CECP flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Section 162(m) deduction limit

Limits corporate tax deduction for covered employee compensation to $1 million; performance-based exception repealed by TCJA 2017; covered employees include CEO, CFO, and certain former executives.

Section 409A deferred compensation

Governs nonqualified deferred compensation; requires written plan, timing rules for elections and distributions, and six-month delay for key employees; violations trigger 20% additional tax plus interest.

Excess parachute payment

Amount of a golden parachute payment exceeding three times the base amount (five-year average W-2 compensation); excess is nondeductible to the company and subject to 20% excise tax to the recipient.

Incentive stock option (ISO)

Stock option with tax advantages: no ordinary income at exercise if holding requirements met; $100,000 annual vesting limit; spread is an AMT preference item; taxed as long-term capital gain on sale.

Clawback policy (Rule 10D-1)

SEC and exchange listing standards require recovery of erroneously awarded incentive-based compensation following accounting restatements; applies to current and former executive officers for three fiscal years.

Say-on-pay vote

Advisory shareholder vote on executive compensation required by Dodd-Frank Section 951; frequency vote at least every six years; say-on-golden-parachute vote required for merger transactions.

Supplemental executive retirement plan (SERP)

Nonqualified deferred compensation plan for executives that supplements qualified retirement benefits; subject to Section 409A and often used to restore benefits limited by qualified plan caps.

Stock ownership guidelines

Governance policy requiring executives to hold a specified multiple of salary in company stock; not legally mandated but disclosed in proxy statements; supports alignment with shareholders.

Total rewards model

Framework encompassing compensation, benefits, work-life effectiveness, performance recognition, and development opportunities; broader than total compensation by including intangible and cultural elements.

Compa-ratio

Individual base salary divided by the midpoint of the salary range; a value of 1.0 means pay at midpoint; used to assess internal equity and market competitiveness.

Range penetration

Formula: (salary minus range minimum) divided by (range maximum minus range minimum); expresses position within a salary range as a percentage; useful for comparing employees across grades.

Pay mix

Ratio of fixed pay (base salary) to variable pay (bonuses, incentives); higher variable mix for sales and executive roles to align pay with performance and risk.

Point-factor job evaluation

Method assigning points to compensable factors (skill, effort, responsibility, working conditions) to determine relative job worth; used to establish internal equity and grade structures.

Market pricing

Process of matching jobs to survey data and using market rates to set pay levels; requires aging survey data to current date using salary budget increase or economic index.

Total compensation statement

Personalized communication showing employees the full value of salary, bonuses, benefits, and perquisites; enhances perceived value and supports retention and engagement.

Lead-lag pay strategy

Pay positioning relative to market: lead (above market), match (at market), lag (below market), or hybrid; choice depends on business strategy, labor market, and ability to pay.

FLSA exempt status

Employee classification exempt from overtime and minimum wage; requires salary basis and duties test (executive, administrative, professional, computer, outside sales); misclassification triggers penalties.

Regular rate of pay

Hourly rate used to calculate overtime; includes base pay plus nondiscretionary bonuses, shift differentials, and other remuneration; excludes discretionary bonuses and certain payments.

Overtime calculation for salaried non-exempt

Hourly equivalent equals weekly salary divided by total hours worked; overtime premium may be half-time if salary covers all hours worked; must use regular rate including nondiscretionary bonuses.

Wage garnishment limit

Consumer Credit Protection Act limits garnishment to lesser of 25% of disposable earnings or amount by which disposable earnings exceed 30 times federal minimum wage.

Equal Pay Act

Federal law requiring equal pay for substantially equal work regardless of sex; allows pay differences based on seniority, merit, quantity/quality of production, or factor other than sex.

Commission plan design

Written plan specifying when commissions are earned and paid; draw policies (recoverable vs. non-recoverable) affect cash flow and risk; must comply with state wage payment laws.

Salary range spread

Difference between range maximum and minimum expressed as percentage of minimum; typically 40-50% for exempt roles; midpoint progression between grades often 15-20%.

Minimum wage (federal)

Federal minimum wage is $7.25 per hour; states and localities may set higher rates; employers must pay the higher applicable rate; tipped employees may have lower cash wage with tip credit.

ERISA fiduciary duties

Employee Retirement Income Security Act imposes duties of loyalty and prudence on plan fiduciaries; requires diversification, adherence to plan documents, and avoidance of conflicts of interest.

401(k) elective deferral limit

Maximum employee contribution to 401(k) plan; for 2024, $23,000 plus $7,500 catch-up for age 50+; indexed annually for inflation.

ADP/ACP nondiscrimination tests

Actual deferral percentage (ADP) and actual contribution percentage (ACP) tests compare highly compensated employees' deferrals to non-highly compensated; excess contributions must be refunded or corrected.

Highly compensated employee (HCE)

For 2024, an employee earning $150,000 or more in the lookback year, or owning more than 5% of the company; used for nondiscrimination testing.

Vesting schedules

Cliff (e.g., 3-year) or graded (e.g., 2-6 years) schedules determine when employer contributions become nonforfeitable; ERISA sets maximum vesting for matching and pension contributions.

COBRA continuation coverage

Requires employers with 20+ employees to offer continuation of health coverage for 18 months (longer for disability or second qualifying event); employee pays full premium plus administrative fee.

FMLA eligibility

Family and Medical Leave Act: 12 weeks unpaid job-protected leave; employee must have 12 months service, 1,250 hours worked, and employer must have 50+ employees within 75 miles.

ACA employer mandate

Affordable Care Act requires employers with 50+ full-time equivalents to offer affordable minimum essential coverage or pay penalties; coverage must be affordable relative to household income.