Which of the following is a correct statement regarding the link between decision making and performance evaluation?

A) Managers are rewarded for good decisions; therefore there is always an incentive for mangers to make the best decision for the firm.
B) Where managers are rewarded by financial variables such as bottom-line profit, there is often an incentive for managers to avoid a decision that may be in the best interests of the firm but reduce their segment's bottom line.
C) Managers can be relied on to always make decisions that are in the interests of the firm as a whole.
D) Decision making and performance evaluation are separate issues for the managers of firms and are seldom related.

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Zybrea Knight · Accepted Answer

Final Answer : B, Explanation :  Where managers are rewarded by financial variables such as bottom-line profit, there is often an incentive for managers to avoid a decision that may be in the best interests of the firm but reduce their segment's bottom line. This is known as the principal-agent problem, which occurs when the interests of the principal (firm) and agent (manager) are not aligned. Managers may prioritize their personal interests over the firm's interests to maximize their own rewards, leading to suboptimal decision-making.

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