Executive Compensation & Equity Plans Flashcards
7 cards from real CPM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Executive Compensation & Equity Plans flashcards as text
Under a qualified Employee Stock Purchase Plan (ESPP) that meets Section 423 requirements, the maximum discount that may be offered to employees is:
Answer: 15%
Section 423 ESPPs may offer up to a 15% discount from the lower of the stock price at the beginning or end of the offering period.
When RSUs vest and shares are delivered to the employee, the employer is required to withhold:
Answer: Federal income tax, Social Security, and Medicare taxes
RSU vesting triggers ordinary compensation income subject to mandatory federal income tax withholding plus Social Security and Medicare (FICA) taxes.
The 'sell-to-cover' method for RSU tax withholding means that:
Answer: A portion of the vesting shares is automatically sold to generate proceeds equal to the required withholding taxes
Under sell-to-cover, the company sells enough newly vested shares on the employee's behalf to fund the withholding tax obligation, with net shares delivered to the employee.
For NQSO exercises paid as supplemental wages (separately from regular wages), the mandatory flat federal income tax withholding rate is:
Answer: 22%
The mandatory flat supplemental withholding rate is 22% for supplemental wages up to $1 million in a calendar year, including NQSO spread income.
To receive preferential long-term capital gains treatment on ISO shares, an employee must satisfy which holding periods?
Answer: Hold at least 1 year from the exercise date AND at least 2 years from the original grant date
Both conditions must be satisfied: shares held at least 1 year from exercise AND at least 2 years from grant date; failing either requirement results in a disqualifying disposition.
A 'disqualifying disposition' of ISO shares occurs when:
Answer: ISO shares are sold before satisfying both the 1-year-from-exercise and 2-year-from-grant holding periods
A disqualifying disposition converts the ISO gain to ordinary income because the shares were sold before meeting both statutory holding period requirements.
IRS Form 3922 is used by employers to report:
Answer: Transfers of stock acquired through a Section 423 Employee Stock Purchase Plan (ESPP)
Form 3922 is the information return filed for each transfer of ESPP stock acquired under a Section 423 plan, while Form 3921 covers ISO exercises.