Free CECP Practice Questions

Question 1

An executive's base amount is $500,000, and her total parachute payments on a change in control are $1,600,000 - exceeding her three-times base amount of $1,500,000. What is the amount of her excess parachute payment subject to the 20% excise tax under IRC Section 4999?

Accepted Answer

$1,100,000, being the amount by which the payments exceed one times the base amount

Answer

$100,000, being the amount by which the total payments exceed her three-times base amount

Answer

$1,600,000, because once the threshold is crossed the entire parachute amount is tainted

Answer

$500,000, an amount equal to one times her base amount

Question 2

A public company's compensation committee wants to retain a consulting firm that also provides substantial actuarial services to the company. Under SEC Rule 10C-1 and the related NYSE/Nasdaq listing standards, the committee may:

Accepted Answer

Retain the firm, provided the committee first considers the six enumerated independence factors

Answer

Retain the firm only after affirmatively determining that it qualifies as independent under each of the six factors

Answer

Not retain the firm, because providing other services to the company is a disqualifying conflict

Answer

Retain the firm only if fees from the company are below a specified percentage of its total revenue

Question 3

An employee receives an ISO grant covering shares with a grant-date fair market value of $80,000 vesting in Year 1, then receives a second ISO grant later that same year with $40,000 of grant-date value also first exercisable in Year 1. The stock has since tripled in value. What is the consequence under IRC Section 422?

Accepted Answer

$20,000 of the aggregate grant-date value is treated as a nonqualified option for that year

Answer

Both grants retain full ISO treatment, because neither grant alone exceeds the limit

Answer

The entire $40,000 second grant loses ISO treatment, because the annual limit is applied separately to each grant

Answer

A substantially larger portion is disqualified, because the excess is measured using the appreciated value at exercise

Question 4

A specified employee of a publicly traded company separates from service in March. Under IRC Section 409A, the mandatory six-month delay applies to which of the following?

Accepted Answer

Only those amounts payable on account of his separation from service

Answer

All of his deferred compensation, regardless of the payment trigger

Answer

All payments other than those made on account of his disability

Answer

His deferred compensation and any equity awards vesting after his departure

Question 5

A company grants performance share units that vest based on three-year total shareholder return relative to a peer index. TSR falls below the threshold and no shares are earned. Under ASC 718, the accounting treatment of the previously recognized compensation cost is:

Accepted Answer

Retain the cost, because relative TSR is a market condition already reflected in grant-date fair value

Answer

Reverse the full amount, because the vesting condition was not satisfied

Answer

Reverse the cost only to the extent it exceeds the awards' intrinsic value on the vesting date

Answer

Remeasure the awards at fair value each reporting period and adjust cumulative expense accordingly

Question 6

A listed company must restate prior financial statements. Its CFO played no role in the error and left the company 14 months ago. Under SEC Rule 10D-1 and the exchange listing standards, the company's clawback obligation is:

Accepted Answer

Mandatory, because recovery is required on a no-fault basis from current and former executive officers

Answer

Discretionary, because pursuing recovery from a former officer who bears no fault would be inequitable

Answer

Triggered only if the board determines that the former CFO's own conduct contributed to the restatement

Answer

Deferred pending an internal investigation into individual responsibility

Question 7

An executive receives a grant of restricted stock units and asks the compensation team whether she should file a Section 83(b) election to lock in today's low share price. The correct response is that:

Accepted Answer

The election is unavailable, because an RSU is only a promise and no property passes at grant

Answer

The election is available, provided she files it with the IRS within 30 days of the grant date

Answer

The election is available only if the RSUs vest on performance rather than time

Answer

The election is available and would also start her long-term capital gains holding period at grant

Question 8

In the Pay Versus Performance table required by Item 402(v) of Regulation S-K, 'Compensation Actually Paid' (CAP) for a fiscal year is determined by:

Accepted Answer

Deducting the SCT equity values and adding fair value remeasurements of vested and unvested awards

Answer

Reporting the cash compensation and share value the executive actually realized during the year

Answer

Reporting the Summary Compensation Table total, less any amounts still subject to future forfeiture

Answer

Reporting the original grant-date fair value of those awards that happened to vest during the year

Question 9

A privately held C corporation is being acquired and wants to use the shareholder approval exception to exempt its executives' parachute payments. Which condition must be satisfied?

Accepted Answer

Approval by more than 75% of the voting power, preceded by an irrevocable waiver from each disqualified individual

Answer

Approval by a majority of the disinterested shareholders, following adequate disclosure of the payments

Answer

Approval by at least 75% of the board's independent directors, after review by outside counsel

Answer

Approval by more than 75% of the voting power, counting the shares held by disqualified individuals in the total

Question 10

A named executive officer received perquisites during the fiscal year totaling $18,000, of which $9,000 was personal use of the company aircraft. Under Item 402 of Regulation S-K, the company must:

Accepted Answer

Report the total and identify each perquisite by type, without separately quantifying the aircraft use

Answer

Report the total and separately quantify the aircraft use, because it exceeds 10% of that executive's total perquisites

Answer

Omit the perquisite disclosure entirely, because no single item exceeds the $25,000 quantification threshold

Answer

Report the total and separately quantify every individual perquisite, regardless of its amount

Free CECP Practice Questions

Domain 2: Design Executive Compensation Plans 60% of exam

Question 1

Question 2

Question 3

Question 4

Question 5

Question 6

Question 7

Question 8

Domain 3: Administer Executive Compensation Programs 20% of exam

Question 9

Question 10

The rest of the CECP blueprint

That's 10 of 1,050