Stocks Intermediate: Weighing Management Quality

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1.
A great way to reward managers for building a successful business is to _______.
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Pay them a reasonable salary and a bonus tied to company profits. We like to see executive pay, in any form, tied to the operating and financial performance of the company. The best way to motivate executives is to pay them a reasonable salary (maybe even a "low" salary) and give them the opportunity to earn a significantly higher amount in the form of a bonus. Tying executive compensation to the stock price creates a perverse, short-term incentive for managers to say good things in public about the company rather than focus on making the company run better.
2.
To learn about a prospective company, stock analysts might interview _______.
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All of the above. An analyst might interview all of them, and others as well, such as suppliers.
3.
How much money the company pays its CEO and top management is _______.
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An important sign of how the company has set up its incentive system. The compensation of top corporate officers is a touchy subject, mostly because a lot of corporate officers are paid a great deal of money. We dont have any hard and fast rules for determining how much is "too much," but at the extremes, executive pay can eat up a significant chunk of corporate profits, which eats directly into shareholder returns.
4.
Whom does the board of directors of a company represent?
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The shareholders. The board is elected by the shareholders and technically represents them.
5.
Should an investor look with suspicion on companies whose employees do not have a clear separation between business and personal relationships?
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Yes. Lack of a boundary can be very bad for business.