Paulo owns a few shares of stock in a large and diversified firm.He realizes that the CEO of the company is responsible for a multi-billion dollar business,but is upset with what he feels is excessive compensation for the chief executive officer,particularly since the firm has reported losses for the past two years.Paulo's concerns are:
A)unfounded,since laws in Canada prevent firms from paying large salaries or bonuses to executives when a firm reports a loss.
B)likely to be well-founded since CEO compensation at many Canadian companies has actually increased even when the company performed poorly.
C)based on an erroneous conclusion,because CEO pay is always based on a formula tied to the company's profits and losses.
D)not entirely unfounded,but he needs to realize that the pay received by most chief executives must be reinvested in the company if it's unprofitable for three years in a row.

Question

Quizplus · Accepted Answer

Studies have shown that CEO compensation at many Canadian firms has indeed increased even when the company experiences poor performance, making Paulo's concerns likely well-founded. Option A is incorrect as there are no laws in Canada that restrict the compensation of executives in loss-making firms. Option C is also incorrect as CEO pay is not always based on profits and losses, and there may be other factors that influence compensation. Option D is not entirely accurate as there is no legal requirement for CEOs to reinvest their pay into the company, even if it does experience consecutive years of losses.

Paulo Owns a Few Shares of Stock in a Large