Question

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:

Answer 1

Answer: likely to be well-founded since CEO compensation at many U.S. companies has actually increased even when the company performed poorly

Explanation:

The options to the question are:

A. unfounded, since laws in the United States prevent firms from paying large salaries or bonuses to executives when a firm reports a loss.

B. based on an erroneous conclusion, because CEO pay is always based on a formula tied to the company's profits and losses.

C.likely to be well-founded since CEO compensation at many U.S. companies has actually increased even when the company performed poorly.

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.

From the question, we are informed that Paulo owns a few shares of stock in a large and diversified firm na that he noticed 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 CEO particularly since the firm has reported losses for the past two years.

Paulo's concerns are likely to be well-founded since CEO compensation at many U.S. companies has actually increased even when the company performed poorly.