Which of the following statements is FALSE?
A) The substantial use of stock and option grants in the 1990s greatly increased managers' pay-for-performance sensitivity.
B) The optimal level of sensitivity of managers' compensation to the performance of their firms depends on the managers' level of risk aversion, which is hard to measure.
C) While decreasing managers' risk exposure, increasing the sensitivity of managerial pay and wealth to firm performance does have some negative effects.
D) In the absence of monitoring, the other way the conflict of interest between managers and owners can be mitigated is by closely aligning their interests through the managers' compensation policy.
C
Explanation: C) Besides increasing managers' risk exposure, increasing the sensitivity of managerial pay and wealth to firm performance has some other negative effects.
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