Corporate Governance Executive Compensation & Incentives 2

Question 1

What is a 'performance share unit' (PSU)?

Accepted Answer

An equity award where the number of shares delivered depends on achieving multi-year performance targets

Answer

A stock option with performance-based vesting over one year

Answer

A cash bonus tied to stock price milestones

Answer

An RSU that vests immediately upon grant

Question 2

What is the 'say on golden parachutes' vote required by Dodd-Frank?

Accepted Answer

An advisory shareholder vote on change-of-control compensation arrangements disclosed in merger proxy statements

Answer

An annual shareholder vote on executive severance packages

Answer

A mandatory binding vote required before any executive termination

Answer

A quarterly compensation committee vote on parachute eligibility

Question 3

Which metric is most commonly used in long-term incentive plans to measure shareholder value creation?

Accepted Answer

Total shareholder return (TSR)

Answer

Return on equity (ROE)

Answer

Earnings per share (EPS)

Answer

Gross profit margin

Question 4

What is an 'underwater stock option'?

Accepted Answer

A stock option whose exercise price exceeds the current market price, making it valueless to exercise

Answer

A stock option granted to executives in exchange for underwater debt

Answer

An option that has been pledged as collateral for a margin loan

Answer

A stock option issued when the company's stock is at its 52-week low

Question 5

What is the role of the Compensation Committee in executive pay governance?

Accepted Answer

Setting and overseeing executive compensation in alignment with company strategy and shareholder interests

Answer

Approving all employee salary increases company-wide

Answer

Managing the company's equity award pool for all employees

Answer

Reporting executive compensation directly to the SEC

Question 6

What is an 'independent compensation consultant'?

Accepted Answer

A third-party advisor retained by the Compensation Committee to provide unbiased executive pay advice

Answer

An SEC-appointed expert who reviews all executive pay disclosures

Answer

A shareholder representative who advises the board on pay levels

Answer

An outside auditor who validates the accuracy of bonus calculations