Asked by Sarah Albertson on May 26, 2024
Verified
Stock options as a form of payment are designed to:
A) evade the equal-pay-for-equal-work provisions of the federal antidiscrimination law.
B) boost the overall earnings of minimum-wage workers.
C) offset monopsony.
D) address the principal-agent problem.
Stock Options
Financial derivatives that grant the holder the right, but not the obligation, to buy or sell a stock at a specified price within a certain time frame.
Principal-Agent Problem
(1) At a firm, a conflict of interest that occurs when agents (workers or managers) pursue their own objectives to the detriment of the principals’ (stockholders’) goals. (2) In public choice theory, a conflict of interest that arises when elected officials (who are the agents of the people) pursue policies that are in their own interests rather than policies that would be in the better interests of the public (the principals).
- Identify the impact of compensation structures (e.g., stock options, profit sharing) on employees and firm performance.
Verified Answer
ZK
Zybrea KnightJun 01, 2024
Final Answer :
D
Explanation :
Stock options are designed to address the principal-agent problem by aligning the interests of employees with the interests of shareholders. By providing employees with the option to purchase company stock at a discounted price, they are motivated to work harder and make decisions that will benefit the company and increase its stock price, which in turn benefits shareholders. This helps to mitigate the problem of employees making decisions that benefit themselves at the expense of the company or its shareholders.
Learning Objectives
- Identify the impact of compensation structures (e.g., stock options, profit sharing) on employees and firm performance.