CBP Compensation and Total Rewards 2 — Questions and Answers
Question 1: Which type of incentive plan gives employees the right to purchase company stock at a fixed price within a specified period?
- Restricted stock units (RSUs)
- Employee stock purchase plan (ESPP)
- Stock appreciation rights (SARs)
- Stock options (Correct answer)
Correct answer: Stock options
Stock options grant the holder the right to buy company shares at a predetermined exercise price (grant price) within a defined exercise period.
Question 2: What is the purpose of a salary survey in compensation benchmarking?
- To determine FLSA exemption status for new positions
- To compare internal pay rates to external market pay levels for similar jobs (Correct answer)
- To calculate benefit costs as a percentage of total compensation
- To set pay grades for union bargaining
Correct answer: To compare internal pay rates to external market pay levels for similar jobs
Salary surveys collect compensation data from multiple employers to allow organizations to benchmark their pay against market rates for comparable positions.
Question 3: What does the term 'pay mix' refer to in total compensation design?
- The mix of cash and non-cash benefits in the total package
- The proportion of fixed base pay versus variable/incentive pay in total direct compensation (Correct answer)
- The blend of seniority and performance in merit increases
- The ratio of executive pay to average employee pay
Correct answer: The proportion of fixed base pay versus variable/incentive pay in total direct compensation
Pay mix describes the ratio of base salary to variable or incentive pay (e.g., 70% base/30% incentive), reflecting how much pay is at risk versus guaranteed.
Question 4: Which pay philosophy means an organization sets pay rates at the 50th percentile of the relevant labor market?
- Lead the market
- Lag the market
- Meet the market (Correct answer)
- Hybrid positioning
Correct answer: Meet the market
A 'meet the market' or market-match philosophy means the organization targets the median (50th percentile) of competitive market pay for comparable jobs.
Question 5: Under Section 162(m) of the IRC, deductions for compensation paid to certain covered executive officers are limited to:
- $500,000 per year
- $1 million per year (Correct answer)
- $2 million per year
- No limit if tied to performance
Correct answer: $1 million per year
IRC Section 162(m) limits the tax deduction for compensation paid to covered executive officers of publicly held corporations to $1 million per officer per year.
Question 6: What is the primary goal of a pay-for-performance compensation system?
- To ensure all employees receive equal pay increases
- To link compensation increases to individual, team, or organizational performance results (Correct answer)
- To eliminate base pay differences between job grades
- To comply with FLSA overtime rules
Correct answer: To link compensation increases to individual, team, or organizational performance results
Pay-for-performance systems tie compensation decisions (merit increases, bonuses, incentives) directly to measured performance results to motivate and reward high performance.
CBP Compensation and Total Rewards 2
Which type of incentive plan gives employees the right to purchase company stock at a fixed price within a specified period?