Chapter 7 Exercise 3 Circle the statement(s) below that are true. A. Although it is advisable to disclose selected lessons learned by adopting an ERM program, discussions on identifying and eliminating over-mitigation should not be disclosed. B. Each rating agency has its own unique perspective and expectations on what they would like to see from companies regarding their ERM programs. C The most effective way to align management interests with those of shareholders is to include stock or stock options in the management incentive compensation program, The investment metric the base to which the hurdle rate is applied to determine target earnings - is usually defined as required capital and is often properly defined. Exercise 4 Match up the numbered ERM approach on the left with the lettered characteristics on the right and record your answers in the table below. There is not a one-to-one correspondence. 1. Traditional Approach A. Measures changes in the past period in terms of revenues, expenses and earnings. 2. Value-Based Approach B. Enhances balanced Scorecard performance management by quantifying the relative weights for each performance category, C. Management usually sets risk-adjusted goals somewhat arbitrarily, such as by varying targets such as arbitrary hurdle rates, for riskier businesses. D. Supports management's ability to evaluate potential actions by marginal contribution to company value. Number Letters That Correspond 1 2 58