Plan Administration & Communication Flashcards
7 cards from real CEP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Plan Administration & Communication flashcards as text
Which accounting standard governs the recognition of share-based compensation expense under US GAAP?
Answer: ASC 718
ASC 718 (Compensation — Stock Compensation) requires companies to measure and recognize the fair value of share-based awards as compensation expense over the requisite service period.
A Section 162(m) limitation restricts the deductibility of compensation paid to covered employees to:
Answer: $1 million per year
IRC Section 162(m) generally limits the tax deduction for compensation paid to covered employees (NEOs) to $1 million per year per individual.
An employee receives an RSA (Restricted Stock Award) and files an 83(b) election within 30 days of grant. When will the employee recognize ordinary income?
Answer: At grant
An 83(b) election causes the recipient to recognize ordinary income at grant based on the FMV of the shares at that time, rather than deferring income recognition until vesting.
What is the term for the ratio of shares authorized under an equity plan to total shares outstanding, used to measure potential dilution?
Answer: Overhang
Overhang measures the total potential dilution from all outstanding and available-to-grant equity awards as a percentage of total shares outstanding, used by ISS and investors to evaluate dilution risk.
Which type of equity plan communication is legally required to be provided to plan participants under SEC rules?
Answer: Plan prospectus (Section 10(a) prospectus)
SEC rules require that participants in company equity plans registered on Form S-8 receive a prospectus containing key plan information, as mandated under Securities Act Section 10(a).
A company wants to allow employees to pay the exercise price of stock options using shares they already own. This exercise method is called:
Answer: Stock swap
A stock swap allows an optionee to tender previously owned shares as payment for the exercise price of new options, rather than using cash or conducting a same-day sale.
Under ERISA, equity compensation plans are generally exempt from its requirements because they are classified as:
Answer: Deferred compensation arrangements
Most equity compensation plans (stock options, RSUs) are exempt from ERISA because they are not considered 'pension plans' or 'welfare benefit plans' under ERISA's definitions — they are treated as deferred compensation arrangements outside ERISA's scope.