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
A company wants to reduce windfall payouts during unusually high market cycles. Which plan design feature best addresses this?
Answer: Performance cap or maximum payout limit
A maximum payout cap limits incentive payouts to a defined ceiling, preventing windfalls during atypical high-performance periods.
Under a nonqualified deferred compensation plan subject to IRC Section 409A, when must a participant make an initial deferral election?
Answer: Before the beginning of the year in which services are performed
IRC Section 409A generally requires deferral elections to be made before the start of the taxable year in which the services are rendered.
Which metric is most commonly used in relative Total Shareholder Return (TSR) plans to determine payout?
Answer: Percentile rank vs. peer group
Relative TSR plans compare the company's shareholder return to a peer group, ranking performance at a specific percentile to determine award payouts.
An employee receives a $10,000 cash bonus. Under FICA rules, how is this supplemental wage payment treated?
Answer: Subject to FICA taxes at the same rate as regular wages
Bonus payments are supplemental wages and are subject to FICA (Social Security and Medicare) taxes just like regular wages.
A sales incentive plan pays reps 5% commission on revenue up to quota and 8% on revenue above quota. This structure is known as:
Answer: Accelerated commission schedule
An accelerated commission schedule increases the payout rate once a threshold (quota) is exceeded, motivating above-target performance.
Which of the following best describes a phantom stock plan?
Answer: A cash-settled plan that mimics stock appreciation without issuing real shares
Phantom stock plans provide cash payments tied to stock value movements without granting actual equity, making them useful for private companies.
When designing an annual incentive plan, which approach ensures the performance goals remain challenging yet achievable?
Answer: Calibrating targets to a 50–60% probability of achievement
Best practice calibrates annual incentive targets so there is roughly a 50–60% chance of achieving them, balancing stretch with realism.