Variable Pay & Incentive Programs 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 Variable Pay & Incentive Programs flashcards as text
A company sets a sales incentive plan with a 'threshold' of 80% quota attainment before any payout begins. What does this threshold primarily protect against?
Answer: Paying incentives for below-minimum acceptable performance
A threshold sets the minimum performance level required before any incentive is earned, preventing payouts for substandard results.
Which of the following best describes a 'leveraged' incentive plan?
Answer: Payouts increase disproportionately above target, rewarding overperformance heavily
A leveraged plan features accelerated payout rates above target, meaning overachievers earn disproportionately more.
An organization wants to fund its bonus pool based on how much profit exceeds a predetermined return on equity. This is an example of which funding approach?
Answer: Profit-sharing formula funding
Formula-funded plans tie the bonus pool directly to a financial metric like profit above a hurdle rate, ensuring self-funding.
Which metric is MOST appropriate as the performance measure for a long-term incentive plan (LTIP) focused on shareholder value creation?
Answer: Total Shareholder Return (TSR)
TSR measures stock price appreciation plus dividends, directly reflecting value delivered to shareholders over the performance period.
A gainsharing plan at a manufacturing facility pays employees based on labor cost savings versus a historical baseline. Which type of gainsharing plan uses this specific approach?
Answer: Improshare Plan
Improshare (Improved Productivity through Sharing) calculates gains based on labor hours saved compared to a baseline standard.
An employee receives $50,000 in restricted stock units (RSUs) that vest over 4 years. If the employee leaves after 2 years, what happens to the unvested RSUs under a standard cliff-vesting schedule?
Answer: They are forfeited back to the company
Under cliff vesting, unvested shares are forfeited if the employee leaves before meeting vesting requirements.
Which of the following is a key disadvantage of using individual incentive plans compared to team-based incentive plans?
Answer: They can discourage collaboration and create internal competition
Individual incentives can create a 'win-lose' culture where employees compete rather than collaborate, undermining team performance.