ACCA FM · Chapter 1 · Question 3 of 10
Which of the following remuneration schemes is MOST likely to encourage directors to act in a way that increases shareholder wealth over the long term?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Share options that can only be exercised several years after they are granted
Explanation
Goal congruence is improved when directors' rewards are linked to the value of the company's shares over a long horizon. Long-dated share options only reward directors if the share price rises over several years. A fixed salary provides no incentive, while bonuses based on revenue or acquisitions may encourage short-termism or growth that destroys value.
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