Question: The typical corporate executives incentive package offers higher pay when the companys stock does well. One proposal for such executive merit pay is to instead

The typical corporate executive’s incentive package offers higher pay when the company’s stock does well. One proposal for such executive merit pay is to instead pay executives based on whether their firm’s stock price does better or worse than the stock price of the average firm in their own industry. Does this proposal solve an environment risk problem or an ability risk problem? How can you tell?

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