Which of the following mechanisms would be most likely to motivate managers to act in the best interests of shareholders?
a. decrease the use of restrictive covenants in bond agreements.
b. take actions that reduce the possibility of a hostile takeover.
c. elect a board of directors that allows managers greater freedom of action.
d. increase the proportion of executive compensation that comes from stock options and reduce the proportion that is paid as cash salaries.
e. eliminate a requirement that members of the board of directors have a substantial investment in the firm's stock.

d)

Explanation: The mechanisms that would most likely to help motivate managers to act in the best interests of shareholders is to increase the proportion of executive compensation that comes from stock options and reduce the proportion that is paid as cash salaries .Shareholders must ensure that executive compensation is working in their favor. Company boards, at least in principle, try to use compensation contracts to align executives' actions with company success .The idea is that management performance provides value to the organization. "Pay for performance" is the mantra most companies use when explaining their compensation plans.Companies trumpet stock options as one way to link executives' financial interests with shareholders' interests. However, options are also have flawed as a form of compensation. In fact, with options, risk can be badly skewed. When shares go up in value, executives can make a fortune from options. But when share prices fall, investors lose out while executives are no worse off. Indeed, some companies let executives swap old option shares for new, lower-priced shares when the company's shares fall in value.Academic studies find that common stock ownership is the most important performance driver. Management can truly have their interests tied with shareholders when they own shares, not options .

Increase the proportion of executive compensation that comes from stock options and reduce the proportion that is paid as cash salaries.

Explanation:

Executive compensation or executive pay is composed of the financial compensation and other non-financial awards received by an executive from their firm for their service to the organization.

Executive compensation is a very important issue for investors to consider when making decisions. An improperly compensated executive can cost shareholders money and can produce an executive who lacks the incentive to increase profits and boost the share price.

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