Which of the following best describes long-term incentives?

Which of the following best describes long-term incentives?

• A. Performance bonuses limited to one year
• B. Stock options provided without performance measures
• C. Performance covers a period greater than one year
• D. Guaranteed cash payments each year

Answer: (C)

Long-term incentives are designed to motivate and reward employees for achieving sustained performance over an extended period, typically beyond one year. These incentives often align the interests of employees with those of shareholders by tying compensation to the company's long-term success, which is reflected in measures such as stock price appreciation or overall company performance over several years. The aspect of performance covering a period greater than one year is crucial, as it emphasizes the valuation of achieving goals that ensure the organization’s future growth and stability, rather than focusing on short-term gains. This approach encourages employees to think strategically and invest their efforts in activities that will benefit the company for years to come. In contrast, performance bonuses limited to one year typically emphasize short-term achievements rather than long-term strategies. Stock options provided without performance measures do not ensure that the compensation is tied to the employee's contributions to long-term value creation. Guaranteed cash payments each year provide certainty but lack the motivational aspect associated with achieving long-term company goals. Thus, the best description of long-term incentives is one that emphasizes performance over an extended time horizon.

Long-term incentives are designed to motivate and reward employees for achieving sustained performance over an extended period, typically beyond one year. These incentives often align the interests of employees with those of shareholders by tying compensation to the company's long-term success, which is reflected in measures such as stock price appreciation or overall company performance over several years.

The aspect of performance covering a period greater than one year is crucial, as it emphasizes the valuation of achieving goals that ensure the organization’s future growth and stability, rather than focusing on short-term gains. This approach encourages employees to think strategically and invest their efforts in activities that will benefit the company for years to come.

In contrast, performance bonuses limited to one year typically emphasize short-term achievements rather than long-term strategies. Stock options provided without performance measures do not ensure that the compensation is tied to the employee's contributions to long-term value creation. Guaranteed cash payments each year provide certainty but lack the motivational aspect associated with achieving long-term company goals. Thus, the best description of long-term incentives is one that emphasizes performance over an extended time horizon.