Deck 12: Compensating Executives

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.

Answer 1

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

Answer 2

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

Answer 3

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

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

Question 6

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

A) incentive
B) restricted
C) nonstatutory
D) phantom

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Question 21

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

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

Question 22

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 23

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

Question 24

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 called

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

Question 25

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

Question 26

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 27

In 2009,the average CEO earned how much more annually than the average food service worker?

A) 12 times greater
B) 38 times greater
C) 74 times greater
D) 156 times greater

Question 28

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 29

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

Question 30

What was the median annual earnings for all U.S.civilian workers in 2009?

A) $33,190
B) $41,778
C) $46,120
D) $51,980

Question 31

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

Question 32

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 33

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

Question 34

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 35

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

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

Question 36

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 37

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) There is no simple answer as to what should be the compensation level of this CEO.
D) The compensation of this CEO depends only on pretax profit margins, so we need more information to decide on the compensation of this CEO.

Question 38

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

Question 39

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

Question 40

A ________ entails an examination of a company's external market context along with internal factors.

Question 41

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

Question 42

Discuss the six forms of deferred (stock)compensation.

Question 43

Briefly discuss the current core compensation and employee benefits of executive compensation.