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A judgment-based system of allocating variable compensation involves highly subjective decisions made by senior management. In their decisions, they may consider quantitative measures of risk but not necessarily in a formal or auditable manner. Which of the following is not an advantage of a judgment-based system? A. Unlike the quantitative measures system, one cannot alter the outcome through manipulation of quantitative measures. B. Risk adjustments are likely to be reasonable as long as the firm has reliable risk management in place. C. This approach is suitable for assisting the board of director’s compensation committee in determining compensation for senior management; a quantitative measures approach is likely to be ineffective in determining exactly how much a senior manager “contributed.” D. It is likely that management will need to spend a lot of time ensuring that the financial outcomes are optimal for select employees. |