Ethics Q on Mock Morning investment, structure, addition

dandman

Okay, here is kind of what the question asks:
Regarding Lozerpte’s compensation structure is Todraz in violation of CFA Institute’s Research Objectively Standards?
A. No.
B. Yes, with respect to overall profitability of the firm.
C. Yes, with respect to accuracy of her recommendations
A is correct as Research Objectivity Standard 5 recommends analyst’s compensation be based on the accuracy of recommendations over time. In addition, compensation should not be directly inked to investment banking or other finance activities, which it is not in this case.
I THOUGHT B was right, I thought compensation shouldn’t be tied to overall prof of firm at all…not just IB…at stalla mock 2 it says: firms should reward analysts based on the quality of their research rather than the profitability of their divisions…
any thoughts?

badonkus

it is fair to reward analyst based on the overall profitability of their company. If their recommendations are top quality it should contribute to overall profitability. The key word is the company as a whole’s profit and not based on certain divisions’.
It is safe to read equity from the CFAI material and SOPH only.