For the past 40 years, companies have attempted to attract, retain, and encourage managers by developing attractive compensation packages. These compensation packages have also been intended to reduce potential agency conflicts between these managers and the firms shareholders.

1. In the best interest of shareholders, compensation packages should be structured in a way such that managers have an incentive to maximize the ________________(short-term or long-term?) value of the companys common stock price.

2. In addition to well-designed executive compensation packages, two other motivational forces can align the interests of managers with those of their shareholders. Which of the following actions could be used to reduce the potential for these agency conflicts and ensure that the firms managers will pursue the long-term wealth interests of their shareholders?

A. Let the manager know that he or she will be fired if the companys stock does not reach a certain target by the end of the year.

B. Let the manager know that a takeover is possible if he or she doesnt perform well.

3. In the late 1980s and early 1990s, Congress passed legislation making it more difficult for outside investors to stage hostile takeovers. This legislation likely _________(reduced or increased?) conflicts between managers and stockholders.