Which of the following help ensure managers act in the best

Which of the following help ensure managers act in the best interest of owners? ?. A compensation package for managers that is a flat cash salary with no bonuses. ?. Managers are promoted only when they have worked for the firm for at least 5 years. ?. The threat that of the firm does poorly, shareholders will use their rights to replace the existing management. ?. There is a high degree of likelihood the firm will become a takeover candidate if the firm performs poorly. Please show your work!

Solution

It is when the managers of the company are given compensation as per the returns of the share, they act as per the wish of the owners (shareholders). So the threat that the shareholders will replace the management for poor performance acts as a motivation for managers to perform well and take the business forward.

From the given statement, the best suited one that deals with shareholders who are owners is statement III which is the correct one.

?. The threat that of the firm does poorly, shareholders will use their rights to replace the existing management.