Question

Which of the following is true? A. Incentive compensation imposes no risks on the agents and...

Which of the following is true?

A. Incentive compensation imposes no risks on the agents and thus should not affect their compensation.

B. Incentive compensation imposes risk on the agent but need not be compensated for.

C. Incentive compensation imposes risk on the agent for which the agent should be compensated

D. Incentive compensation is a bad idea

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Answer #1

Option C.

  • Incentive compensation imposes risk on the agent for which the agent must be compensated.
  • The incentive compensation is the compensation given to an entity based on his performance inorder to motivate him and also to attract other key employees.
  • These insentive pay imposes risk on the agents as a portion of this compensation is not guaranteed to them upon incurring incentive conflict risk.
  • Hence they must be compensated for taking on additional risk.
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