posted by cindy on .
What is the maximum amount it would be worth to shareholders to elicit high CEO effort all the time rather low CEO effort all the time?
If you decide to pay 1% of this amount (in Question 1) as a cash bonus, what performance level (what share price or shareholder value) in the table should trigger the bonus? Suppose you decide to elicit high CEO effort when and if medium luck occurs by paying the bonus for $800 million outcomes. What criticism can you see with this incentive contract plan?