CECP Certified Executive Compensation Professional

A company's board wants to establish a target total direct compensation (TDC) positioning at the 50th percentile of its peer group. Which component is NOT typically included in TDC?

• ABase salary
• BAnnual incentive target
• CLong-term incentive grant value
• DDefined benefit pension accrual

When designing base salary ranges for C-suite executives, which factor MOST directly influences the midpoint of the range?

• AThe company's historical dividend payout ratio
• BCompetitive market data from the approved peer group
• CThe number of shares outstanding
• DThe company's credit rating

A CEO's annual incentive plan uses a performance matrix with revenue growth on one axis and operating margin on the other. At what performance level does the plan typically pay out at 100% of target?

• AWhen both metrics hit the threshold level
• BWhen both metrics hit the target level
• CWhen one metric hits maximum and the other hits threshold
• DWhen the company's stock price exceeds the S&P 500 return

Which of the following annual incentive plan features is MOST effective at preventing excessive payouts during windfall years?

• ASetting the threshold at 80% of target performance
• BEstablishing a maximum payout cap (e.g., 200% of target)
• CUsing only one performance metric
• DPaying incentives entirely in restricted stock

A compensation committee is evaluating LTIP vehicle mix for the CEO. Which combination BEST aligns the executive's interests with shareholders while providing retention value?

• A100% stock options
• B100% time-vested restricted stock units
• C50% performance shares and 50% time-vested RSUs
• D100% cash-settled phantom stock

When designing a three-year performance share plan, which vesting schedule feature provides the STRONGEST link between pay and long-term performance?

• AAnnual vesting in equal thirds with annual performance measurement
• BCliff vesting at the end of the three-year period with cumulative performance measurement
• CMonthly vesting with quarterly performance updates
• DImmediate vesting upon grant with a three-year holding requirement

A compensation consultant recommends revising the company's peer group for executive benchmarking. Which criterion is MOST important when selecting peer companies?

• ACompanies headquartered in the same state
• BCompanies of similar revenue size competing for the same executive talent
• CCompanies with the highest executive pay levels in any industry
• DCompanies with the same number of employees regardless of industry

ISS has flagged a company's peer group as having a significant size disparity. What is the MOST likely concern?

• AThe peer companies are in too many different industries
• BThe median revenue of the peer group is more than twice or less than half the company's r…
• CThe peer group contains fewer than 10 companies
• DThe peer group includes international companies

A company is designing its CEO's annual incentive plan with three performance metrics. The board wants to include strategic objectives alongside financial metrics. Which weighting allocation would MOST likely receive ISS support?

• A70% strategic/individual goals, 30% financial metrics
• B50% strategic goals, 50% financial metrics
• C30% strategic goals, 70% financial metrics
• D100% strategic/individual goals with board discretion

What is the primary advantage of using relative Total Shareholder Return (rTSR) as a performance metric in an LTIP?

• AIt eliminates all stock price volatility risk
• BIt measures performance relative to peers, removing broad market effects
• CIt guarantees a minimum payout regardless of stock performance
• DIt avoids the need for goal-setting by the compensation committee

Under the current tax code, what is the maximum annual income that can be used to calculate benefits under a tax-qualified defined benefit pension plan?

• A$175,000
• B$275,000
• C$345,000 (as indexed for 2026)
• DThere is no limit for executive participants

Which type of equity award provides value to the executive ONLY if the stock price increases above the grant price?

• ARestricted stock units (RSUs)
• BPerformance shares
• CStock options
• DRestricted stock awards

A company grants 10,000 stock options with an exercise price of $50 per share. The stock price is $75 when the executive exercises all options. What is the executive's pre-tax gain?

• A$50,000
• B$250,000
• C$500,000
• D$750,000

What is the key difference between RSUs and restricted stock awards (RSAs)?

• ARSUs provide voting rights during the vesting period; RSAs do not
• BRSAs are actual shares issued at grant with forfeiture risk; RSUs are promises to deliver…
• CRSUs are always performance-based; RSAs are always time-based
• DRSAs can only be granted to officers; RSUs can be granted to any employee

Under ASC 718, how should a company measure the fair value of RSUs at the grant date?

• APar value of the underlying shares
• BClosing stock price on the grant date minus the present value of expected dividends durin…
• CThe higher of book value or market value
• DThe Black-Scholes value used for stock options

A company grants performance shares with a three-year relative TSR modifier. Under ASC 718, how is the grant-date fair value determined for this market condition?

• AUsing the closing stock price on the grant date
• BUsing a Monte Carlo simulation model
• CUsing the target number of shares times the exercise price
• DThe fair value cannot be determined until the performance period ends

Performance shares with an EPS growth target vest at 0-200% of the target number of shares. Under ASC 718, how should the company recognize compensation expense if it becomes probable that 150% of target will vest?

• ARecognize expense based on 100% of target throughout the vesting period regardless of pro…
• BAdjust the cumulative expense to reflect the 150% probable outcome and recognize the rema…
• CWait until the end of the performance period to recognize any expense
• DRecognize expense based on the maximum 200% payout from the grant date

What is a stock appreciation right (SAR) and how does it differ from a stock option?

• AA SAR requires the executive to purchase shares; an option does not
• BA SAR pays the appreciation in cash or stock without requiring the executive to pay an ex…
• CA SAR has no expiration date; an option must be exercised within 10 years
• DA SAR is only available to board members; options can be granted to any employee

A company's equity plan has a fungible share pool where each full-value share (RSU, performance share) counts as 1.5 shares against the pool, while each stock option counts as 1.0 share. Why do companies use this structure?

• ATo comply with SEC reporting requirements for equity compensation
• BTo reflect that full-value shares have a higher economic value per share than options, th…
• CTo maximize the tax deduction available under IRC 162(m)
• DTo ensure all executives receive the same number of equity awards

What is the accounting impact of an equity award modification that increases the fair value of the award under ASC 718?

• ANo additional expense is required if the award was already fully expensed
• BThe company must recognize the incremental fair value (new fair value minus old fair valu…
• CThe company must reverse the original expense and recognize the new full fair value
• DThe company can elect to defer the additional expense to the following fiscal year

Which SEC filing contains the Compensation Discussion and Analysis (CD&A) and the Summary Compensation Table?

• AForm 10-K annual report
• BDEF 14A (annual proxy statement)
• CForm 8-K current report
• DForm S-1 registration statement

Under SEC rules, which executives are considered Named Executive Officers (NEOs) and must have their compensation disclosed in the proxy statement?

• AAll C-suite officers and division presidents
• BThe CEO, CFO, and the three other most highly compensated executive officers
• COnly the CEO and the board chair
• DAll officers listed in the company's organizational chart

Under the Dodd-Frank Act's pay ratio disclosure requirement, what must companies report annually in the proxy statement?

• AThe ratio of CEO pay to the average pay of the top 10 executives
• BThe ratio of CEO total compensation to median employee total compensation
• CThe ratio of CEO base salary to the minimum wage in the company's state
• DThe ratio of total executive compensation to total company revenue

What is the purpose of the say-on-pay vote required by the Dodd-Frank Act?

• ATo allow shareholders to set the exact salary levels for all executives
• BTo provide shareholders with an advisory (non-binding) vote on executive compensation
• CTo require shareholder approval before any executive can receive a bonus
• DTo give the SEC authority to cap executive compensation at public companies

A company received only 62% support in its most recent say-on-pay vote. What should the compensation committee do FIRST?

• AImmediately reduce the CEO's pay by 38% to match the opposition percentage
• BEngage in active shareholder outreach to understand the specific concerns driving the low…
• CFile an 8-K disclosing that the company will not change its compensation programs
• DReplace all members of the compensation committee

Under IRC Section 162(m), what is the current limitation on the tax deductibility of executive compensation for covered employees?

• ACompensation above $500,000 is non-deductible
• BCompensation above $1,000,000 is non-deductible, with no exceptions for performance-based…
• CAll executive compensation is fully deductible regardless of amount
• DCompensation above $1,000,000 is non-deductible, but performance-based pay is exempt

An executive's employment agreement includes a golden parachute provision. Under IRC Section 280G, what triggers the excise tax and loss of deductibility?

• AAny severance payment exceeding two weeks per year of service
• BParachute payments that equal or exceed three times the executive's base amount (five-yea…
• CAny payment to an executive who has been with the company for less than five years
• DSeverance payments exceeding the executive's most recent annual base salary

Which approach to mitigating the IRC 280G excise tax involves reducing parachute payments to just below the trigger threshold?

• AModified single trigger acceleration
• BBest-net cutback provision
• CDouble trigger change-in-control provision
• DTax gross-up provision

Under the SEC's clawback rules adopted pursuant to Dodd-Frank (effective 2023), which compensation is subject to mandatory recovery?

• AAll incentive compensation paid in the last five years
• BIncentive-based compensation received by current and former executive officers during the…
• COnly cash bonuses paid to the CEO in the year of the restatement
• DAll equity awards granted during the year of the misconduct

Under the Dodd-Frank clawback rules, does the company need to prove executive misconduct to recover erroneously awarded compensation?

• AYes, the company must prove intentional fraud by the executive
• BYes, the company must prove the executive was directly responsible for the accounting err…
• CNo, the clawback is mandatory and applies on a no-fault basis
• DNo, but the executive can avoid recovery by voluntarily returning 50% of the excess amount

What is the primary role of a board compensation committee?

• ATo negotiate individual employment contracts for all employees
• BTo oversee the design, implementation, and governance of executive compensation programs
• CTo manage the company's total payroll budget for all employees
• DTo select and hire the company's external auditors

NYSE listing standards require that compensation committee members meet which independence requirement?

• AMembers must be current or former company employees
• BAll members must be independent directors with no material relationship to the company
• CAt least half the members must be independent directors
• DMembers must be approved by the SEC before serving

ISS evaluates executive compensation primarily through which analytical framework?

• ATotal compensation cost as a percentage of revenue
• BA quantitative pay-for-performance analysis comparing CEO pay and company performance to…
• CA comparison of executive pay to the federal minimum wage
• DThe ratio of fixed to variable compensation

A company is facing a shareholder proposal requesting that the board adopt a policy requiring executives to retain a significant portion of equity awards for the duration of their employment. This is an example of:

• AA clawback policy proposal
• BA stock ownership guideline or retention requirement proposal
• CA golden parachute elimination proposal
• DA say-on-pay frequency proposal

The Compensation Discussion and Analysis (CD&A) section of the proxy statement must include which of the following?

• AThe exact formulas used to calculate each executive's bonus, including specific performan…
• BA narrative discussion of the material factors underlying compensation policies and decis…
• CA comparison of the company's compensation to all companies in the S&P 500
• DIndividual performance reviews for each named executive officer

Under IRC Section 409A, which of the following triggers are considered permissible distribution events for nonqualified deferred compensation?

• AAt the executive's request at any time
• BSeparation from service, disability, death, specified time, change in control, or unfores…
• COnly upon the executive's retirement at age 65 or older
• DOnly upon a change in control of the company

An executive who is a 'specified employee' under IRC 409A separates from service. What special rule applies to their deferred compensation distribution?

• AAll deferred compensation is immediately forfeited
• BDistributions must be delayed at least six months following separation from service
• CThe executive may elect to receive distributions in monthly installments starting immedia…
• DThe company must withhold 50% of the distribution for federal taxes

What is a Supplemental Executive Retirement Plan (SERP) designed to do?

• AReplace the company's 401(k) plan for all employees
• BRestore retirement benefits lost due to IRS qualified plan limits and provide additional…
• CProvide health insurance to retired executives under COBRA
• DFund the executive's Social Security contributions

What is a 'double trigger' change-in-control provision in an executive compensation agreement?

• AThe executive receives double their normal severance upon any termination
• BBoth a change in control AND a qualifying termination of employment must occur for enhanc…
• CThe executive can trigger benefits by resigning within 30 days of a change in control
• DTwo separate board votes are required to approve the change-in-control payment

Glass Lewis generally recommends voting AGAINST say-on-pay when it identifies which of the following?

• AA company that pays its CEO below the peer group median
• BSignificant pay-performance disconnects, problematic pay practices, or poor responsivenes…
• CA company that uses relative TSR in its LTIP
• DA company that has not adopted a dividend reinvestment plan

When calculating dilution from equity compensation plans, which metric represents the potential dilutive impact of all outstanding equity awards?

• AOverhang (total shares reserved plus outstanding awards divided by total shares outstandi…
• BEarnings per share (EPS)
• CPrice-to-earnings ratio (P/E)
• DReturn on equity (ROE)

A company uses a Black-Scholes model to value stock options at grant. Which of the following inputs does NOT directly affect the Black-Scholes option value?

• AExpected stock price volatility
• BRisk-free interest rate
• CThe company's revenue growth rate
• DExpected term (time to exercise)

A CEO receives an annual incentive with a target of $1,500,000 and a payout range of 0-200%. The company achieves 120% of its financial target. Assuming a linear payout curve between target and maximum, what is the CEO's payout?

• A$1,500,000
• B$1,800,000
• C$2,400,000
• D$3,000,000

In executive compensation, what does 'pay mix' refer to?

• AThe combination of cash and non-cash benefits offered to all employees
• BThe proportion of total direct compensation allocated to base salary, annual incentives,…
• CThe ratio of male to female executive compensation
• DThe mix of domestic and international pay scales

Why have many S&P 500 companies shifted their CEO LTIP mix away from stock options toward performance shares and RSUs?

• AStock options became illegal under Dodd-Frank
• BPerformance shares and RSUs provide better retention value, avoid underwater risk, align…
• CStock options are no longer tax-deductible under any circumstances
• DRSUs are not subject to ASC 718 expense recognition

What is the SEC's 'pay versus performance' disclosure requirement effective for proxy statements filed in 2023 and later?

• AA simple comparison of CEO pay to the S&P 500 index return
• BA table comparing compensation actually paid (CAP) to company financial performance measu…
• CA requirement to publish all executive employment agreements in full
• DA mandatory reduction in CEO pay when the company underperforms

An executive's nonqualified deferred compensation plan allows for a 'rabbi trust' funding mechanism. What protection does a rabbi trust provide?

• AFull protection against company bankruptcy — assets are completely segregated
• BProtection against a change in management or hostile takeover by placing assets in an irr…
• CTax-free growth of deferred compensation investments
• DGuaranteed minimum returns on deferred compensation balances

Which Dodd-Frank provision requires companies to disclose the relationship between executive compensation and the company's financial performance?

• ASection 951 (say-on-pay)
• BSection 953(a) (pay versus performance)
• CSection 954 (clawback)
• DSection 955 (hedging disclosure)