Question

In: Economics

Under what circumstances should a firm apply strong incentives to a performance measure and when would...

  1. Under what circumstances should a firm apply strong incentives to a performance measure and when would it make sense to apply a weak or no incentive to a performance measure? Please give an example of each.

Solutions

Expert Solution

Weak incentive:

If a firm is very large (like a C Corporation that has shares in the market and registered in SEC) the top management (like CEO) should have weak incentives for their performances. This is so because they are discouraged with wrong, unlawful, or unethical performances. If there is strong incentive (higher amount of commission) for higher value of market share price, this could be misused by the CEO by a wrongful attempt (manipulation) to increase the market share price. In order to stop it there should be weak or no incentives for them

Strong incentive:

If the same firm doesn’t have shares in the market, it becomes small. In that case the CEO should get strong incentive in order to make the firm big – like an increasing growth in production or revenue. CEO or management of a small firm usually get lower payments. Therefore, it becomes necessary to encourage them to do better and for that purpose a strong incentive is required for them,


Related Solutions

In 300 words, Under what circumstances would it be appropriate for a firm to use different...
In 300 words, Under what circumstances would it be appropriate for a firm to use different costs of capital for its different operating divisions? If the overall firm WACC were used as a hurdle rate for all divisions, would the riskier divisions or the more conservative divisions tend to get most of the investment projects? Why? If you were to try to estimate the appropriate cost of capital for different divisions, what problems might you encounter? What are the two...
Performance and Breach Under what circumstances should courts not allow fully informed contracting parties to agree...
Performance and Breach Under what circumstances should courts not allow fully informed contracting parties to agree to limit remedies? Describe a specific situation where the contracting parties could or could not limit remedies. What societal and/or business principles might be involved in a court's decision?
Q1. under what circumstances would static hashing be better than extendible hashing? Q2. under what circumstances...
Q1. under what circumstances would static hashing be better than extendible hashing? Q2. under what circumstances would extendible hashing be better than static hashing?
Is sampling always necessary? Discuss under what circumstances it is necessary and under what circumstances it...
Is sampling always necessary? Discuss under what circumstances it is necessary and under what circumstances it would not be.
Explain the differences and similarities between parametric and non-parametric inferential statistics. When (under what circumstances) would...
Explain the differences and similarities between parametric and non-parametric inferential statistics. When (under what circumstances) would a parametric statistic be your preferred statistic? When would a non-parametric statistic be your preferred statistic?
Under what circumstances would favor the foreign earned income exclusion
Under what circumstances would favor the foreign earned income exclusion
under what circumstances would you choose to join a union? if you would not join a...
under what circumstances would you choose to join a union? if you would not join a union under any circumstances-- it is an acceptable position as long as you can support it. this is for Trends and Issues in Nursing.
Determine under what circumstances a contract should be allowed to be rescinded because of a unilateral...
Determine under what circumstances a contract should be allowed to be rescinded because of a unilateral mistake. Provide one example of a situation in which this could be acceptable. Consider how guaranty contracts are used in business and propose two situations in which a guaranty would be required.
Would there be any circumstances under which this phenomenon would not occur?
Why is it that, in the short-run, after a certain number of workers has been hired, output increases by less and less with each additional worker hired? Illustrate your answer with an example.Would there be any circumstances under which this phenomenon would not occur?
What is civil disobedience and why is it controversial? Under what circumstances, if any, would you...
What is civil disobedience and why is it controversial? Under what circumstances, if any, would you support (or commit) civil disobedience? Please be specific.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT