Advantage of Performance-Based Compensation for CEOs

ABC Corporation is preparing its annual proxy statement, which includes a detailed discussion of the company’s executive compensation practices. The board of directors has decided to implement a new performance-based bonus plan for its CEO, which ties a significant portion of the CEO's compensation to the company's annual return on equity (ROE).

As part of the discussion, the board considers the potential benefits and challenges of using ROE as a performance metric. They aim to align the CEO's interests with those of shareholders and promote long-term corporate performance.

What is a primary advantage of using performance-based compensation, such as a bonus tied to ROE, for the CEO of ABC Corporation?