Question 1-4 are based on the following passage.

    While Chester Barnard's assertions about management proved unconventional for the 1900s, they are sage guidelines that still remain relevant today. His book, Functions of the Executive, which was published in 1938, outlined a suggested corporate communication system and also set forth theories on authority and incentives.

    His theory on authority depended on the direct report as well as the manager. Up until this time, certain schools of thought were focused on the actions of the higher-ranking employee; however, Barnard stressed that, in order to encourage a solid communication system, everyone had an equal part to play. In Barnard's view, the notion of authority is meaningless without a subordinate who responds accordingly. Therefore, it is the subordinate who determines the relationship, not the manager.

    Another management tool that Barnard stressed, which is still applicable today, is found in his theory on incentives. He postulates that managers can use both economic incentives and persuasion to achieve their goal. Surprisingly, especially to those who value tangible rewards his conviction is that persuasion is more powerful than material incentives Barnard stresses that, despite the generic assumption, many employees would be delighted with nonmaterial rewards such as occasions for distinction, a pleasurable work atmosphere, and self-pride for one's labor. A study of today's most profitable companies would likely reveal that they employ much of Barnard's advice.

The passage suggests which of the following about Barnard's theory on authority?