Describe the goal of financial management and give an example of a management compensation program which is designed to encourage managers to adhere to that goal

The goal of financial management is to maximize shareholder wealth. Financial managers must be guided by this goal, because investors ultimately seek returns on their investment, which is achieved by value creation. Therefore, the goal of managers is not just to maximize earnings, but to create value for investors.

An example of a management compensation program which is designed to encourage managers to adhere to that goal is a stock-based incentive program. In such a program, a large part of a manager's compensation is linked to the increase in the firm's share price. This is done by awarding employee stock options to the managers, and keeping the cash component of their compensation relatively lower.