Evaluating Board Actions Under New SEC Regulations

Very Hard Corporate Governance Regulatory Environment

During a recent regulatory framework overhaul, the Securities and Exchange Commission (SEC) implemented several critical updates aimed at enhancing corporate governance and increasing accountability among public companies. One significant measure was the requirement for companies to disclose more detailed information regarding their executive compensation structures, focusing specifically on alignment with long-term performance metrics. In light of these changes, a board of directors at a mid-sized publicly-traded corporation is assessing potential responses to ensure compliance with these new regulations.

Which of the following actions by the board would likely best align the company's practices with the spirit of the SEC's new regulations while promoting sound corporate governance?

Implement a stock option plan that prioritizes short-term earnings per share (EPS) targets to incentivize management.

Introduce a performance-based compensation plan that links the majority of executive pay to long-term company performance metrics, such as total shareholder return (TSR).

Limit disclosure to only top executives’ compensation without detailing the performance metrics used for bonuses.

Hint

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