Page 706 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Glossary 691

incentive pay See incentive compensation.
incentive plan A document describing the incentive pay program.
incentive progressivity See progressivity principle.
incentive stock option (ISO) A stock option that meets the requirements of Section 422 of the
Internal Revenue Code and therefore has no ordinary income tax at time of exercise.
income See earnings.
income after taxes See net income.
income before taxes See pretax earnings.
income statement See earnings statement.
income tax Transfer to the government of a portion of earned and other income.
incorporation Taking the necessary legal actions to form a company, a legality separate from those
who own and/or work in it.
incumbent Occupant.
indemnification agreement Company agrees to reimburse the executive or director for any legal
actions not covered by the director and officer liability insurance.
indemnify Reimburse for a loss.
indemnity plan Insurance that reimburses the insured for losses.
independent director A director without a professional, financial, or family relationship to the
company or CEO or other key officers other than being a member of the board of directors.
independent variable The variable that predicts the value of the dependent variable.
index fund A mutual fund that through its investments attempts to match the return of its
benchmark.
indexed stock option Option price set by movement in a specified index (e.g., CPI or DJIA). Also
called a variable-price premium option (VAPPO).
indexing Automatic adjustment to a base number based on a defined formula.
indirect method A method of constructing the cash flow statement that begins with net income and
adds back noncash expenses and subtracts noncash income.
individual retirement account (IRA) A tax-deductible defined-contribution plan permitting a
limited annual amount to be set aside in an IRA account with an established financial institution.
Because of the small allowable amount, it has no real value to an executive except perhaps for his or her
children’s earnings.
inert investor Stockholder who holds on to stock for years.
inflation A devaluation of currency as a result of an increase in prices.
informal funded deferred compensation The expected liability is funded through insurance
or another financial vehicle, but the company retains sole control of how it is to be used, leaving the
individual to stand in line with general creditors.
inheritance tax A tax on wealth at time of death.
initial public offering (IPO) The first public sale of the company’s stock, with proceeds (net expenses)
going to the company. See secondary offering.
injunction Court order requiring or prohibiting a specific action.
in-lieu-of-salary stock option In exchange for forgoing a salary increase, a stock option is granted.
inside director A member of the board of directors who works for the company (e.g., president).