Compensation and Total Rewards Flashcards

Which type of incentive plan gives employees the right to purchase company stock at a fixed price within a specified period?

Answer: Stock options

Stock options grant the holder the right to buy company shares at a predetermined exercise price (grant price) within a defined exercise period.

What is the purpose of a salary survey in compensation benchmarking?

Answer: To compare internal pay rates to external market pay levels for similar jobs

Salary surveys collect compensation data from multiple employers to allow organizations to benchmark their pay against market rates for comparable positions.

What does the term 'pay mix' refer to in total compensation design?

Answer: The proportion of fixed base pay versus variable/incentive pay in total direct compensation

Pay mix describes the ratio of base salary to variable or incentive pay (e.g., 70% base/30% incentive), reflecting how much pay is at risk versus guaranteed.

Which pay philosophy means an organization sets pay rates at the 50th percentile of the relevant labor market?

Answer: Meet the market

A 'meet the market' or market-match philosophy means the organization targets the median (50th percentile) of competitive market pay for comparable jobs.

Under Section 162(m) of the IRC, deductions for compensation paid to certain covered executive officers are limited to:

Answer: $1 million per year

IRC Section 162(m) limits the tax deduction for compensation paid to covered executive officers of publicly held corporations to $1 million per officer per year.

What is the primary goal of a pay-for-performance compensation system?

Answer: To link compensation increases to individual, team, or organizational performance results

Pay-for-performance systems tie compensation decisions (merit increases, bonuses, incentives) directly to measured performance results to motivate and reward high performance.