XYZ Corporation is preparing to revise its executive compensation plan following an intense discussion among stakeholders about aligning management incentives with long-term shareholder value. The current compensation structure primarily includes fixed salaries and annual bonuses based on short-term financial metrics. The board of directors is considering the introduction of performance-based equity awards and long-term incentive plans (LTIPs) that are tied to market performance and operational metrics over a five-year period.
During a recent board meeting, one member expressed concern that these changes might lead to excessive risk-taking by executives, driven by the incentive for short-term gains tied to stock price performance. In contrast, another board member argued that aligning compensation with long-term goals is essential to drive sustainable growth.
Which of the following statements best reflects the implications of implementing these proposed compensation changes at XYZ Corporation?