When designing an incentive contract:. a. the presence of any incentive is enough, whether it is accounting based or stock-price based.
b. senior executives can be trusted to not abuse incentive contracts by artificially manipulating accounting numbers since the auditors should look in to that.
c. it is important for the board of directors to set up an independent compensation committee that can carefully design the contract and diligently monitor manager's actions.
d. the board of directors should always give the managers a "heads I win, tails you lose" type of option.