Purpose of Performance-Based Executive Compensation

In recent years, the discussion around executive compensation has gained significant attention from both shareholders and regulators. The concern centers on whether pay structures align with long-term company performance and shareholder interests. One common approach companies use to compensate their executives is performance-based compensation, which can include stock options, restricted stock units, and other incentives linked to company performance metrics.

Which of the following statements best describes the primary purpose of performance-based executive compensation?