C6_ReviewQuestions_2010-04-02 - b A flat salary of...

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Review Questions for Chapter 6 – Incentives and Compensation ECON 303 Managerial Economics, Spring 2010 Edward L. Millner , Department of Economics Copyright Millner 2009-10 R6.1 Members of the Board at Reebok are contemplating the terms of a contract offer for the company’s new CEO. The company is considering 4 options. Which of the following best addresses the principle/agent problem? a. A flat salary of $3,000,000 plus a $2,000,000 bonus if worldwide Reebok sales increase by more than 10% in any year
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Unformatted text preview: b. A flat salary of $3,000,000 plus 100,000 shares of company stock currently valued at $20 per share. The new CEO cannot sell this stock for at least 4 years. c. A flat salary of $3,000,000 plus 100,000 shares of stock options, currently valued at $20 per share. d. A flat salary of $5,000,000 per year, with a guaranteed 4-year minimum service term Print this sheet and record your answers on the printout, and bring the printout with your answers to class. Show your work!...
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