Question 13 1 pts The chart below, from the Financial Times, plots the year-to-date percentage change in the share prices of several major technology companies. Shares of big tech companies have hit 'air pockets' Year-to-date performance Co - Meta - Netflix - Spotify - PayPal 10 More than $200bn was shaved off the value of the Facebook owner O -10 -20 Netflix shares suffered their biggest one-day loss in nearly a decade -30 40 Jan 3 2022 Jan 10 2022 Jan 24 2022 Jan 31 2022 Source: Bloomberg OFT Boards of directors often use the firm's share price to evaluate and reward CEOs and other senior executives. The basic logic is that if executives' compensation is increasing in the firm's share price (via cash bonuses and stock options), executives will make decisions and exert effort in order to increase the firm's share price. What is the core trade-off that lies at the heart of using a firm's share price to evaluate and reward senior executives? A downside of share price is that it is a financial measure that senior executives can easily 'game. This weakness more than negates the benefits in terms of transparency and simplicity that stem from directly tying executive compensation to share price. The only strength that share price has as financial measure is that it is effectively costless to measure-firms can 'outsource' this measurement problem to public financial markets. On the other hand, irrational investors often distort markets such that share prices are very often, if not always, biased measures of firms' intrinsic value. While share price is a perfectly controllable performance measure, firms should exercise caution in tying executive compensation to this financial measure because doing so provides perverse incentives for executives to undertake behaviours that harm firm value. While tying executive compensation to the firm's share price increases the congruence between executives" self-interested goals and those of the firm's shareholders, such an approach to performance management is also costly to implement because many factors that executives cannot control affect the firm's share price