CEBS Executive Compensation & Nonqualified Plans 3

Question 1

Clawback provisions in executive compensation plans are designed to:

Accepted Answer

Allow the company to recover previously paid incentive compensation in specified circumstances

Answer

Accelerate vesting of equity awards upon a change in control

Answer

Defer taxation on stock options until the underlying shares are sold

Answer

Provide supplemental retirement income if the executive is terminated without cause

Question 2

Under SEC 'say-on-pay' rules enacted by the Dodd-Frank Act, public company shareholders:

Accepted Answer

Vote on executive compensation at least every three years, with a nonbinding advisory vote

Answer

Must approve all executive compensation packages before they take effect

Answer

Can veto individual equity grants to named executive officers

Answer

Are required to ratify all golden parachute arrangements annually

Question 3

A 'golden handcuff' arrangement in executive compensation is primarily intended to:

Accepted Answer

Retain executives by providing valuable benefits that are forfeited if they leave prematurely

Answer

Protect the company from hostile takeovers by key executives

Answer

Limit executive pay to a fixed percentage of total company payroll

Answer

Ensure executives comply with noncompete agreements after termination

Question 4

A 'Death Benefit Only' (DBO) plan for executives is structured so that:

Accepted Answer

No benefit is paid to the executive during their lifetime; only a post-death benefit is paid to beneficiaries

Answer

Executives receive a lifetime annuity beginning at age 55 funded by key-person insurance

Answer

The employer receives the full policy death benefit and pays a bonus to the executive's estate

Answer

Premium payments are split equally between the employer and the executive's 401(k) account

Question 5

Section 457(f) of the Internal Revenue Code applies to nonqualified deferred compensation plans maintained by:

Accepted Answer

State and local governments and tax-exempt organizations

Answer

Publicly traded corporations with more than 500 employees

Answer

Private-sector employers that do not offer qualified retirement plans

Answer

Foreign subsidiaries of U.S. multinational corporations

Question 6

Corporate-Owned Life Insurance (COLI) is used by employers in executive benefit programs primarily because:

Accepted Answer

Policy cash value grows tax-deferred and death benefits can informally fund nonqualified plan liabilities

Answer

Premiums paid on COLI policies are fully deductible as a business expense

Answer

COLI must be offered to all employees to maintain its tax-exempt status

Answer

The executive owns the policy and receives the cash value as a retirement benefit

Question 7

Which of the following best describes the 'substantial risk of forfeiture' standard critical to nonqualified deferred compensation taxation?

Accepted Answer

A benefit is conditioned on the executive performing future services or meeting a specific performance target

Answer

The executive's compensation is subject to market risk due to stock price fluctuation

Answer

The employer reserves the right to reduce benefits if company profits fall below a threshold

Answer

The executive must return prior-year bonuses if they voluntarily resign