Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 124

When executive compensation is based on the organization's financial results, which of the following situations is most likely to arise?

Answer options

• A. The organization reports inappropriate estimates and accruals due to poor accounting controls.
• B. The organization uses an unreliable process for gathering and reporting executive compensation data.
• C. The organization experiences increasing discontent of employees, if executives are eligible for compensation amounts that are deemed unreasonable.
• D. The organization encourages employee behavior that is inconsistent with the interests of relevant stakeholders.

Correct answer: C

Explanation

The correct answer, C, highlights that linking executive pay to financial results can lead to perceptions of unfairness among employees regarding high executive compensation. Options A and B focus on accounting issues and data reliability, which are less about employee sentiment. Option D discusses misalignment with stakeholder interests, but does not specifically address employee dissatisfaction.