Explain the problems associated with questionable executive compensation schemes.

Expert Solution

A survey by Thompson Financial revealed the strong belief that executives have abused stock-based compensation. The consensus is that fewer stock options should be offered than currently is the practice. Excessive use of short-term stock options to compensate directors and executives may result in short-term thinking and strategies aimed at driving up stock prices at the expense of the firm’s long-term health. In extreme cases, financial statement misrepresentation has been the vehicle to achieve the stock price needed to exercise the option.

Excessive stock options for executives may promote short-term strategies, risking long-term health and potentially leading to financial misrepresentation.

Junaid answered 10 months ago

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