1. Consulting firms and human resource departments have spent innumerable hours attempting to develop executive compensation programs that will align the goals of a firms managers with those of the firms shareholders. Which of the following compensation packages is most likely to accomplish this task?

-An annual salary of $500,000 and a stock option bonus package that provides 100,000 shares after one year

-An annual salary of $250,000 and a stock option bonus package that provides 250,000 shares after five years

-An annual salary of $800,000

-An annual salary of $500,000 and a stock option bonus package for a total of 250,000 shares, with 50,000 shares vesting at the end of each of the next five years

2. Smith & Jones Inc.s stockholders are mostly individual investors, and there is relatively little institutional ownership. If several pension and mutual funds were to take large positions in Smith & Jones Inc.s stock, direct shareholder intervention would be (T/F) likely to motivate the firms management.

-True

-False