2020 Chapter 11 - Compensating Executives

What was the median annual earnings for all U.S. civilian workers in 2014? A) $47,230 B) $51,980 C) $46,230 D) $41,778

$47,230

The Securities and Exchange Commission (SEC)'s Summary Compensation Table contains data covering how many years?

3

Which of the following arguments do labor unions use regarding the substantial pay discrepancies between CEOs and non CEOs? A) Discrepancies are socially unjust and promote economic inequality. B) Discrepancies contribute to labor strikes. C) Discrepancies undermine global competitiveness. D) Discrepancies decrease which promotes effective companies seek to recruitment and retention.

Discrepancies are socially unjust and promote economic inequality.

The ________ Act of 2002 brought a number of reforms to enhance corporate responsibility, enhance financial disclosures, and combat accounting fraud due to dishonesty in companies such as Enron and Tyco.

Sarbanes-Oxley

Which organization has as one of its main goals to help prospective investors understand the financial matters of importance to companies? A) U.S. Department of Labor B) Public Company Accounting Oversight Board C) Securities and Exchange Commission D) Dodd-Frank Commission

Securities and Exchange Commission

Company stock shares are the main form of executives' ________ compensation.

deferred

Which legally required document reveals detailed information about the compensation of the CEO and named executive officers (NEOs)? A) company's annual report B) compensation and benefits scorecard C) definitive proxy statement (DEF 14(A)) D) say-on- pay summary statement

definitive proxy statement (DEF 14(A))

________ provide pay and benefits to executives after a termination that results from a change in ownership or merger.

golden parachutes

The concept that individuals evaluate their accomplishments by comparing themselves to similar individuals is based on ________ theory.

social comparison

Which of the following is the term used when a company offers stock to its employees? A) stock allocation B) stock option C) stock grant D) stock disposition

stock grant

The Securities and Exchange Commission (SEC) requires compensation information about the CEO and how many of the highest paid executives?

4

Under SEC rules, which of the following is true? A) Shareholders may be subject to personal liability for paying excessive executive compensation. B) Publicly held corporations must disclose executive compensation information to shareholders, but not the public. C) Board of director members can sue a corporation for excessive executive compensation. D) Board of director members may be subject to personal liability for paying excessive executive compensation.

Board of director members may be subject to personal liability for paying excessive executive compensation.

A provision of the ________ established the say-on- pay practice.

Dodd-Frank Act

XYZ Pharmaceuticals recently announced that the clinical trials for a cancer drug failed to cure the illness. This announcement led to a dramatic decrease in the stock value of the company. The company hired a new CEO two years ago when the clinical trials for this drug had already initiated. Which one of the following is true about the compensation of the CEO of XYZ Pharmaceuticals? A) The CEO should receive lower compensation since shareholder returns have been declining. B) The CEO was not involved in the decision of the failed initiative; therefore he/she should not receive lower compensation. C) Each company handles this situation differently. D) The compensation of this CEO depends only on pretax profit margins.

Each company handles this situation differently.

Pertaining to CEO compensation, under classic economic theory, which of the following is true? A) The price is obtained through negotiations that are at arm's length. B) The CEO names her price. C) Compensation is based on a market survey and job evaluation. D) The board of directors set CEO compensation.

The price is obtained through negotiations that are at arm's length.

In theory, the CEO hires the consultant to perform an objective analysis of the company's executive pay package and to make whatever recommendations the consultant feels are appropriate; however, in practice, which tends to be the case? A) Shareholders' interests are often placed secondary to the interests of the CEO. B) This relationship generally leads to a compensation package that is higher than expected. C) This relationship generally leads to a compensation package that is lower than expected. D) This relationship has the potential to promote a conflict of interest.

This relationship has the potential to promote a conflict of interest.

The actions of executives on behalf of their own self-interest are known as the ________ problem.

agency

Using this executive compensation theory, shareholders negotiate the compensation contracts with the executive in hopes of aligning the executive's interests with theirs.

agency

In May 2014, the typical CEO earned approximately how much more annually than fast food cooks? A) 100 times more B) 120 times more C) 160 times more D) approximately 180 times more

approximately 180 times more

Which of the following are the two main components of current core compensation? A) base pay and bonuses B) base pay and legally required benefits C) bonuses and legally required benefits D) base pay and discretionary benefits

base pay and bonuses

Shareholders' interests are represented by a ________, who weigh the pros and cons of top executives' decisions.

board of directors

Executives receive ________ as the difference between the stock price at the time of purchase and the lower stock price at the time an executive receives the stock option.

capital gains

Which of the following is the difference between the stock price at the time of purchase and the lower stock price at the time an executive receives the stock option? A) disposition value B) discounted value C) fair market value D) capital gains

capital gains

The XYZ Co. took back performance-based compensation of $1.2 million from their CEObecause of his decision of the buyout of another firm that eventually lowered the overall value of the XYZ Co. Which of the following compensation agreements allowed the board of directors to take back this $1.2 million? A) platinum parachutes B) clawback provisions C) phantom stock D) golden parachute

clawback provisions

________ bonuses are awarded to executives by boards of directors on an elective basis.

discretionary

Which of the following refers to the sale of stock by the stockholder? A) stock option B) stock grant C) disposition D) exercise of one's grant

disposition

The IRS considers Sylvia to be a highly compensated employee for Beautiful Pictures, Inc., which means that she met which one of the following criteria (assume that the previous year was 2015)? A) either a current annual salary of more than $170,000; and, in the previous year, a 5% owner or a 1% owner of the employer's business whose annual pay was greater than $150,000 B) either an annual salary of more than $170,000; or, in the previous year, a 5% owner or a 1% owner of the employer's business whose annual pay was greater than $150,000 C) an annual salary exceeding $50,000 D) an annual salary less than $170,000

either an annual salary of more than $170,000; or, in the previous year, a 5% owner or a 1% owner of the employer's business whose annual pay was greater than $150,000

Which type of plans provide an executive with ownership stakes in the company through a variety of mechanisms, including stock option plans and stock purchase plans? A equity plans B golden parachutes C equality plans D profit sharing plans

equity plans

After the recent merger of ABC and XYZ Airlines, the former CFO of XYZ Airlines, John, lost his employment in the newly merged airline. Which executive compensation agreement is customary in such circumstances? A stock buyout plans B golden parachutes C clawback awards D platinum parachutes

golden parachutes

Which government agency provides the criteria for defining executive status? A Internal Revenue Service B Securities and Exchange Commission C U.S. Department of Labor D Dodd-Frank Commission

internal revenue service

Which of the following represent formal criteria for defining executive status? A) board of directors and key employees B) key employees and highly paid employees C) CEO and highly compensated employees D) key employees and highly compensated employees

key employees and highly compensated employees

Which of the following describes CEO compensation that is deemed ineffective? A) pay-for- status B) pay-for- nonperformance C) seniority-based pay D) person-focused pay

pay-for- nonperformance

The recently appointed CEO of XYZ Inc. uses a luxury summerhouse owned by the company for rest and relaxation with his family as well as a place to invite important clients before a lucrative business deal. XYZ Inc. also provides a membership to an exclusive country club to its CEO. These kinds of benefits offered to CEOs are known as which of the following? A) discretionary bonuses B) perquisites C) golden parachutes D) clawback provisions

perquisites

A ________ stock plan is an arrangement whereby executives receive a bonus that is equivalent to either the value of company shares or the increase in that value over time.

phantom

Which of the following are shares of company stock that are awarded to executives at the end of the mandatory stipulation period? A) deferred stock shares B) deferred stock units C) restricted stock options D) restricted stock units

restricted stock units

As CEO, Duane was granted stock options that do not require him to exercise them to receive income. Which of the following plans is it? A) stock appreciation rights B) discount stock C) restricted stock D) golden parachute

stock appreciation rights

These rights provide employees with an opportunity to purchase stock shares at a designated price or whenever the stock price increases, usually, within a specified period of time.

stock option

When companies hire new CEOs from other companies, how do they compensate them? A) approximately the same as individuals who are promoted to CEO from within the company B) substantially more than individuals who are promoted to CEO from within the company C) substantially less than individuals who are promoted to CEO from within the company D) at least 50 times the average median employee salary within the company

substantially more than individuals who are promoted to CEO from within the company

For which reason does the IRS use the term "key employees"? A) non-discrimination rules in retirement benefits B) non-discrimination rules in health insurance benefits C) top-heavy provisions in employer-sponsored qualified retirement plans D) top-heavy provisions in employer-sponsored health insurance plans

top-heavy provisions in employer-sponsored qualified retirement plans

In the end, Yolanda beat Tristen and Michel in a series of competitions among top-level managers to become CEO of National LemGlass. Which compensation theory did the company probably use? A comparison B competition C agency D tournament

tournament