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There is little correlation between CEO compensation and the

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There is little correlation between CEO compensation and the [#permalink]

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New post 26 Aug 2014, 10:26
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There is little correlation between CEO compensation and the company’s performance. If it were so, the companies that paid their CEOs the most would have highest growth in profits, revenue, and stock price. However, most of companies that have performed best in terms of profit, revenue, and stock price growth over the last 2 decades have been the ones that have been led by their founders.

Which of the following can be inferred from the passage above?
A. None of the top performing companies over the past 2 decades have been led by CEO’s who are not founders of the company.
B. A CEO who is extremely well paid is probably not as much motivated since he/she does not expect to be compensated higher.
C. A company that pays its CEO a very high compensation is equally likely to perform as well as or worse than a company that does not compensate its CEO as well.
D. CEOs who are also Founders of the company do not get paid as much as CEOs who are not.
E. If a company is not led by a founder, it will not be a top performing company in the future.
[Reveal] Spoiler: OA

Last edited by guerrero25 on 26 Aug 2014, 23:08, edited 1 time in total.
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Re: There is little correlation between CEO compensation and the [#permalink]

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C seems best here: A company that pays its CEO a very high compensation is equally likely to perform as well as or worse than a company that does not compensate its CEO as well.

what is the source of this question?

Also D cannot be concluded as the argument is talking just about the fact that most successful companies are led by founders.from this info it cannot be concluded whether founders were paid as much as the CEO's
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Re: There is little correlation between CEO compensation and the [#permalink]

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D seems correct here.
The argument can hold good only if we understand that the founders as CEO are compensated less than the CEO's who are not founders. If the founder is paid more then the argument seems incorrect.

In Choice C
The argument talks about correlation between performance and compensation. The premise further explains about the positive correlation,i.e. increase in compensation will result in increase in performance.
In Choice C we cannot infer what ll be the case when a CEO is compensated less.
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Re: There is little correlation between CEO compensation and the [#permalink]

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New post 26 Aug 2014, 20:46
Quote:
dream21 wrote: The premise further explains about the positive correlation,i.e. increase in compensation will result in increase in performance.


where did u read this? the premise is using "hypothetical subjunctive"----->"If it were so, the companies that paid their CEOs the most would have highest growth in profits, revenue, and stock price"-----. This definitely does not mean a positive correlation
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Re: There is little correlation between CEO compensation and the [#permalink]

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New post 26 Aug 2014, 22:11
I agree with Aditya. The point that there isn't a correlation between compensation and performance proves that no matter what the compensation is, the performance is likely to to be affected by that factor.
Hence, C

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Re: There is little correlation between CEO compensation and the [#permalink]

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New post 26 Aug 2014, 22:16
Quote:
smit29may wrote: The point that there isn't a correlation between compensation and performance proves that no matter what the compensation is, the performance is likely to to be affected by that factor.



i guess u wanted to write: The point that there isn't a correlation between compensation and performance proves that no matter what the compensation is, the performance is NOT likely to to be affected by that factor.
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There is little correlation between CEO compensation and the [#permalink]

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IMHO (C).

To begin with, let us understand that we are dealing with 6 sets of leaders.
1.CEO's (well-paid) who are not founders
2.CEO's (not well-paid) who are not founders
3.CEO's (well-paid) who are also founders.
4. CEO's (not well-paid) who are also founders.
5.Founders who are not CEO's.
6.Neither CEO’s nor founders.

Back to the question….

There is little correlation between CEO compensation and the company’s performance. If it were so, the companies that paid their CEOs the most would have highest growth in profits, revenue, and stock price. However, most of companies that have performed best in terms of profit, revenue, and stock price growth over the last 2 decades have been the ones that have been led by their founders.

Which of the following can be inferred from the passage above?
A. None of the top performing companies over the past 2 decades have been led by CEO’s who are not founders of the company.
Incorrect. Passage states 'most' companies who have performed well have been led by founders, implying some top companies (at least one) have been led by those who are not founders (Set 1, 2 and 6), with a higher probability of these leaders belonging to sets 2 or 6 than set 1. The given statement would be justified only if the stimulus had enough data to explicitly prove that, of all those companies at the top not led by founders, all of the founders are not CEO’s (i.e. all top companies are led by leaders belonging to sets 3,4,5 and 6 only).
B. A CEO who is extremely well paid is probably not as much motivated since he/she does not expect to be compensated higher.
Incorrect. Out of scope. The fact that companies with highest paid CEO’s are not performing well need not be a function of CEO’s motivation and duty-boundedness only. Quite likely that these CEO’s are actually charged-up but other random factors are major deterrants.
C. A company that pays its CEO a very high compensation is equally likely to perform as well as or worse than a company that does not compensate its CEO as well.
Correct. Stimulus mentions that a poor correlations exists between CEO pay and company performance. At the same time, a good correlation exists between leaders who are founders and company performance. This implies that the combined probability of a leader of a high-performing company to belong to set 1 or 3 is definitely much lower than that of him belonging to sets 3 or 4 or 5.
D. CEOs who are also Founders of the company do not get paid as much as CEOs who are not.
Incorrect. Statement is comparing pay of set 1 and set 3 leaders. No information in the stimulus to conclude this statement as it is quite likely that both these sets of leaders are equally paid. Lacking evidence to the contrary, it is as much possible that CEO’s who are also founders are paid more than those who are not.
E. If a company is not led by a founder, it will not be a top performing company in the future.
Incorrect. Stimulus does not state that being a founder is a mandatory condition for a company to perform well. The stimulus merely demonstrates the findings as on today and in no way suggests that these findings are a reflection of what will happen in the future.
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Re: There is little correlation between CEO compensation and the [#permalink]

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Re: There is little correlation between CEO compensation and the [#permalink]

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New post 19 Mar 2017, 14:33
VerbalBot wrote:
Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

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Please, specify the source of the question!

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Re: There is little correlation between CEO compensation and the [#permalink]

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New post 23 Aug 2017, 10:34
man, I ignored the key word "likely" in C. Using POE, I can guess C be the right answer, but I chose a wrong option.
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Re: There is little correlation between CEO compensation and the [#permalink]

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New post 08 Oct 2017, 05:34
guerrero25 wrote:
There is little correlation between CEO compensation and the company’s performance. If it were so, the companies that paid their CEOs the most would have highest growth in profits, revenue, and stock price. However, most of companies that have performed best in terms of profit, revenue, and stock price growth over the last 2 decades have been the ones that have been led by their founders.

Which of the following can be inferred from the passage above?
A. None of the top performing companies over the past 2 decades have been led by CEO’s who are not founders of the company.
B. A CEO who is extremely well paid is probably not as much motivated since he/she does not expect to be compensated higher.
C. A company that pays its CEO a very high compensation is equally likely to perform as well as or worse than a company that does not compensate its CEO as well.
D. CEOs who are also Founders of the company do not get paid as much as CEOs who are not.
E. If a company is not led by a founder, it will not be a top performing company in the future.


Can a verbal expert pls help with this question?
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Re: There is little correlation between CEO compensation and the [#permalink]

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New post 09 Oct 2017, 17:42
doeadoer wrote:
guerrero25 wrote:
There is little correlation between CEO compensation and the company’s performance. If it were so, the companies that paid their CEOs the most would have highest growth in profits, revenue, and stock price. However, most of companies that have performed best in terms of profit, revenue, and stock price growth over the last 2 decades have been the ones that have been led by their founders.

Which of the following can be inferred from the passage above?
A. None of the top performing companies over the past 2 decades have been led by CEO’s who are not founders of the company.
B. A CEO who is extremely well paid is probably not as much motivated since he/she does not expect to be compensated higher.
C. A company that pays its CEO a very high compensation is equally likely to perform as well as or worse than a company that does not compensate its CEO as well.
D. CEOs who are also Founders of the company do not get paid as much as CEOs who are not.
E. If a company is not led by a founder, it will not be a top performing company in the future.


Can a verbal expert pls help with this question?


which part of the question that you get stuck? -> A & E are wrong. B and D is out of scope. Although it is hard to understand C correctly, but C is the right answer.
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There is little correlation between CEO compensation and the [#permalink]

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New post 09 Oct 2017, 20:15
The reason why (D) can not be a right answer is that there could be a CEO who gets the highest payment, are a founder, and have performed best in terms of profit.

So (D) is "can be true"

Last edited by bluetrain on 09 Oct 2017, 20:21, edited 2 times in total.
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Re: There is little correlation between CEO compensation and the [#permalink]

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bluetrain wrote:
The reason why D can not be a right answer is that there could be a CEO who gets the highest payment, are a founder, and have performed best in terms of profit.

So (D) is "can be true"


since "the company" in D is not clear, I assume that D is out of scope if you get what I mean.
Re: There is little correlation between CEO compensation and the   [#permalink] 09 Oct 2017, 20:19
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