5. Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and managers?

   1. Increase the proportion of executive compensation that comes from stock options and reduce the proportion that is paid as cash salaries.

   2. Change the corporation's formal documents to make it easier for outside investors to acquire a controlling interest in the firm through a hostile takeover.

   3. The percentage of the firms stock that is held by institutional investors such as mutual funds, pension funds, and hedge funds rather than by small individual investors rises from 10% to 80%.

   4. For a firm that compensates managers with stock options, increase the time before options are vested, i.e., the time before options can be exercised and the shares that are received can be sold.

   5. All of the above.