Question 1

What is the advantage of compensation deferment until retirement for a CEO?
A) The CEO can benefit from interest rates until retirement.
B) After retirement, the company's stock value will probably be higher.
C) The CEO's income taxes will probably be lower after retirement, so that deferring payment should lead to lower taxation.
D) The CEO will have enough time to make progress on reaching the company's strategic goals.

Accepted Answer

B

Question 2

These entitle an executive to purchase company stock in the future for a predetermined price.
A) nonstatutory stock options
B) incentive stock options
C) restricted stock options
D) phantom stock options

Accepted Answer

B

Question 3

This type of executive bonus plan is similar to the appraisal system used to determine merit increases for non-executive employees.
A) performance-incentive
B) target
C) performance-allocation
D) performance-contingent

Accepted Answer

D

Question 4

After the recent merger of ABC and XYZ Airlines,the former CFO of XYZ Airlines,John,lost his employment in the newly merged airline.Which compensation agreement extends pay and benefits for John?
A) discount stock option plans
B) incentive stock options
C) phantom stock
D) golden parachutes

Accepted Answer

Golden parachutes are a compensation agreement that provides executives with significant pay and benefits in the event of a merger or acquisition that leads to their job loss. It is often a clause in their original employment contract with the company. As John lost his employment in the newly merged airline, a golden parachute agreement may provide him with financial security and benefits during the transition period.

Question 5

As the vice-president,Sheila will receive short-term incentive compensation awards based on which two conditions?
A) her rank and compensation level
B) her age and department
C) her department and rank
D) her age and compensation level

Accepted Answer

The answer of As the vice-president,Sheila will receive short-term incentive...

Question 6

Which type of stock options does not give executives favorable tax treatment?
A) incentive
B) restricted
C) nonstatutory
D) phantom

Accepted Answer

Nonstatutory stock options, also known as non-qualified stock options, are not eligible for favorable tax treatment like incentive stock options. When nonstatutory options are exercised, the difference between the fair market value and the exercise price is taxed as ordinary income.

Question 7

These rights provide employees with an opportunity to purchase a number of stocks at a designated price within a specified period of time.
A) stock option
B) stock grant
C) disposition
D) exercise of one's grant

Accepted Answer

This describes a stock option, as it allows the employee to purchase a set number of stocks at a specific price during a designated time period.

Question 8

This refers to the sale of stock by the stockholder.
A) stock option
B) stock grant
C) disposition
D) exercise of one's grant

Accepted Answer

Disposition refers to the sale of stock by the stockholder. Stock option (A) refers to the right to purchase stock at a specific price, stock grant (B) refers to the giving of stock as a form of compensation, and exercise of one's grant (D) refers to the act of using a stock option to purchase stock.

Question 9

When he became CEO,Duane was given a stock option that does not require him to exercise his options in order to receive income.Which plan is it?
A) stock appreciation rights
B) discount stock
C) restricted stock
D) golden parachute

Accepted Answer

Stock appreciation rights (SARs) give the CEO the right to receive compensation based on the appreciation of the company's stock price without having to actually purchase the stock. This aligns the CEO's interests with the company's performance and incentivizes them to work towards increasing the stock price. Unlike restricted stock or discount stock which require the CEO to actually own the stock, SARs provide income without requiring any out-of-pocket expense from the CEO. Golden parachute is a separate type of compensation plan and not relevant to the given scenario.

Question 10

What does the IRS use the term "key employees" for?
A) for non-discrimination rules in retirement benefits
B) for non-discrimination rules in health insurance benefits
C) to determine the necessity of top-heavy provisions in employer-sponsored qualified retirement plans
D) to determine the necessity of top-heavy provisions in employer-sponsored health insurance plans

Accepted Answer

The IRS uses the term "key employees" to determine the necessity of top-heavy provisions in employer-sponsored qualified retirement plans. This is to ensure that the plan does not unfairly benefit high-ranking employees to the detriment of other employees.

Question 11

This is the difference between the stock price at the time of purchase and the lower stock price at the time an executive receives the stock option.
A) disposition value
B) discounted value
C) fair market value
D) capital gains

Accepted Answer

The answer of This is the difference between the stock...

Question 12

What is the term used when a company offers stock to its employees?
A) stock allocation
B) stock option
C) stock grant
D) stock disposition

Accepted Answer

The answer of What is the term used when a...

Question 13

Which of the following are the two main components of current core compensation?
A) base pay & bonuses
B) base pay & legally-required benefits
C) bonuses & legally-required benefits
D) base pay & discretionary benefits

Accepted Answer

Base pay and bonuses are the two main components of current core compensation.

Question 14

This type of executive bonus is based on a bonus pool that is determined by a fixed-formula that is not determined by the executive's performance.
A) target plan
B) predetermined allocation
C) performance-contingent
D) discretionary

Accepted Answer

Predetermined allocation bonuses are based on a fixed formula, usually tied to the company's financial performance, and are not linked to individual executive performance.

Question 15

Restricted stock generally allows the executives ownership of the stock after how many years?
A) 20-30
B) 5-10
C) 3-5
D) 1-3

Accepted Answer

The answer of Restricted stock generally allows the executives ownership...

Question 16

An insurance company's board of directors decided to promise Katherine,one of their recently hired senior executives,to pay a bonus that is equal to the value of 10,000 company shares at the time she started to work.What type of compensation arrangement did the board of directors promise?
A) discount stock option plans
B) incentive stock options
C) phantom stock
D) golden parachutes

Accepted Answer

The compensation arrangement promised by the board of directors is phantom stock, which is a type of non-cash compensation that gives the recipient the right to a cash payment equal to the value of a certain number of company stocks without actually giving them ownership of the stocks.

Question 17

The IRS considers Sylvia to be a highly compensated employee for Beautiful Pictures,Inc.,which means she has at least one of which of the following qualifications in the preceding year?
A) 1% owner in the top paid employee group
B) 5% owner in the top paid employee group
C) made over $50,000
D) made over $75,000

Accepted Answer

According to IRS regulations, a highly compensated employee is defined as someone who was a 5% owner of the business at any point during the current or preceding year or received compensation of $125,000 or more in the preceding year. Option A is also a requirement, but only for top paid employee group. Options C and D are incorrect as they do not reflect the specific IRS definitions for highly compensated employees.

Question 18

Which executive bonus amount varies with the extent to which a pre-established minimum performance level is met?
A) target plan
B) predetermined allocation
C) performance-contingent
D) discretionary

Accepted Answer

The answer of Which executive bonus amount varies with the...

Question 19

A short-term incentive plan would most likely be used for which company employee?
A) a sanitation worker
B) a new employee in training
C) a mid-level manager
D) the company's CEO

Accepted Answer

The answer of A short-term incentive plan would most likely...

Question 20

Under the Troubled Assets Relief Program (TARP),banks with financial assistance from the federal government can only deduct how much annually for an executive's pay as a business expense?
A) $100,000
B) $200,000
C) $500,000
D) $1,000,000

Accepted Answer

Banks with financial assistance from the federal government under TARP can only deduct up to $500,000 annually for an executive's pay as a business expense, as per the rules set by the Treasury Department.

Quiz 12: Compensating Executives

What is the advantage of compensation deferment until retirement for a CEO?

These entitle an executive to purchase company stock in the future for a predetermined price.

This type of executive bonus plan is similar to the appraisal system used to determine merit increases for non-executive employees.

After the recent merger of ABC and XYZ Airlines,the former CFO of XYZ Airlines,John,lost his employment in the newly merged airline.Which compensation agreement extends pay and benefits for John?

As the vice-president,Sheila will receive short-term incentive compensation awards based on which two conditions?

Which type of stock options does not give executives favorable tax treatment?

These rights provide employees with an opportunity to purchase a number of stocks at a designated price within a specified period of time.

This refers to the sale of stock by the stockholder.

When he became CEO,Duane was given a stock option that does not require him to exercise his options in order to receive income.Which plan is it?

What does the IRS use the term "key employees" for?

This is the difference between the stock price at the time of purchase and the lower stock price at the time an executive receives the stock option.

What is the term used when a company offers stock to its employees?

Which of the following are the two main components of current core compensation?

This type of executive bonus is based on a bonus pool that is determined by a fixed-formula that is not determined by the executive's performance.

Restricted stock generally allows the executives ownership of the stock after how many years?

An insurance company's board of directors decided to promise Katherine,one of their recently hired senior executives,to pay a bonus that is equal to the value of 10,000 company shares at the time she started to work.What type of compensation arrangement did the board of directors promise?

The IRS considers Sylvia to be a highly compensated employee for Beautiful Pictures,Inc.,which means she has at least one of which of the following qualifications in the preceding year?

Which executive bonus amount varies with the extent to which a pre-established minimum performance level is met?

A short-term incentive plan would most likely be used for which company employee?

Under the Troubled Assets Relief Program (TARP) ,banks with financial assistance from the federal government can only deduct how much annually for an executive's pay as a business expense?