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
An incentive plan that pays out based on company-wide profits shared with all eligible employees is known as:
Answer: Profit sharing
Profit sharing distributes a portion of company profits to employees, typically on a company-wide basis rather than tied to specific operational improvements.
The Scanlon Plan is a type of gainsharing plan that focuses on improving which ratio?
Answer: Labor costs to total sales value of production
The Scanlon Plan calculates a baseline ratio of labor costs to the sales value of production; savings below that ratio are shared with employees.
Under SEC rules, which executive compensation element must be disclosed in the Summary Compensation Table for named executive officers (NEOs)?
Answer: Non-equity incentive plan compensation earned during the fiscal year
The SEC's Summary Compensation Table requires disclosure of non-equity incentive plan compensation — amounts earned under performance-based cash plans during the year.
A company uses a 'multiplier' approach in its annual incentive plan, where a corporate financial result modifies individual performance scores. If the corporate modifier is 0.8 and an employee earned 120% of individual target, the final payout percentage is:
Answer: 96%
With a multiplier approach, 120% individual score × 0.8 corporate modifier = 96% of target payout.
Which of the following best describes 'overhang' in the context of equity compensation?
Answer: The total shares reserved for equity awards as a percentage of shares outstanding
Overhang represents all shares reserved for equity compensation (granted and available for future grants) as a percentage of total shares outstanding, indicating potential dilution.
When evaluating an incentive plan's effectiveness, 'line of sight' refers to:
Answer: An employee's ability to see a clear connection between their actions and plan payouts
Line of sight describes how directly an employee can link their individual efforts to the plan's performance measures and resulting pay.
A 'clawback' provision in an incentive plan primarily protects the company against:
Answer: Payouts based on misstated financial results or misconduct
Clawback provisions allow companies to recover previously paid incentive compensation if financials are restated or if misconduct is discovered after payment.