GMAT Question of the Day - Daily to your Mailbox; hard ones only

 It is currently 20 Mar 2019, 04:53

### GMAT Club Daily Prep

#### Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

# There is little correlation between CEO compensation and the company's

Author Message
Manager
Joined: 21 May 2017
Posts: 75
Location: India
There is little correlation between CEO compensation and the company's  [#permalink]

### Show Tags

02 Oct 2018, 09:59
00:00

Difficulty:

35% (medium)

Question Stats:

73% (01:40) correct 27% (01:59) wrong based on 77 sessions

### HideShow timer Statistics

There is little correlation between CEO compensation and the company's performance. If there were a considerable correlation, the companies that paid their CEOs the most would have highest growth in profits, revenue, and stock price. 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 whose CEOs are their founders.

If the statements above are true, which of the following must be true?

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 company that pays its CEO a very high compensation is likely to perform worse than a company that does not compensate its CEO as well.
C. Founders of most of the companies that show highest growth in profit, revenue, and stock price are not amongst the highest paid CEOs in the industry.
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.
examPAL Representative
Joined: 07 Dec 2017
Posts: 905
There is little correlation between CEO compensation and the company's  [#permalink]

### Show Tags

03 Oct 2018, 01:30
zac123 wrote:
There is little correlation between CEO compensation and the company's performance. If there were a considerable correlation, the companies that paid their CEOs the most would have highest growth in profits, revenue, and stock price. 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 whose CEOs are their founders.

If the statements above are true, which of the following must be true?

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 company that pays its CEO a very high compensation is likely to perform worse than a company that does not compensate its CEO as well.
C. Founders of most of the companies that show highest growth in profit, revenue, and stock price are not amongst the highest paid CEOs in the industry.
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.

Let's break down the logic of the passage:
Claim: There is little correlation between CEO compensation and company performance (profits, revenues prices)
Evidence: Most companies that have performed best have founder CEOs.

As our statements are both statistical ('little correlation', 'most companies') and compare clearly separate categories (founder vs. non-founder, high profit vs. low profit) most likely our correct answer will have to do with the logic connecting these concepts, namely that of weighted average. Which is why we'll go for a Logical approach of inferring the answer based on what we know about weighted averages (and overlapping sets).

In particular, as the 'average CEO' of a high-profit company is a 'founder', then it can't also be that the average salary of a 'founder' is very high because that would imply a direct correlation between 'high-performing companies' (via 'founder CEOs') to 'high salary', in contradiction to the claim.

Looking through our answers, this is exactly what (C) tells us.

_________________
There is little correlation between CEO compensation and the company's   [#permalink] 03 Oct 2018, 01:30
Display posts from previous: Sort by