- If a company’s board of directors wants management to maximize shareholder wealth, should the CEO’s compensation be set as a fixed dollar amount, or should the compensation depend on how well the firm performs (that is, the company's performance)?
- If it is to be based on performance, how should performance be measured?
- Would it be easier to measure performance by the growth rate in reported profits or the growth rate in the stock’s intrinsic value?
- Which would be the better performance measure? Why?
Sample Solution