Llustrate what is maximum amount it would be worth

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Q. Illustrate what is maximum amount it would be worth to shareholders to elicit high CEO effort all time rather than low CEO effort all time?

If you decide to pay 1% of this amount (in Question 1) as a cash bonus, illustrate what performance level (illustrate what share price or shareholder value) in table should trigger bonus? Suppose you decide to elicit high CEO effort when and if medium luck occurs by paying bonus for $800 million outcomes. Illustrate what criticism can you see with this incentive contract plan?

Suppose you decide to elicit high CEO effort when and if good luck occurs by paying bonus for $1 billion outcomes only. Illustrate what criticism can you see with this incentive contract plan?

Suppose you decide to elicit high CEO effort when and if bad luck occurs by paying bonus for $500 million outcomes. Illustrate what criticism can you see with this incentive contract plan?

Reference no: EM1371125

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