CEBS Executive Compensation & Nonqualified Plans 2

Question 1

An Incentive Stock Option (ISO) differs from a Nonstatutory Stock Option (NSO) primarily in that:

Accepted Answer

ISOs must be exercised within 10 years and may generate preferential AMT treatment

Answer

NSOs are only available to executives who own more than 10% of company stock

Answer

ISOs trigger ordinary income tax at the date of grant

Answer

NSOs are exempt from Section 409A compliance requirements

Question 2

Restricted Stock Units (RSUs) are generally taxed to the executive at:

Accepted Answer

The date of vesting, as ordinary income on the fair market value of shares delivered

Answer

The date of grant, based on the stock's fair market value

Answer

The date of sale, as long-term capital gain

Answer

The date the employer makes a Section 83(b) election

Question 3

A phantom stock plan provides executives with:

Accepted Answer

A cash or stock payment equal to the value of a specified number of hypothetical shares

Answer

Actual shares of company stock held in escrow

Answer

An option to purchase stock at a discount to fair market value

Answer

Preferred stock with guaranteed dividends

Question 4

Stock Appreciation Rights (SARs) granted to an executive pay out:

Accepted Answer

Only the increase in stock value from the grant date to the exercise date

Answer

The full fair market value of the stock at the exercise date

Answer

A fixed dollar amount set at the time of grant

Answer

Dividends declared on the underlying shares during the holding period

Question 5

Section 280G of the Internal Revenue Code imposes an excise tax on 'excess parachute payments' made to executives. This provision is triggered when payments contingent on a change in control exceed:

Accepted Answer

Three times the executive's average annual compensation over the prior five years

Answer

$1 million in total compensation for the year

Answer

Two times the executive's base salary at the time of the transaction

Answer

The Section 415 defined benefit limit for the year

Question 6

An 'excess benefit plan' under ERISA is a nonqualified plan established to:

Accepted Answer

Restore qualified plan benefits limited by Section 415 or Section 401(a)(17) caps

Answer

Provide medical benefits beyond the ACA minimum essential coverage standards

Answer

Offer supplemental disability income above 60% of salary

Answer

Fund post-retirement health benefits for active executives

Question 7

The 'constructive receipt' doctrine requires an executive to include deferred compensation in income when:

Accepted Answer

Amounts are set aside and made available to the executive without substantial limitation

Answer

The employer formally funds the plan with an irrevocable contribution

Answer

The executive reaches age 59½ and becomes eligible for early distributions

Answer

The employer files Form W-2 reporting the deferred amounts