CCP Executive Compensation & Benefits 2

Question 1

Which IRC section governs the $1 million deductibility cap on executive compensation for publicly held corporations?

Accepted Answer

Section 162(m)

Answer

IRC Section 162(m) limits the corporate tax deduction for compensation paid to covered employees of publicly held corporations to $1 million annually.

Question 2

A 'golden parachute' payment triggers IRC Section 280G excise taxes when it exceeds what threshold?

Accepted Answer

3x the executive's average annual compensation

Answer

Section 280G imposes a 20% excise tax on 'excess parachute payments' — those exceeding 3x the executive's average annual W-2 compensation over the prior 5 years.

Question 3

What is the primary purpose of a rabbi trust in executive compensation?

Accepted Answer

To secure deferred compensation against employer insolvency with pretax deferral treatment

Answer

A rabbi trust informally funds deferred compensation obligations and protects against employer bankruptcy, but assets remain subject to the claims of general creditors, preserving tax deferral.

Question 4

Under SEC rules, which proxy disclosure document must detail the compensation of Named Executive Officers (NEOs)?

Accepted Answer

Compensation Discussion and Analysis (CD&A)

Answer

The Compensation Discussion and Analysis (CD&A) section of the proxy statement is required by SEC rules to explain the rationale and details of NEO compensation.

Question 5

A nonqualified deferred compensation plan that fails to comply with IRC Section 409A requirements faces what immediate consequences for the employee?

Accepted Answer

Immediate income inclusion, 20% additional tax, and interest penalty

Answer

Section 409A violations cause all deferred amounts to become immediately taxable, plus a 20% penalty tax and underpayment interest on the amounts.

(CCP) Certified Compensation Professional Practice Test

(CCP) Certified Compensation Professional Practice Test

CCP Executive Compensation & Benefits 2