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 directors have a substantial investment in the firm's stocks

The correct answer is d) Increase the proportion of executive compensation that comes from stock options and reduce the proportion that is paid as cash salaries.

Explanation:

Option D. represents two situations that perfectly describe the interest that the shareholders pursue: the maximization of the profits of the company where they have their resources invested.

The shareholder, on the other hand, is also an investor, since he contributes capital with a view to obtaining a dividend.

Its investment is said to be in equities, given that there is no contract through which the shareholder will receive fixed fees in return for his investment. Their remuneration is through two ways: