Question 1

________ bonuses are awarded to executives by boards of directors on an elective basis.

Accepted Answer

Discretionary

Question 2

Company stock shares are the main form of executives' ________ compensation.

Accepted Answer

deferred

Question 3

After the recent merger of ABC and XYZ Airlines,the former CFO of XYZ Airlines,John,lost his employment in the newly merged airline.Which executive compensation agreement is customary in such circumstances?

Accepted Answer

Golden parachutes are a type of executive compensation agreement that provides significant financial benefits to executives in the event of a merger or takeover. They are designed to ensure that executives do not lose their jobs or face financial losses as a result of the merger or takeover. Often, golden parachutes are built into executive contracts before a merger or takeover takes place. In John's case, a golden parachute may provide him with a severance package, stock options or other benefits.

Question 4

Which of the following are the two main components of current core compensation?

Accepted Answer

Base pay and bonuses are the two main components of current core compensation.

Question 5

Which of the following is the difference between the stock price at the time of purchase and the lower stock price at the time an executive receives the stock option?

Accepted Answer

The answer of Which of the following is the difference...

Question 6

Pertaining to CEO compensation,under classic economic theory,which of the following is true?

Accepted Answer

Under classic economic theory, prices, including CEO compensation, are determined through negotiations at arm's length, reflecting a fair market value agreed upon by both parties.

Question 7

The IRS considers Sylvia to be a highly compensated employee for Beautiful Pictures,Inc.,which means that she met which one of the following criteria (assume that the previous year was 2015)?

Accepted Answer

The IRS defines a highly compensated employee based on either a high level of compensation (more than $170,000 in this context) or ownership interest in the company (being a 5% or 1% owner with annual pay greater than $150,000 in the previous year).

Question 8

Which of the following refers to the sale of stock by the stockholder?

Accepted Answer

Disposition refers to the sale of stock by the stockholder. Stock option and stock grant refer to the issuance of stock to the holder. Exercise of one's grant refers to the holder using their stock option or grant to purchase stock.

Question 9

Which of the following is the term used when a company offers stock to its employees?

Accepted Answer

The answer of Which of the following is the term...

Question 10

These rights provide employees with an opportunity to purchase stock shares at a designated price or whenever the stock price increases,usually,within a specified period of time.

Accepted Answer

Stock options give employees the right, but not the obligation, to buy company shares at a predetermined price, known as the strike or exercise price. The options typically have a limited period during which they must be exercised, after which they expire. This is different from a stock grant, which gives employees actual shares of company stock outright. Disposition refers to the sale or transfer of an asset, while exercise of one's grant refers specifically to the act of using a stock option to purchase shares.

Question 11

Which of the following represent formal criteria for defining executive status?

Accepted Answer

The formal criteria for defining executive status are typically based on two factors: an individual's level of responsibility within the organization and their compensation. Key employees can be defined based on their level of responsibility, while highly compensated employees are identified based on their earnings. Therefore, option D, which includes both key employees and highly compensated employees, is the best choice. Option A is incorrect, as the board of directors may not necessarily be considered executives. Option B is incorrect because highly paid employees may not have executive-level responsibility. Option C is also incorrect because it only includes the CEO and highly compensated employees, which is too limited of a definition.

Question 12

As CEO,Duane was granted stock options that do not require him to exercise them to receive income.Which of the following plans is it?

Accepted Answer

Stock appreciation rights (SARs) are a form of executive compensation that allow executives to receive monetary compensation based on the increase in the company's stock price without requiring them to actually purchase the stock. Therefore, Duane's stock options that do not require him to exercise them suggest that he has been granted SARs.

Question 13

In theory,the CEO hires the consultant to perform an objective analysis of the company's executive pay package and to make whatever recommendations the consultant feels are appropriate;however,in practice,which tends to be the case?

Accepted Answer

In practice, the relationship between the CEO and consultant has the potential to promote a conflict of interest, as the CEO may have a vested interest in maintaining or increasing their own compensation package. This can make it difficult for the consultant to provide an objective analysis and make appropriate recommendations.

Question 14

For which reason does the IRS use the term "key employees"?

Accepted Answer

The term "key employees" is used by the IRS in the context of top-heavy provisions in employer-sponsored qualified retirement plans. These provisions are designed to ensure that the benefits under the plan do not disproportionately favor the company's higher-earning employees, including officers, owners, and certain highly compensated employees.

Question 15

The recently appointed CEO of XYZ Inc.uses a luxury summerhouse owned by the company for rest and relaxation with his family as well as a place to invite important clients before a lucrative business deal.XYZ Inc.also provides a membership to an exclusive country club to its CEO.These kinds of benefits offered to CEOs are known as which of the following?

Accepted Answer

The benefits provided to the CEO, such as the luxury summerhouse and membership to an exclusive country club, are known as perquisites or "perks". These are additional benefits beyond the CEO's salary and are often used as a way to attract top talent and retain key executives. Discretionary bonuses are typically performance-based and given at the discretion of the company, golden parachutes are severance packages offered to executives in the event of a change in ownership or control of the company, and clawback provisions are measures put in place to allow a company to recoup executive compensation in the event of misconduct or poor performance.

Question 16

The XYZ Co.took back performance-based compensation of $1.2 million from their CEO because of his decision of the buyout of another firm that eventually lowered the overall value of the XYZ Co.Which of the following compensation agreements allowed the board of directors to take back this $1.2 million?

Accepted Answer

Clawback provisions allow the board of directors to take back previously awarded compensation in certain circumstances, such as a decline in company performance due to the actions of an executive. Platinum parachutes, phantom stock, and golden parachutes are types of executive compensation, but do not typically include clawback provisions.

Question 17

Which of the following describes CEO compensation that is deemed ineffective?

Accepted Answer

Pay-for-nonperformance is the compensation that is deemed ineffective as it rewards CEOs for not achieving goals or creating value for the company. It is also known as golden parachutes or severance pay. Pay-for-status, seniority-based pay, and person-focused pay are not necessarily ineffective but may not always align with performance or company objectives.

Question 18

Which of the following are shares of company stock that are awarded to executives at the end of the mandatory stipulation period?

Accepted Answer

Restricted stock units (RSUs) are shares of company stock that are awarded to executives at the end of the mandatory stipulation period. RSUs are a form of equity compensation that vests over time, and may have certain restrictions on when they can be sold or transferred. Deferred stock shares, deferred stock units, and restricted stock options are all forms of equity compensation, but do not necessarily require a mandatory stipulation period.

Question 19

Which government agency provides the criteria for defining executive status?

Accepted Answer

The Internal Revenue Service (IRS) provides the criteria for defining executive status, particularly in regards to determining exemption from overtime pay under the Fair Labor Standards Act (FLSA). The Securities and Exchange Commission (SEC) regulates securities markets, the U.S. Department of Labor is responsible for enforcing labor laws and protecting worker rights, and the Dodd-Frank Commission oversaw the implementation of financial reform legislation after the 2008 financial crisis. None of these agencies are directly involved in defining executive status.

Question 20

Which type of plans provide an executive with ownership stakes in the company through a variety of mechanisms,including stock option plans and stock purchase plans?

Accepted Answer

Equity plans provide executives with ownership stakes in the company through mechanisms such as stock option plans and stock purchase plans. Equality plans focus on equal pay and opportunities, golden parachutes refer to compensation agreements in the event of a change in ownership or control, and profit sharing plans distribute a portion of profits to employees.

Quiz 11: Compensating Executives