Logical Reasoning

PT137 · S2 · Q6 The profitability of a business

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The profitability of a business is reduced by anything that undermines employee morale.

Conclusion (not wise / this is why)

Paying senior staff with stock options is not wise.

Evidence (because)

Stock options allow senior staff to earn more when the enterprise prospers. This dramatically increases the difference in income between senior staff and employees who are paid a fixed salary.

Profitability is reduced by anything that undermines employee morale.

Evaluate

We need to get from "paying senior staff with stock options" to "unwise".

They tell us that paying senior staff with stock options will increase the difference in income between senior staff and employees.

So the author is assuming that it's .

But the conclusion indicator "This is why" at the start of the 2nd sentence also tells us that the 1st sentence is an important part of the logic.

It's telling us that when you undermine employee morale, you reduce a business's profitability. The idea of "reduced profitability" is probably intended as a match for "not a wise policy".

So the author seems to be thinking that when we dramatically increase the pay disparity between senior staff and fixed salary employees, that will undermine employee morale.

The author's overall reasoning chain looks like this:

Pay SS greatly lower reduce not w/ stock → increase → emp → profit → wise pay gap morale

Goal

Let's look for that missing internal link, that .

Which one of the following is an assumption on which the argument depends?

Correct
Large income differences between fixed-salary
Why this is right
This is the missing link we predicted. Pay SS greatly lower reduce not w/ stock → increase → emp → profit → wise pay gap morale If we negated this answer and said, "hey, author -- large differences in income between senior staff and fixed salary employees doesn't tend to hurt employee morale", that would badly weaken the argument. The only way the author has of arguing that this is "not a wise policy" is by connecting stock options to lower profits, via the idea that paying with stock options will undermine morale.
Skill tested: Necessary Assumption · how this choice captures the argument's function is the move to repeat next time.
93% picked this
Reductions in the profitability of
Too Strong: usually
We were told that a reduction in employee morale leads to a reduction in profitability. I could similarly say, "being stung by a bee leads to a child crying". That doesn't mean I'm assuming that "the tears of children are usually due to a bee sting". This author doesn't care if dips in profit are due to low employee morale 51% of the time (usually) vs. only 49% of the time (not-usually). This is essentially selling us a soft version of an illegal reversal. We were told this: if it lowers morale, then it lowers profits And this answer is saying if profits are lower, then morale is usually lower
3% picked this
Business firms that pay senior
Irrelevant Comparison
The author is only thinking that paying senior staff with stock options makes a company less profitable than it was before, not that it makes a company less profitable than other companies. If Goldman Sachs, which makes billions in profits, decides to pay senior staff with stock options, the author thinks they will go from $50 B in profits to $40 B. But that doesn't mean the author assumes that Goldman Sachs is less profitable than firms who don't pay senior staff with stock options.
1% picked this
Reducing the difference in income
Too Strong: invariably Illegal Negation
The author thinks that dramatically increasing leads to the diff in income between → lower seniors and fixed salary profitability This answer is trying to trap people into picking an illegal negation of that: decreasing the diff leads to in income between → higher seniors and fixed salary profitability Negating this answer would give us, "There is at least one case in which the difference in income between senior and regular employees was reduced, but it did not increase a company's profitability". That wouldn't hurt the argument at all, so we know this answer can't be correct.
2% picked this
Employees whose incomes rise as
Out of Scope: productive
The concept of productivity is never discussed, so the author doesn't need to assume anything about that concept.
1% picked this

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