CCP Incentive Compensation 3

Question 1

A company grants 1,000 stock options with a 4-year graded vesting schedule (25% per year). If the employee leaves after 2.5 years, how many options are vested?

Accepted Answer

500

Answer

With 25% graded vesting per year, only fully completed years count: 2 years × 250 options = 500 vested options.

Question 2

Which of the following is a key disadvantage of using earnings per share (EPS) as the sole long-term incentive metric?

Accepted Answer

It can be improved through share buybacks without operational improvement

Answer

EPS can be artificially inflated through share repurchases, which reduce the share count without improving underlying business performance.

Question 3

Under ASC 718, which event triggers remeasurement of liability-classified share-based awards?

Accepted Answer

Each reporting date until settlement

Answer

Liability-classified awards under ASC 718 must be remeasured at fair value each reporting period until final settlement.

Question 4

A company adopts a balanced scorecard approach for its annual incentive plan. This means the plan measures performance across:

Accepted Answer

Multiple perspectives including financial, customer, internal process, and learning

Answer

The balanced scorecard framework incorporates financial, customer, internal process, and learning/growth perspectives to give a holistic performance view.

Question 5

Which of the following best describes a 'golden handcuff' arrangement?

Accepted Answer

Incentive pay that vests over time to retain employees

Answer

Golden handcuffs are deferred compensation or equity awards structured to vest over time, creating a financial incentive for employees to remain with the company.

(CCP) Certified Compensation Professional Practice Test

(CCP) Certified Compensation Professional Practice Test

CCP Incentive Compensation 3