3) The manager compensation plan of a large public company includes a cash bonus based on a proportion of net income. The plan also includes a generous ESO award based on share price performance. The compensation contract is close to expiration, and the compensation committee is negotiating new plan with the manager The company proposes to pay the bonus with contingently convertible bonds rather than in cash. The amount of the contingently convertible bonds award will continue to be based on a proportion of net income. These contingently convertible bonds are bonds that will convert into common shares of the company if share price falls below $15. Current share price is $25. The ESO award provisions will remain unchanged. The manager would be required to hold any contingently convertible bonds received as compensation until the expiration of the new contract a. C. Required Will the manager demand a change in the percentage of net income used to calculate the contingently convertible bonds bonus award? Explain why or why not. b. Assuming the proposed bonus plan is adopted, how will this affect the manager's propensity to enter into risky projects? Why? Company shareholders will react to the proposed new bonus plan. Give a reason why shareholders would react favorably to the proposed new bonus plan. Give a reason why they would react unfavorably. H. The new bonus plan is accepted. The compensation committee is debating whether to I disclose in a financial statement note the conditions which would lead to conversion and the conversion rate, or, instead, to report earnings per share calculated as if the contingently convertible bonds had been converted. The manager immediately objects to the latter proposal. Give reasons why the manager objects. Does the manager's objection indicate anything about her acceptance of the efficient market hypothesis? Explain