CCP Variable Pay & Incentive Programs 3

Question 1

Under IRC Section 162(m), what is the maximum deductible compensation that a publicly held corporation may pay to a 'covered employee' in a single tax year?

Accepted Answer

$1 million

Answer

IRC Section 162(m) limits the tax deductibility of compensation paid to covered employees (typically top executives) to $1 million per year.

Question 2

A company awards performance shares that pay out based on achieving a 3-year EPS growth target. If the target is missed, no shares are awarded. This is an example of what type of equity award?

Accepted Answer

Performance-contingent equity

Answer

Performance-contingent equity awards (like performance shares) deliver shares only if specific financial or operational goals are achieved.

Question 3

Which of the following represents a 'clawback' provision in an executive incentive plan?

Accepted Answer

The company can recoup previously paid bonuses if financial results are later restated

Answer

A clawback allows the company to recover compensation already paid if subsequent events (like a financial restatement) reveal the award was unwarranted.

Question 4

A Rucker Plan gainsharing formula calculates payouts based on the ratio of labor costs to the value added by manufacturing. What does 'value added' represent in this context?

Accepted Answer

Sales value of production minus the cost of materials and supplies

Answer

The Rucker Plan uses a value-added formula where production value minus material costs equals the base for calculating the labor cost ratio.

Question 5

When designing a sales incentive plan, a 'draw against commission' provision primarily serves which function?

Accepted Answer

Provides sales reps a guaranteed advance on future commissions during ramp-up periods

Answer

A draw against commission gives sales employees a regular payment during periods of low sales (like onboarding), which is later offset against earned commissions.

(CCP) Certified Compensation Professional Practice Test

(CCP) Certified Compensation Professional Practice Test

CCP Variable Pay & Incentive Programs 3