CEP Equity Compensation Plans & Design 2

Question 1

A company wants to provide equity awards that do not require employees to pay an exercise price. Which plan type best meets this objective?

Accepted Answer

Restricted Stock Units (RSUs)

Answer

RSUs deliver shares to employees upon vesting without requiring any purchase or exercise price.

Question 2

Under IRC Section 422, ISOs may only be granted to which category of individuals?

Accepted Answer

Employees of the company or a qualifying subsidiary

Answer

ISOs are exclusively available to employees; consultants, directors, and other non-employees are ineligible.

Question 3

A plan provision that accelerates vesting of all outstanding awards upon a change in control is known as:

Accepted Answer

Single-trigger acceleration

Answer

Single-trigger acceleration causes vesting to speed up upon a change-in-control event alone, without requiring a second triggering event such as termination.

Question 4

What is the primary purpose of a 'liberal share counting' provision in an equity plan?

Accepted Answer

To allow shares surrendered for tax withholding or exercise price to be returned to the plan reserve

Answer

Liberal share counting recycles shares used to pay taxes or the exercise price back into the plan reserve, extending the life of the share pool.

Question 5

Which of the following best describes a 'fungible share ratio' in an equity plan?

Accepted Answer

The conversion rate applied when full-value awards reduce the plan's share reserve at a higher rate than options

Answer

A fungible ratio (e.g., 1.5:1 or 2:1) causes each full-value share granted (RSU/restricted stock) to count as more than one share against the reserve, reflecting its higher value versus an option.

(CEP) Certified Equity Professional Practice Test

(CEP) Certified Equity Professional Practice Test

CEP Equity Compensation Plans & Design 2