News Corp has been heavily criticised by investors and fund managers for both large bonuses paid to executives, and its focus on short-term performance. The company recently restructured its executive remuneration scheme to tie executive remuneration more closely to News Corp's share price performance. The scheme gives Rupert Murdoch, the chairman, chief executive and largest shareholder, the chance to earn an annual cash bonus of up to US$25 million. James Murdoch's potential bonus range is US$6 million to US$12 million. Chase Carey, deputy chairman and chief operating officer, could earn a bonus of between US$10 million and US$20 million a year if the company meets a range of performance targets. While News Corp's previous bonus scheme awarded cash based on earning per share (EPS) growth, now two-thirds of the annual bonuses awarded to the top executives is based on three measures: EPS growth, which accounts for 40% of the performance target, free cash flow growth (40%) and total shareholder return (20%). The final third is based on qualitative factors, which include meeting both financial and non-financial objectives. Using a range of performance measures has been seen as a good move by financial analysts, bringing the company in line with other companies. Required: News Corp Ltd has recently introduced a new pay scheme to link executive pay to a range of performance measures, including share performance through 'total shareholder return'. Clarify what is meant by the horizon problem and risk aversion, then explain how linking bonuses to share performance reduces the horizon problem and risk aversion?