Question

Passage:
In modern corporate governance, the classical agency framework posits that aligning executive compensation with stock price performance through equity grants effectively mitigates the divergence of interest between managers and shareholders. Under this traditional model, stock options incentivize executives to maximize long-term firm value rather than pursue risk-averse strategies or short-term perquisites. However, recent empirical evaluations of corporate performance present a puzzling paradox: high proportions of equity-based pay frequently correlate with increased accounting manipulations and short-term earnings management designed to artificially inflate share prices ahead of scheduled option execution dates.

To address this dysfunction, traditional governance theorists recommend modifying existing contracts by extending option vesting periods and instituting clawback clauses for restated earnings. Yet a growing body of behavioral economics literature suggests that such contractual adjustments fail to resolve the core dilemma. Critics contend that extending vesting horizons merely shifts the timing of strategic manipulation rather than altering executive risk perceptions, as managers still face asymmetric downside risks relative to shareholders. Consequently, recent scholars argue that board governance cannot rely solely on price-indexed compensation to align managerial incentives; instead, firms must implement multidimensional evaluation systems that integrate non-financial operational metrics with direct board oversight to foster genuine long-term value creation.

Which of the following best states the primary purpose of the passage?