Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 4

The JAB Gold Mining Company observes that some firms pay their CEOs based on performance relative to the S P 500. Most firms, however, have stock prices that are positively correlated with the S#x0026;P 500. JAB has a negative beta ! (Its stock returns are negatively correlated with the index.) Does this mean that JAB would be wrong in paying its CEO based on performance relative to the S P 500 Explain.