Deck 11: Compensating Executives

Question 1

________ bonuses are awarded to executives by boards of directors on an elective basis.

Answer 1

Discretionary

Question 2

Company stock shares are the main form of executives' ________ compensation.

Answer 2

deferred

Question 3

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 executive compensation agreement is customary in such circumstances?

A)stock buyout plans
B)clawback awards
C)platinum parachutes
D)golden parachutes

Answer 3

D

Question 4

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

A)base pay and bonuses
B)base pay and legally required benefits
C)bonuses and legally required benefits
D)base pay and discretionary benefits

Question 5

Which of the following 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

Question 6

Pertaining to CEO compensation,under classic economic theory,which of the following is true?

A)The price is obtained through negotiations that are at arm's length.
B)The CEO names her price.
C)Compensation is based on a market survey and job evaluation.
D)The board of directors set CEO compensation.

Question 7

The IRS considers Sylvia to be a highly compensated employee for Beautiful Pictures,Inc.,which means that she met which one of the following criteria (assume that the previous year was 2015)?

A)either a current annual salary of more than $170,000; and, in the previous year, a 5% owner or a 1% owner of the employer's business whose annual pay was greater than $150,000
B)either an annual salary of more than $170,000; or, in the previous year, a 5% owner or a 1% owner of the employer's business whose annual pay was greater than $150,000
C)an annual salary exceeding $50,000
D)an annual salary less than $170,000

Question 8

Which of the following refers to the sale of stock by the stockholder?

A)stock option
B)stock grant
C)disposition
D)exercise of one's grant

Question 9

Which of the following is the term used when a company offers stock to its employees?

A)stock allocation
B)stock option
C)stock grant
D)stock disposition

Question 10

These rights provide employees with an opportunity to purchase stock shares at a designated price or whenever the stock price increases,usually,within a specified period of time.

A)stock option
B)stock grant
C)disposition
D)exercise of one's grant

Question 11

Which of the following represent formal criteria for defining executive status?

A)board of directors and key employees
B)key employees and highly paid employees
C)CEO and highly compensated employees
D)key employees and highly compensated employees

Question 12

As CEO,Duane was granted stock options that do not require him to exercise them to receive income.Which of the following plans is it?

A)stock appreciation rights
B)discount stock
C)restricted stock
D)golden parachute

Question 13

In theory,the CEO hires the consultant to perform an objective analysis of the company's executive pay package and to make whatever recommendations the consultant feels are appropriate;however,in practice,which tends to be the case?

A)Shareholders' interests are often placed secondary to the interests of the CEO.
B)This relationship generally leads to a compensation package that is higher than expected.
C)This relationship generally leads to a compensation package that is lower than expected.
D)This relationship has the potential to promote a conflict of interest.

Question 14

For which reason does the IRS use the term "key employees"?

A)non-discrimination rules in retirement benefits
B)non-discrimination rules in health insurance benefits
C)top-heavy provisions in employer-sponsored qualified retirement plans
D)top-heavy provisions in employer-sponsored health insurance plans

Question 15

The recently appointed CEO of XYZ Inc.uses a luxury summerhouse owned by the company for rest and relaxation with his family as well as a place to invite important clients before a lucrative business deal.XYZ Inc.also provides a membership to an exclusive country club to its CEO.These kinds of benefits offered to CEOs are known as which of the following?

A)discretionary bonuses
B)perquisites
C)golden parachutes
D)clawback provisions

Question 16

The XYZ Co.took back performance-based compensation of $1.2 million from their CEO because of his decision of the buyout of another firm that eventually lowered the overall value of the XYZ Co.Which of the following compensation agreements allowed the board of directors to take back this $1.2 million?

A)platinum parachutes
B)clawback provisions
C)phantom stock
D)golden parachute

Question 17

Which of the following describes CEO compensation that is deemed ineffective?

A)pay-for-status
B)pay-for-nonperformance
C)seniority-based pay
D)person-focused pay

Question 18

Which of the following are shares of company stock that are awarded to executives at the end of the mandatory stipulation period?

A)deferred stock shares
B)deferred stock units
C)restricted stock options
D)restricted stock units

Question 19

Which government agency provides the criteria for defining executive status?

A)Securities and Exchange Commission
B)U)S. Department of Labor
C)Internal Revenue Service
D)Dodd-Frank Commission

Question 20

Which type of plans provide an executive with ownership stakes in the company through a variety of mechanisms,including stock option plans and stock purchase plans?

A)equality plans
B)equity plans
C)golden parachutes
D)profit sharing plans

Question 21

Which of the following arguments do labor unions use regarding the substantial pay discrepancies between CEOs and non CEOs?

A)Discrepancies are socially unjust and promote economic inequality.
B)Discrepancies contribute to labor strikes.
C)Discrepancies undermine global competitiveness.
D)Discrepancies decrease which promotes effective companies seek to recruitment and retention.

Question 22

Describe golden parachute and platinum parachute practices.How are they similar to each other? How are these different from each other?

Question 23

The concept that individuals evaluate their accomplishments by comparing themselves to similar individuals is based on ________ theory.

Question 24

A provision of the ________ established the say-on-pay practice.

Question 25

Under SEC rules,which of the following is true?

A)Shareholders may be subject to personal liability for paying excessive executive compensation.
B)Publicly held corporations must disclose executive compensation information to shareholders, but not the public.
C)Board of director members can sue a corporation for excessive executive compensation.
D)Board of director members may be subject to personal liability for paying excessive executive compensation.

Question 26

Which organization has as one of its main goals to help prospective investors understand the financial matters of importance to companies?

A)U)S. Department of Labor
B)Public Company Accounting Oversight Board
C)Securities and Exchange Commission
D)Dodd-Frank Commission

Question 27

The SEC's Summary Compensation Table contains data covering how many years?

A)3
B)5
C)7
D)10

Question 28

Who are the key players in setting executive compensation? Detail their different roles.How does the SEC affect their roles?

Question 29

________ provide pay and benefits to executives after a termination that results from a change in ownership or merger.

Question 30

Shareholders' interests are represented by a ________,who weigh the pros and cons of top executives' decisions.

Question 31

Which legally required document reveals detailed information about the compensation of the CEO and named executive officers (NEOs)?

A)company's annual report
B)compensation and benefits scorecard
C)definitive proxy statement (DEF 14(A))
D)say-on-pay summary statement

Question 32

The actions of executives on behalf of their own self-interest are known as the ________ problem.

Question 33

Executives receive ________ as 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.

Question 34

The SEC requires compensation information about the CEO and how many of the highest paid executives?

A)10
B)7
C)4
D)2

Question 35

Discuss the three key provisions of the Dodd-Frank Act that apply to setting executive compensation.

Question 36

A ________ stock plan is an arrangement whereby executives receive a bonus that is equivalent to either the value of company shares or the increase in that value over time.

Question 37

When companies hire new CEOs from other companies,how do they compensate them?

A)approximately the same as individuals who are promoted to CEO from within the company
B)substantially more than individuals who are promoted to CEO from within the company
C)substantially less than individuals who are promoted to CEO from within the company
D)at least 50 times the average median employee salary within the company

Question 38

In the end,Yolanda beat Tristen and Michel in a series of competitions among top-level managers to become CEO of National LemGlass.Which compensation theory did the company probably use?

A)tournament
B)competition
C)comparison
D)agency

Question 39

The ________ Act of 2002 brought a number of reforms to enhance corporate responsibility,enhance financial disclosures,and combat accounting fraud due to dishonesty in companies such as Enron and Tyco.

Question 40

Using this executive compensation theory,shareholders negotiate the compensation contracts with the executive in hopes of aligning the executive's interests with theirs.

A)agency
B)tournament
C)social comparison
D)strategic

Question 41

What was the median annual earnings for all U.S.civilian workers in 2014?

A)$47,230
B)$51,980
C)$46,230
D)$41,778

Question 42

In May 2014,the typical CEO earned approximately how much more annually than fast food cooks?

A)100 times more
B)120 times more
C)160 times more
D)approximately 180 times more

Question 43

Are CEOs compensated commensurately with their companies' performance?

Question 44

XYZ Pharmaceuticals recently announced that the clinical trials for a cancer drug failed to cure the illness.This announcement led to a dramatic decrease in the stock value of the company.The company hired a new CEO two years ago when the clinical trials for this drug had already initiated.Which one of the following is true about the compensation of the CEO of XYZ Pharmaceuticals?

A)The CEO should receive lower compensation since shareholder returns have been declining.
B)The CEO was not involved in the decision of the failed initiative; therefore he/she should not receive lower compensation.
C)Each company handles this situation differently.
D)The compensation of this CEO depends only on pretax profit margins.