Paulo Owns a Few Shares of Stock in a Large

question 160

Multiple Choice

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)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 Canadian 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.

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