Using risk vs. distortion as your framework, answer True or False, giving your justification.

Should A division manager's compensation should be based on firm profits and not division profits, since the objective of the owners of the firm is to maximize the long-run profitability of the firm and not the long-run profitability of the division?

Managerial bonuses are routinely based on a combination of both subjective and objective performance measures. What are the advantages and disadvantages of basing compensation on subjective assessments of performance?