Question

Which of the following compensation proposals is most likely to be in the best interest of the company’s shareholders? A base salary of $500,000 plus a stock option package for 250,000 shares that mature in six months A base salary of $500,000 plus a stock option package for 250,000 shares, with 20% of shares maturing at the end of each of the next five years A base salary of $500,000 plus perquisites worth $250,000

Answer 1

Answer:

A base salary of $500,000 plus a stock option package for 250,000 shares that mature in six months.

Explanation:

The same component in each option is base salary of $500,000.

Since the salary is common the decision will not impact for such common component.

As with the time value of money concept the later the payment, current value of such payment is less, relatively therefore, the option of maturing shares of $250,000 in 6 months is better than the payment of shares matured in equal 5 years.

Further, the perquisites may or may not be monetary and as with respect to such decision choosing monetary perks like shares are better as it provides an individual the choice to spend such money according to his will.