Executive Compensation Governance Flashcards

Under SEC rules, which executives must be included in the proxy statement's Summary Compensation Table?

Answer: CEO, CFO, and the three other highest-paid named executive officers

SEC rules require disclosure for the CEO, CFO, and the three other most highly compensated executives (named executive officers, or NEOs).

What is the primary purpose of a clawback policy in executive compensation governance?

Answer: To recover previously paid compensation in cases of financial restatement or misconduct

Clawback policies allow companies to recoup previously paid incentive compensation when there is a financial restatement or executive misconduct.

The Dodd-Frank Act's 'pay ratio' rule requires public companies to disclose the ratio between:

Answer: CEO total compensation and the median total compensation of all employees

The Dodd-Frank pay ratio rule mandates disclosure of the CEO's annual total compensation compared to the median annual total compensation of all employees.

Which type of shareholder vote on executive pay is required under Dodd-Frank and is advisory in nature?

Answer: Say-on-pay vote

Say-on-pay is a non-binding advisory vote that allows shareholders to express approval or disapproval of named executive officer compensation.

When a compensation committee retains an outside compensation consultant, what disclosure is required under SEC rules?

Answer: Whether any conflicts of interest exist and how they are being addressed

SEC rules require proxy disclosure of whether the compensation committee's consultant has any conflicts of interest and what steps have been taken to address them.

What does 'peer group benchmarking' most commonly establish in executive compensation design?

Answer: Market-competitive pay levels for setting executive compensation targets

Peer group benchmarking compares the company's executive pay to similar companies to establish competitive market rates for base salary, bonus targets, and long-term incentives.

Which committee of the board of directors typically has primary responsibility for executive compensation decisions?

Answer: Compensation committee (also called the human capital committee)

The compensation committee (sometimes renamed the human capital committee) oversees executive pay philosophy, program design, and specific pay decisions for senior executives.