Incentive Compensation Flashcards
7 cards from real CCP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Incentive Compensation flashcards as text
A company grants 1,000 stock options with a 4-year graded vesting schedule (25% per year). If the employee leaves after 2.5 years, how many options are vested?
Answer: 500
With 25% graded vesting per year, only fully completed years count: 2 years × 250 options = 500 vested options.
Which of the following is a key disadvantage of using earnings per share (EPS) as the sole long-term incentive metric?
Answer: It can be improved through share buybacks without operational improvement
EPS can be artificially inflated through share repurchases, which reduce the share count without improving underlying business performance.
Under ASC 718, which event triggers remeasurement of liability-classified share-based awards?
Answer: Each reporting date until settlement
Liability-classified awards under ASC 718 must be remeasured at fair value each reporting period until final settlement.
A company adopts a balanced scorecard approach for its annual incentive plan. This means the plan measures performance across:
Answer: Multiple perspectives including financial, customer, internal process, and learning
The balanced scorecard framework incorporates financial, customer, internal process, and learning/growth perspectives to give a holistic performance view.
Which of the following best describes a 'golden handcuff' arrangement?
Answer: Incentive pay that vests over time to retain employees
Golden handcuffs are deferred compensation or equity awards structured to vest over time, creating a financial incentive for employees to remain with the company.
In a performance share unit (PSU) plan, what typically happens if the company's performance falls below the threshold level?
Answer: No shares are earned and the award is forfeited
PSU plans typically specify a threshold performance level below which no award is earned, resulting in full forfeiture of the PSU grant.
Which pay mix strategy is most appropriate for a sales role where results are highly controllable by the individual?
Answer: Low base salary with high variable pay (aggressive leverage)
When individual performance is highly controllable, an aggressive leverage mix — low base, high variable — maximizes motivation and pay-for-performance alignment.