MGST 451 Quiz 2 Study Guide

A collection of vocabulary flashcards to assist in studying key concepts from MGST 451.

Insider trading laws

Regulations that apply to anyone who knows material non-public information at the time of a trade.

Price sensitive information

Information that can affect a company's stock price, including regulatory approvals, mergers, or dividend declarations.

Golden parachutes

Compensation arrangements designed to provide significant benefits to executives in the event of a merger or takeover.

Clawback provisions

Contracts that allow a company to reclaim performance-based compensation from executives when financial results are not achieved.

Fiduciary duty

The obligation of directors to act in the best interest of the corporation, which may not always align with shareholder interests.

Stock options

Financial derivatives that give an employee the right to buy company stock at a predetermined price.

Restricted stock

Stock granted to employees that cannot be sold or transferred until certain conditions are met, such as a vesting period.

Agency costs

Costs incurred due to conflicts of interest between the principal (shareholders) and agents (executives).

Say-on-pay

A policy that allows shareholders to vote on the compensation of executives, typically a non-binding vote.

Ratcheting effect

The phenomenon where median CEO pay increases as multiple companies compete to meet or exceed this pay level.

Principal-agent relationship

An arrangement where one entity (the principal) delegates authority to another entity (the agent) to act on its behalf.

Information asymmetry

A situation where one party has more or better information than the other, often leading to imbalances in a transaction.

Performance-based compensation

Salary or bonuses linked to the executive's performance against specific metrics or goals.

Executive salary slope

The tendency for executive salaries to increase at a faster pace than other employee salaries in a company.

Equity payout

Distribution of a company's profits in the form of dividends to shareholders.

CEO succession planning

The process of preparing for future leadership transitions within a company.

Cognitive dissonance

The mental discomfort experienced when holding two or more contradictory beliefs, values, or attitudes.