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
Which of the following is NOT a typical characteristic of a well-designed sales incentive compensation plan?
Answer: Payout calculations that require complex multi-step manual computation by reps
Effective sales incentive plans should be simple enough for reps to calculate their own earnings; overly complex calculations reduce motivation and line of sight.
An employee stock purchase plan (ESPP) qualifying under IRC Section 423 must offer shares at no greater than a discount of:
Answer: 15%
Under IRC Section 423, a qualified ESPP may offer shares at a discount of up to 15% of the fair market value of the stock.
A company wants to align executive pay with long-term sustainability, ESG goals, and multi-year financial targets. Which plan design best serves this objective?
Answer: Long-term incentive with a mix of relative TSR, ROIC, and an ESG modifier
A multi-metric LTI plan combining financial (ROIC), market (TSR), and ESG measures aligns executives with long-term, sustainable value creation across multiple stakeholder dimensions.
In a 'target incentive' plan design, what does the term 'leverage' refer to?
Answer: The ratio of maximum payout to target payout, reflecting upside opportunity
Leverage in incentive plan design describes the multiple of target pay available at maximum performance, indicating how much upside risk/reward exists.
Which of the following describes a stock appreciation right (SAR) settled in cash?
Answer: The employee receives a cash payment equal to the increase in stock price from grant to exercise
A cash-settled SAR pays the employee cash equal to the difference between the stock's fair market value at exercise and the grant price.
When a company transitions from an individual-based incentive plan to a team-based plan, the most common challenge is:
Answer: Free-rider risk, where some members contribute less but share equally in rewards
Team-based plans can create free-rider problems where lower-performing team members benefit from the efforts of top contributors without equal effort.
Under a restricted stock award (RSA), when does the employee typically recognize ordinary income for tax purposes (absent a Section 83(b) election)?
Answer: When the restrictions lapse and shares vest
Without an 83(b) election, the employee recognizes ordinary income equal to the fair market value of restricted stock at the time the restrictions lapse (vesting).