Purpose of Linking Executive Compensation to Performance

Very Easy Corporate Governance Executive Compensation

Corporate governance encompasses various aspects of a company's structure and practices, particularly how decisions are made and how stakeholders' interests are addressed. One crucial element of corporate governance is executive compensation. Properly structured executive compensation can align the interests of management with those of shareholders.

Which of the following best describes the purpose of linking executive compensation to company performance?

To ensure executives have financial incentives to act in the best interests of shareholders.

To maintain a competitive salary relative to other firms regardless of performance.

To prevent shareholders from having any input in executive pay.

Hint

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