care

They are poorly suited to protect the interests of the shareholder majority (correct)

What is the main assumption underlying the trusteeship strategy?

Agents will be motivated by conscience, pride, and reputation. Signup and view all the answers

How does the trusteeship strategy aim to manage conflicts of interest?

By relying on agents' conscience, pride, and reputation. Signup and view all the answers

What is an example of the trusteeship strategy mentioned in the text?

Reliance on auditors motivated principally by reputational concerns. Signup and view all the answers

What is the primary purpose of the reward strategy for managers of publicly traded firms?

To align the interests of managers with those of shareholders Signup and view all the answers

What is a significant component of the total compensation for top managers in publicly traded firms?

Equity compensation (e.g., stock options) Signup and view all the answers

In what way does the law generally influence the reward strategy for managers?

By regulating how and when companies can compensate their managers Signup and view all the answers

How do optimally-structured pay packages contribute to the relationship between managers and shareholders?

By aligning the interests of managers with those of shareholders Signup and view all the answers