Response to the following problem:
Assume that you are serving on the board of directors of a medium-sized corporation, and you are responsible for establishing the compensation provided to senior management. You believe that the company's CEO is very talented, but your concern is that she may be looking for a better job and may want to boost the company's short-run performance (perhaps at the expense of long-run profitability) to make herself look better to other corporations.
What effect might these concerns have on the compensation policy you put in place?