Which of the following may be used as mechanisms to motivate managers to act in the best interest of the stockholders?
I. Managerial compensation -
II. Direct stockholder intervention
III. Threat of firing -
IV. Threat of takeover -
Click on the arrows to vote for the correct answer
A. B. C. D. E. F.C
Managerial compensation may be designed to not only attract and retain the best managerial talent for a firm, but also to align the management's action with the interest of the shareholders. Direct intervention is another mechanism that may be used to motivate management into acting in the owner's best interest. This in practice is executed with a wide degree of success. The threat of firing may also be used as well as the threat of hostile takeovers. The threat of a hostile takeover is strongest when a company is under performing and/or its stock is undervalued.