Corporate managers work for the owners of the corporation. Consequently, they should make decisions that are in the interests of the owners, rather than in their own interests. What strategies are available to shareholders to help ensure that managers are motivated to act this way?
Shareholders can do the following:
(select all the choices that apply.)
A. Write contracts that ensure that the interest of the managers and shareholders are closely aligned.
B. Ensure that employees are paid a percentage of the company's net income.
C. Mount hostile takeovers.
D. Ensure that employees are paid with company stock and/or stock options.
E. Ensure that under-performing managers are fired.

Answer: The correct answers are "A. Write contracts that ensure that the interest of the managers and shareholders are closely aligned.", "C. Mount hostile takeovers.", "D. Ensure that employees are paid with company stock and/or stock options." and "E. Ensure that under-performing managers are fired.".

Explanation: The strategies that are available to shareholders to help ensure that managers are motivated to act this way are:

Write contracts that ensure that the interest of the managers and shareholders are closely aligned. - This ensures that managers and shareholders point in the same direction.
Mount hostile takeovers.
Ensure that employees are paid with company stock and/or stock options. - In this way they motivate employees to work in favor of the interests of the shareholders.
Ensure that under-performing managers are fired. - Dismissing managers who have poor performance pressure managers to work hard and for the benefit of shareholders.