If accounting-based performance measures, such as net income or core earnings, are to be significant components...

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If accounting-based performance measures, such as net income or core earnings, are to be significant components of manager compensation plans, they need to be sensitive and precise measures of manager performance. a. Define sensitivity and precision of a performance measure in this context. (2 points) b. It is argued that share price is a more sensitive performance measure than net income. Explain this argument. (2 points) c. Explain 2 ways that accountants can increase earnings sensitivity. (2 points) If accounting-based performance measures, such as net income or core earnings, are to be significant components of manager compensation plans, they need to be sensitive and precise measures of manager performance. a. Define sensitivity and precision of a performance measure in this context. (2 points) b. It is argued that share price is a more sensitive performance measure than net income. Explain this argument. (2 points) c. Explain 2 ways that accountants can increase earnings sensitivity. (2 points)

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a Sensitivity refers to the degree to which a performance measure reflects changes in manager perfor... View the full answer