Supposed that you represent the shareholder board of Apple I

Supposed that you represent the shareholder board of Apple Inc. and decide to elicit high CEO effort to help the company:

A) What will be your incentive contract plan (e.g. bonus, stock option…etc.)?

B) Given your answer in a, if Apple does not perform as expected, what criticism of the incentive contract plan can you see

Solution

A) In order to elicit high CEO effort, as a shareholder, one must design an incentive contract plan relating to the company stocks. That is, the CEO would be rewarded/incentivized based on the growth or performance of the company\'s stock in the stock exchange market. This would benefit and motivate not only the CEO, but also benefit the shareholder, as his profits or income or stock value would increase.

A bonus on the basis of compnay\'s stock performance, thus seems a mutually beneficial plan.

B) In case the company does not perform as expected, and its stock value falls, it only means that theplan failed to motivate the employees as a whole. Since the benefit would be shared only with the CEO, the employees might take it as a discouraging factor and might get demotivated, resulting in the company\'s poor performance. Thus, it can be said that the plan might have failed to completely motivate the CEO as he would see it as a mutually benefitcial bait and not a wholly credited one. He might expect something only benefitting him or his employees.