David's Compensation Arrangement and Research Objectivity

Easy Research Objectivity Standards Compensation Arrangements

David is an analyst at Equity Research Corp., where he specializes in technology sector investments. The company has recently introduced a compensation structure that rewards analysts based on the performance of stocks they recommend. David’s supervisor informs him that if the technology stocks he recommends outperform the benchmark index over a specified period, he will receive a bonus. David is concerned that this new arrangement could influence his objectivity in providing research recommendations.

Given the CFA Institute's 'Research Objectivity Standards' and the associated compensation arrangements, which of the following statements is true?

David's compensation arrangement is acceptable as long as it is disclosed to clients.

David's compensation arrangement could compromise his objectivity and should be reevaluated.

David’s bonuses should be based on overall company performance rather than performance of individual stock recommendations.

Hint

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