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Organizations often have to make a trade-off between short-term and long-term objectives. Which of the following statements is correct?
1. Making short-term targets realistic can encourage a long-term view
2. Linking managers’ rewards to share price may encourage a long-term view
Both statements are true but I don’t understand statement 2If the managers rewards are linked to the share price (such as giving them shares in the company that they have to keep for a specified number of years before being allowed to sell them) then they will be wanting the share price to grow in the longer term and so will make decisions based on the longer-term.
(It depends on exactly how the reward is linked to the share price – the company needs to make sure it is linked to the long-term share price, which is why the question says ‘may’ encourage a long-term view and not ‘will’ encourage a long-term view.)
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