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Defenders of runaway CEO pay argue that market forces are at work
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18 Feb 2026, 00:24
18 Feb 2026, 00:24
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Defenders of runaway CEO pay argue that market forces are at work determining executive compensation levels and CEOs are rewarded for increasing their company's stock prices. But are America's CEOs entitled to such lucrative pay deals based on their performance? In 1998, the business press exploded with stories of pay for mediocrity: When it comes to executive pay, stock option grants appear to have the Midas touch. As the stock market has broken record after record, they have become an increasingly popular form of executive compensation.
According to compensation analysts, stock options make up two-thirds of a CEOs pay, up from one-third in the 1960s. Instead of having to beat their competitors, CEOs with stock option-fueled compensation packages are graded on a curve: the rising stock market. As stock prices increase generally, even mediocre CEOs can realize large gains from their options. Analysts estimate that only a quarter of option grants awarded to CEOs contain any sort of link to performance, such as premium-priced or indexed stock options. But executive equity incentive plans can hurt shareholders. A recent research studied the largest U.S. companies by adjusting for the value of their executive's stock options. The study found that 11 firms went from profit to loss, and 13 had their profits halved. In addition, the study found that the average potential dilution of shareholder value from stock options is 9.2 percent for S&P 500 companies.
According to compensation analysts, stock options make up two-thirds of a CEOs pay, up from one-third in the 1960s. Instead of having to beat their competitors, CEOs with stock option-fueled compensation packages are graded on a curve: the rising stock market. As stock prices increase generally, even mediocre CEOs can realize large gains from their options. Analysts estimate that only a quarter of option grants awarded to CEOs contain any sort of link to performance, such as premium-priced or indexed stock options. But executive equity incentive plans can hurt shareholders. A recent research studied the largest U.S. companies by adjusting for the value of their executive's stock options. The study found that 11 firms went from profit to loss, and 13 had their profits halved. In addition, the study found that the average potential dilution of shareholder value from stock options is 9.2 percent for S&P 500 companies.
1. The primary purpose of the passage is
(A) to explain CEOs stock-option-fueled compensation packages.
(B) to criticize the excessive wages of corporate CEOs.
(C) to demonstrate the lack of parity among CEO compensation packages.
(D) to argue against non-performance-rated bonuses and point out the repercussions.
(E) to prove that paying CEOs through stock-options is doing more bad than good.
2. In the given passage, the author mentions the "Midas touch" near the end of first paragraph to
(A) compare the current economic situation to a historical one
(B) add a literary tone to a rather dreary financial text
(C) emphasize the lucrative nature of share option compensation packages
(D) criticize the mediocrity of some executives
(E) demonstrate the absurdity of share option compensation packages
3. According to the passage, which of the following is the basis on which the author criticizes CEOs stock-option compensation plans?
(A) They are determined by market forces.
(B) They have become an increasingly awarded form of compensation package.
(C) Their value is directly determined by company performance.
(D) They undermine the value of shares.
(E) They feature more and more as performance-based incentives.
4. According to the passage, keeping in view the CEOs stock option compensation packages, with which of the following would the author agree?
(A) Currently companies consider their stocks' performances more than their actual performances.
(B) The number of stock option compensation packages has risen two thirds over the last few decades.
(C) CEOs stock option compensation packages should consist of premium-priced or indexed stock options only.
(D) CEOs stock option compensation packages are unduly awarded to CEOs despite companies performing well in the market.
(E) CEOs stock option compensation packages enhance only stock market figures, especially in the case of the compensation packages of mediocre CEOs.
5. Which of the following would best categorize the author's attitude towards stock-optionbased CEO pay, as given in the passage?
(A) Restrained criticism
(B) Conditional approval
(C) Unconditional disgust
(D) Absolute intolerance
(E) Unjustified disapproval
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Defenders of runaway CEO pay argue that market forces are at work
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01 Mar 2026, 13:06
01 Mar 2026, 13:06
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EXPLANATION QUESTION #3
The author proves that stock option compensation packages are illogical in the second paragraph. Thus their flaws are mentioned in that paragraph. The author has many issues against the stock option compensation packages. He states that percentage share of stock options as part of CEOs pay has risen dramatically. It is wrong to pay CEOs through stock options because stock prices always increase as a general trend, even with no effort on the part of the CEO to further the company. Thus, even a mediocre CEO can earn lots of money through stock options without putting in much effort at all. He further states that only a quarter of the stock options given to CEOs are actually performance- linked. The remaining $75 \%$ of the stock options are just part of pay for being a CEO. Such pay trends can hurt shareholders. Also, paying CEOs in stock options diluted shareholder value by 9.2 percent for the top 500 companies. So, the author mainly discusses how CEOs stock-option compensation packages can undermine the value of shares.
Let's analyze the options one by one.
(A) This option is incorrect because this is not the author's reason for criticizing the stock option compensation packages. Rather, this is the defenders' reason for supporting stock option compensation packages.
(B) This option is incorrect because the author's main problem is not that stock options are becoming more and more popular, but that pay is rising too much and is not linked to performance. The option statement does not articulate the basis of the criticism.
(C) This option is incorrect because this is the opposite of what the author states. The author suggests that CEOs get paid for the stock price rising but have to put no effort into improving the company performance.
(D) This is the correct answer. This matches our deductions. The author mentions twice that shareholders get hurt and that potential dilution occurs because of stock option compensation packages.
(E) This option is incorrect because this is the opposite of what the author states. The author suggests that CEOs get paid for the stock price rising but have to put no effort into improving company performance. Thus, according to the author, the stock option compensation packages are not performance-based.
The correct answer is D.
The author proves that stock option compensation packages are illogical in the second paragraph. Thus their flaws are mentioned in that paragraph. The author has many issues against the stock option compensation packages. He states that percentage share of stock options as part of CEOs pay has risen dramatically. It is wrong to pay CEOs through stock options because stock prices always increase as a general trend, even with no effort on the part of the CEO to further the company. Thus, even a mediocre CEO can earn lots of money through stock options without putting in much effort at all. He further states that only a quarter of the stock options given to CEOs are actually performance- linked. The remaining $75 \%$ of the stock options are just part of pay for being a CEO. Such pay trends can hurt shareholders. Also, paying CEOs in stock options diluted shareholder value by 9.2 percent for the top 500 companies. So, the author mainly discusses how CEOs stock-option compensation packages can undermine the value of shares.
Let's analyze the options one by one.
(A) This option is incorrect because this is not the author's reason for criticizing the stock option compensation packages. Rather, this is the defenders' reason for supporting stock option compensation packages.
(B) This option is incorrect because the author's main problem is not that stock options are becoming more and more popular, but that pay is rising too much and is not linked to performance. The option statement does not articulate the basis of the criticism.
(C) This option is incorrect because this is the opposite of what the author states. The author suggests that CEOs get paid for the stock price rising but have to put no effort into improving the company performance.
(D) This is the correct answer. This matches our deductions. The author mentions twice that shareholders get hurt and that potential dilution occurs because of stock option compensation packages.
(E) This option is incorrect because this is the opposite of what the author states. The author suggests that CEOs get paid for the stock price rising but have to put no effort into improving company performance. Thus, according to the author, the stock option compensation packages are not performance-based.
The correct answer is D.
Re: Defenders of runaway CEO pay argue that market forces are at work
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01 Mar 2026, 13:08
01 Mar 2026, 13:08
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EXPLANATION QUESTION #4
Let's analyze the options one by one.
(A) This is the correct answer. The author would agree with this because this is the point the author has mainly made when he criticized stock option compensation packages. He states that it is wrong to pay CEOs through stock options because stock prices always increase as a general trend, even with no effort on the part of the CEO. Thus, even a mediocre CEO can earn lots of money through stock options without putting in much effort at all. He further states that only a quarter of the stock options given to CEOs are actually performance linked. The remaining 75\% of the stock options are just part of pay for being a CEO. Thus, the author would agree that currently, companies consider their stock performance more important than actual performance.
(B) This option is incorrect because the reference of two-thirds comes from the first sentence of the second paragraph: "stock options make up two-thirds of a CEOs pay" which is unrelated to the option statement. We have no way of knowing whether the amount of compensation packages has risen by two-thirds. All we know is that stock options made up one-third of CEO pay earlier but now make up two-thirds of CEO pay.
(C) This option is incorrect because the author would not suggest this. While he may suggest that CEO's pay should be performance-linked, he wouldn't suggest that all of it be through premium-priced or indexed stock options.
(D) This option is incorrect because while this option might be factually true, this is not the author's intention. This option implies that stock option compensation packages should not be awarded to CEOs when the company performs well in the markets. The author does not suggest that. He suggests that CEOs should be awarded for improving the company's performance and not only for a company's stock price rising, which is very likely anyway.
(E) This option is incorrect because the passage does not suggest that stock option compensation packages enhance stock market figures. The passage suggests that due to rising stock prices, the CEOs benefit.
The correct answer is A .
Let's analyze the options one by one.
(A) This is the correct answer. The author would agree with this because this is the point the author has mainly made when he criticized stock option compensation packages. He states that it is wrong to pay CEOs through stock options because stock prices always increase as a general trend, even with no effort on the part of the CEO. Thus, even a mediocre CEO can earn lots of money through stock options without putting in much effort at all. He further states that only a quarter of the stock options given to CEOs are actually performance linked. The remaining 75\% of the stock options are just part of pay for being a CEO. Thus, the author would agree that currently, companies consider their stock performance more important than actual performance.
(B) This option is incorrect because the reference of two-thirds comes from the first sentence of the second paragraph: "stock options make up two-thirds of a CEOs pay" which is unrelated to the option statement. We have no way of knowing whether the amount of compensation packages has risen by two-thirds. All we know is that stock options made up one-third of CEO pay earlier but now make up two-thirds of CEO pay.
(C) This option is incorrect because the author would not suggest this. While he may suggest that CEO's pay should be performance-linked, he wouldn't suggest that all of it be through premium-priced or indexed stock options.
(D) This option is incorrect because while this option might be factually true, this is not the author's intention. This option implies that stock option compensation packages should not be awarded to CEOs when the company performs well in the markets. The author does not suggest that. He suggests that CEOs should be awarded for improving the company's performance and not only for a company's stock price rising, which is very likely anyway.
(E) This option is incorrect because the passage does not suggest that stock option compensation packages enhance stock market figures. The passage suggests that due to rising stock prices, the CEOs benefit.
The correct answer is A .
