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The board of directors of CC, Inc., wishes to design a CEO compensation plan that will...

The board of directors of CC, Inc., wishes to design a CEO compensation plan that will align the personal interests of the CEO with the interests of the shareholders in long-term firm performance. The board wishes the CEO to take more short-term risks in order to achieve potentially higher long-term returns. Consequently, the board has decided on an incentive plan that involves payout based on the firm's performance five years in the future. CC, Inc. is presently searching for a new CEO. Which of the following statements is true?

a. CC may have to over-compensate its CEO in order to offset the personal risk a CEO would undertake under this plan.

b. This plan will be very attractive in luring candidates for the CEO position.

c, This type of plan is likely to cause the CEO to underinvest in R&D in order to boost CC's long-term profitability.

Business   Economics   
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Answer #1

Answer = OPTION A

CC may have to over compensate its CEO in order to offset the personal risk a CEO would undertake under this plan Because as the board of directors wishes the CEO to take short terms risks than they have to back the CEO and have to over compensate under his personal risk to give company a long term profit ,For getting a long term profit the CEO of the company should take short terms riskswhich would benefit the Company , So OPTION A is True

Option B and OPTION C are incorrect

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