CFA Level I · CFA Level I Exam · Investors and Other Stakeholders
An analyst notes that a company's employees hold a large stake in the company through a share ownership plan, while its managers receive bonuses tied to share price. Which outcome is the most likely effect of these arrangements on stakeholder interests?
Employee ownership and share-price-linked bonuses most likely align employee and manager interests with those of shareholders. Because their wealth rises and falls with share value, they have an incentive to pursue value-creating decisions, which reduces agency conflicts between owners and those running the firm.
- AEmployee and manager interests become more aligned with those of shareholdersCorrect
- BEmployees' interests become identical to those of creditors
- CManagers' interests become opposed to those of employees and shareholders
Explanation
Equity-linked pay and employee ownership give these groups a financial stake in share value, aligning their incentives with shareholders and reducing agency conflicts. Creditors have fixed claims, so the interests do not become identical to theirs.
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