Page 697 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

682 The Complete Guide to Executive Compensation

expense ratio Annual cost of a mutual fund divided by the fund’s assets.
experience-rated medical plans Claim history of the company determines premium to be charged.
expiration date The date on which a stock option is no longer exercisable.
extraordinary items Sometimes referred to as “Acts of God,” these are both very unusual and non-
recurring and are reported separately on the income statement.
extrinsic compensation Cash or its equivalent.
extrinsic motivation Work is seen as the way to achieve desired pay.

face amount The dollar value stated on the document.
face validity The belief that “appearance” rather than objective analysis substantiates a conclusion.
face value See par value.
factor analysis A statistical technique that shows the relationship between two (single-factor) or
more (multifactor) measurements.
factor comparison method of job evaluation See point system method of job evaluation.
Fair Labor Standards Act (FLSA) Federal law covering minimum wage and overtime.
fair market value (FMV) The prevailing worth of an item at a point in time. For stocks it is either
the average of the high for a particular day or the closing price.
fair price Takeover company must pay all shareholders a price equal to the highest price the bidder
paid for any of the stock.
fair value An amount agreeable to both buyer and seller of an asset.
fair-value accounting Also called current-value accounting, requiring estimates under different cir-
cumstances. For fixed assets, the manner in which it is disposed and replaced will change the fair value.
fair-value method Under FAS 123R the expense is measured at date of grant and spread equally over
the period of vesting. The pricing model is either open (e.g., binomial) or closed (e.g., Black-Scholes).
fair value transfer Based on FAS 123R, the aggregate amount of company stock awarded to execu-
tive(s) in a stated period of time.
fallout Client hires more than one person advanced by the search firm. Typically a payment is made
for each, which may be less than for the initial person hired.
family foundation Vehicle set up to transfer wealth to charitable causes and pass down values to
involved family members. IRS has strict rules for transfers in and out of the foundation, with tax penal-
ties if not followed.
family leave Work absence to care for family members.
Fannie Mae See Federal National Mortgage Association.
FAS See Financial Accounting Standard.
FAS 123 “Accounting for Stock-Based Compensation (1995).” Provides company with choice of
either reflecting fair-value charge to the financial statement with a formula such as Black-Scholes or
continuing to use APB 25, but reporting impact of the fair value on net income and earnings per share
in financial footnotes.
FASB See Financial Accounting Standards Board.
Federal Home Loan Mortgage Corporation (Freddie Mac) Created in 1970 to provide mortgage
availability through a secondary residential mortgage market.
Federal Insurance Contributions Act (FICA) Federal law mandating equal payments by employer
and employee for the latter’s social security coverage. Employee contributions are made through payroll
withholding.