Explain how firms may design a compensation scheme to reduce short-termism by combining reward instruments such as stocks, stock options, restricted stocks and inside debt. Justify your proposal by referring to the academic literature.

1) Explain the short-termism hypothesis, critically explain whether principal-agent issues may

contribute to short-termism, and explore its consequences for firm performance;

2) Analyse how modern firms seek to deal with the principal-agent problem. Your analysis

should explicitly distinguish between the level and structure of pay.

3) Explain how firms may design a compensation scheme to reduce short-termism by

combining reward instruments such as stocks, stock options, restricted stocks and inside

debt. Justify your proposal by referring to the academic literature.

4) Explain how your proposal can strengthen firm resilience and enable firms to better deal

with deep recessions such as the Covid-19 recession.