Deck 10: Pay for Performance: Incentive Rewards

Question 1

In setting up incentive systems, what is the key consideration in establishing performance standards?

A) They should be qualitative.
B) They should be measurable.
C) They must be motivational.
D) They must be set by outside consultants.

Answer 1

B

Question 2

When is piecework most appropriate?

A) when the job is fairly standardized
B) when quality is more important than quantity
C) when performance measures are difficult to define
D) when technology changes are frequent

Answer 2

A

Question 3

When is employee compensation referred to as variable pay?

A) when employee pay is linked to performance
B) when employer costs vary with the incentives offered
C) when employee pay varies with market pay
D) when employee pay is comprised of varying components

Answer 3

A

Question 4

What is a potential consequence of "rate busting"?

A) production targets not being achieved
B) increase in group incentives
C) disapproval from fellow workers
D) improved cooperation among workers

Question 5

Mark recently received an incentive for a special contribution not directly tied to a performance standard. What is this incentive called?

A) a piece rate plan
B) a spot bonus
C) a commission
D) a differential piece rate

Question 6

Which of the following would promote team behaviours and a "culture of ownership" among all employees in the organization?

A) differential piece rates
B) commissions
C) bonuses
D) employee stock ownership plans

Question 7

Several organizations have an incentive that managers can give to their employees for outstanding singular effort not tied to any planned performance standard. What is such an incentive usually called?

A) a stock option
B) a spot bonus
C) merit pay
D) a differential piece rate

Question 8

Which of the following is tied to formal employee performance appraisals?

A) profit sharing
B) merit pay
C) stock options
D) spot bonuses

Question 9

According to research, which of the following best describes incentive plans?

A) They can contribute to organizational performance if certain conditions are met.
B) They usually improve organizational performance by at least 10 percent.
C) They usually lead to negative outcomes.
D) They tend to drive up organizational costs and decrease profits.

Question 10

Which of the following is an important reason why employers use piece rate systems in their compensation strategy?

A) It is difficult to predict labour costs accurately.
B) It helps with desired team behaviours.
C) Piece rates are simple to compute.
D) Piece rates promote team work.

Question 11

When employees receive a higher rate of pay for all of their work if production exceeds a standard level of output, what type of incentive plan is the employer using?

A) higher piece rate
B) standard piece rate
C) exception bonus rate
D) differential piece rate

Question 12

Which of the following is a key factor that contributes to the success of incentive plans?

A) employee entitlements
B) management support
C) high employee expectations for pay gains
D) undefined performance measures

Question 13

Why are performance measures vital in incentive plan design?

A) because they drive profitability
B) because they ensure management support
C) because they communicate the importance of the organizational goals
D) because they are fair and equitable

Question 14

Which of the following is a key condition for the success of merit pay raises?

A) The amount must be fairly substantial.
B) Employees must work in teams.
C) The performance goals must be tough to achieve.
D) The raise should be awarded every two months.

Question 15

Under which of the following conditions can incentive plans fail to achieve their objectives?

A) when the goals are based on organizational performance
B) when employees are too motivated
C) when employees have little ability to affect performance standards
D) when the objectives are too focused

Question 16

What is a consequence of lump-sum merit raises?

A) higher costs versus merit raises
B) lower budgets
C) increased performance standards
D) no merit-based increase in base pay

Question 17

Which of the following is a reason why merit raises may fail to achieve their intended purpose?

A) Objective performance measures are used.
B) The performance appraisal system is deficient.
C) The compensation system is strategic.
D) Incentive rewards are linked to organizational goals.

Question 18

Which of the following is an advantage of piece rate pay systems?

A) They allow for teamwork.
B) They allow employees to break down their work piece by piece.
C) They help to groom high performance managers.
D) They have a direct link to performance.

Question 19

At Steelcase, an office furniture maker, employees can earn more than their base pay if they produce more units, such as upholstering more chairs. This part of their pay is determined on units produced. Which of the following plans is being used here?

A) piece rate plan
B) completion pay plan
C) time division plan
D) standard hour plan

Question 20

Many potential errors, as well as discrimination, can occur in the performance appraisal process. Which of the following can such errors lead to?

A) problematic stock options
B) problematic merit pay
C) problematic job evaluations
D) problematic market pay rates

Question 21

Who normally decides the compensation package for the Chief Executive Officer in a Fortune 500 firm?

A) the vice-presidents or the second level of executives
B) members of the Board of Directors
C) the unions through collective bargaining
D) the shareholders of the firm

Question 22

Which of the following is a key objective of enterprise incentive plans?

A) to limit "free ridership"
B) to reward top performers
C) to support government reward programs
D) to create a "culture of ownership"

Question 23

What is the philosophy behind the Scanlon Plan?

A) Rewards are shared with employees based on improved profits.
B) Employees should offer ideas and suggestions to improve productivity and, in turn, be rewarded for their constructive efforts.
C) Organizational profits should improve through sales efforts.
D) Managers and employees should establish quality and quantity goals for optimum organizational performance.

Question 24

ABC Corporation has a sales compensation plan that requires salespeople to be paid for performing various duties not reflected in their sales volume. What type of pay plan does this exemplify?

A) a straight salary plan
B) a merit plan
C) lump-sum merit pay
D) a standard hour plan

Question 25

What is the largest component (in dollars) of CEO compensation in Canada's largest firms?

A) stock options
B) executive perquisites
C) bonuses
D) benefits

Question 26

As part of her compensation package, Mariana was granted the rights to purchase shares of her organization's stock at an established price for a fixed period of time. What type of compensation is this?

A) Executive perks
B) Share appreciation rights
C) Stock options
D) Phantom stock

Question 27

What's the first step in the three-step approach in deciding on team incentives?

A) Performance measures are decided.
B) The size of the incentive is decided.
C) A payout formula is determined.
D) A survey is conducted.

Question 28

As an incentive, Ahmed was offered the opportunity to buy shares of their organization's stock at a discount price. What type of compensation is this?

A) share bonus
B) stock bonus
C) stock options
D) stock purchase

Question 29

Malo is an engineer. Her salary range was extended to the range used for administrative employees. What is this type of pay system?

A) a hybrid wage system
B) broadbanding
C) extended range pay system
D) a double-track wage system

Question 30

From an employer's perspective, which of the following is an advantage of merit increases on a lump-sum basis?

A) They do not contribute to escalating base salary levels.
B) They add a permanent sum to the base salary.
C) They are done in conjunction with promotions.
D) They reflect annual adjustments in base salary.

Question 31

What is a likely external factor that would affect the incentives of sales employees?

A) the organization's strategy
B) job evaluations
C) a salesperson's intrinsic motivation
D) seasonal fluctuations in demand

Question 32

Lana works as a salesperson at Fashion Galore. She is paid on a percentage of her sales only. What type of pay plan is this?

A) straight ratio plan
B) straight salary plan
C) straight bonus plan
D) straight commission plan

Question 33

It was revealed in the press that the former CEO of a Fortune 100 firm enjoyed special use of the company plane and a country club membership as a part of his reward package. Which of the following best describes these benefits?

A) They are illegal, but executives usually get away without being caught.
B) They are known as perquisites.
C) They are known as golden parachutes.
D) They are unusual for top executives.

Question 34

Aren received a $500 pay bonus as a result of his job performance last year; however, this extra money was not added to his base pay. This is an example of which of the following?

A) annual merit raise
B) group incentive plan
C) lump-sum merit pay
D) percentage wage increase

Question 35

Amelia received a stellar performance appraisal in 2016 that translated to a 10 percent pay raise for 2017. Her 2016 base pay was $50,000. Which of the following applies to 2017?

A) Her employer would give her a bonus of $5,000.
B) Her pay would remain $50,000 but she would most likely get a promotion.
C) Her employer would add 10 percent to all her 2016 compensation components-base pay, incentives, benefits, and perks.
D) Her starting pay would be $55,000.

Question 36

Peter Drucker, the management expert, has argued that CEO pay should not be more than 20 times that of the rank-and-file employee. What did his concern focus on?

A) the pay gap between CEOs and employees
B) the perks that CEOs enjoy
C) the need to raise the minimum wage for workers
D) the relative basic education of executives versus the increasing sophistication of employees' knowledge

Question 37

What's the overarching philosophy of gainsharing plans?

A) Gains that are shared with employees will multiply over time.
B) Involved employees will improve productivity through more effective use of organizational resources.
C) Organizations need to pay employees more.
D) Individual incentives are motivational.

Question 38

Which of the following is a major concern about executive compensation?

A) the timing of the stock awards
B) the lack of objective performance data
C) the lack of perquisites
D) the growing gap between leaders and the company's lowest-paid employees

Question 39

Which of the following is the most widely used sales incentive program?

A) straight salary
B) straight commission
C) combined salary and commission
D) commission plus bonus

Question 40

Which of the following pay plans can be plagued by the "free rider" effect?

A) piece rates
B) team incentives
C) base pay
D) retirement plans

Question 41

One philosophy of incentive systems is that tying compensation to employee effort will improve employee performance.

Question 42

Scenario 10.2
Meritas Financial Ltd. is a financial advisory firm located in downtown Toronto. Most of the firm's senior employees (referred to as partners) are paid top dollar for bringing in huge accounts regardless of whether these accounts bring in the appropriate amount of business to justify the incentives paid. The partners are compensated on the net worth of the companies that sign on to use Meritas as their financial advisor. The owner is now concerned about this pay arrangement and wants to make changes to the way he compensates his employees. However, he is worried that with a potential reduction of salary and short-term incentives, he might lose some of his most valuable employees and the accounts that they brought on board.
Refer to Scenario 10.2. Meritas wants to keep these employees happy and motivated. Which of the following is NOT a positive impact of implementing profit sharing?

A) having an adverse effect on productivity and employee morale
B) helping stimulate employees to think and feel more like partners
C) encouraging a total commitment from employees
D) contributing to the growth of the organization's profit

Question 43

Incentive plans are not effective in service and government organizations because of the difficulty in measuring productivity.

Question 44

Profit-sharing plans represent one way that wealth can be redistributed at which of the following levels?

A) the international level
B) the regional level
C) the national level
D) the firm level

Question 45

Scenario 10.2
Meritas Financial Ltd. is a financial advisory firm located in downtown Toronto. Most of the firm's senior employees (referred to as partners) are paid top dollar for bringing in huge accounts regardless of whether these accounts bring in the appropriate amount of business to justify the incentives paid. The partners are compensated on the net worth of the companies that sign on to use Meritas as their financial advisor. The owner is now concerned about this pay arrangement and wants to make changes to the way he compensates his employees. However, he is worried that with a potential reduction of salary and short-term incentives, he might lose some of his most valuable employees and the accounts that they brought on board.
Refer to Scenario 10.2. In implementing a new profit-sharing plan, Meritas has various options by which payouts can be made to its employees. Which of the following is the best way for Meritas to distribute profits?

A) deferred payment added to pension
B) bonus payments added to yearly salaries
C) disbursements in cash paid monthly
D) a combination of deferred and cash payouts

Question 46

Incentive plans can create an organizational environment of "shared commitment," since individuals contribute to organizational success.

Question 47

Which of the following is a major problem of ESOPs?

A) Employees may become demotivated and frustrated if the share price falls, even though they have worked productively.
B) ESOPs place employees' pensions at risk because they are tied to the market performance of the organization.
C) Because of the cash involved, ESOPs can be damaging to the financial well-being of the organization.
D) Employees view the ESOP as a form of management control.

Question 48

Recently, stock options have been strongly criticized in the press following controversies at several companies. What has this criticism focused on?

A) the comparative low executive base pay
B) the amount of the options granted and exercised
C) the fact that mainly males are CEOs and that they get these options
D) the stock prices in competitive firms

Question 49

Strategic compensation links organizational goals with employee compensation.

Question 50

Meshing compensation and organizational objectives helps employees assume ownership of their jobs, improve effort, and improve performance.

Question 51

What is a major problem with profit-sharing plans?

A) They increase the fixed costs of organizations.
B) The line of sight between employee performance and organizational profits is blurred.
C) The profits distributed to employees can be too much.
D) There is no agreed upon procedure to determine profits.

Question 52

Scenario 10.1
BioMetrics Imaging Ltd. is a small Saskatoon-based firm that designs and produces one-of-a-kind machines that are capable of capturing medical imaging similar to that of MRI machines but with a higher percentage of accuracy. So far, the company has been able to sell various units to privately owned medical clinics and a few hospitals in the United States. The problem currently facing BioMetrics Imaging is finding salespeople with the appropriate experience who not only understand the equipment but are also trustworthy and willing to work extremely hard to bring the product to the marketplace. It takes roughly six months to convince potential clients to purchase the machines. Sales agents receive a hefty paycheque when a unit is sold based on a percentage of the unit price, and all travel expenses are covered. Still, the company is not able to retain its employees because the time lag between beginning to sell machines and getting paid is too long.
Refer to Scenario 10.1. What type of compensation plan is BioMetrics utilizing for its salespeople?

A) a straight commission plan
B) a straight salary plan
C) a combination salary and commission plan
D) a sales plus bonus plan

Question 53

A key advantage of incentive plans is that they represent variable costs that are linked to the realization of goals as opposed to a fixed cost such as salary that may be largely unrelated to true performance (i.e., output).

Question 54

Approximately 50 percent of Canadian companies offer some form of variable pay.

Question 55

What is the purpose of a profit-sharing plan?

A) to allow workers to contribute ideas and suggestions
B) to motivate a total commitment to the organization as a whole
C) to enable workers to share in labour cost savings
D) to instill commitment to the employee's immediate work group

Question 56

Scenario 10.2
Meritas Financial Ltd. is a financial advisory firm located in downtown Toronto. Most of the firm's senior employees (referred to as partners) are paid top dollar for bringing in huge accounts regardless of whether these accounts bring in the appropriate amount of business to justify the incentives paid. The partners are compensated on the net worth of the companies that sign on to use Meritas as their financial advisor. The owner is now concerned about this pay arrangement and wants to make changes to the way he compensates his employees. However, he is worried that with a potential reduction of salary and short-term incentives, he might lose some of his most valuable employees and the accounts that they brought on board.
Refer to Scenario 10.2. Meritas may be able to increase short-term incentives and retain its most valuable employees by embarking on which of the following?

A) an employee stock bonus plan
B) an employee stock purchase plan
C) profit-sharing plans
D) employee stock option plans

Question 57

Which of the following is a type of stock plan?

A) stock gainsharing plan
B) stock bonus plan
C) stock commission plan
D) stock incentive plan

Question 58

Scenario 10.1
BioMetrics Imaging Ltd. is a small Saskatoon-based firm that designs and produces one-of-a-kind machines that are capable of capturing medical imaging similar to that of MRI machines but with a higher percentage of accuracy. So far, the company has been able to sell various units to privately owned medical clinics and a few hospitals in the United States. The problem currently facing BioMetrics Imaging is finding salespeople with the appropriate experience who not only understand the equipment but are also trustworthy and willing to work extremely hard to bring the product to the marketplace. It takes roughly six months to convince potential clients to purchase the machines. Sales agents receive a hefty paycheque when a unit is sold based on a percentage of the unit price, and all travel expenses are covered. Still, the company is not able to retain its employees because the time lag between beginning to sell machines and getting paid is too long.
Refer to Scenario 10.1. One way to address the turnover problem that is driven by the frequency of payout would be to have some form of guaranteed pay. Which pay method for sales employees addresses this issue?

A) straight commission
B) salary and commission
C) bonuses
D) gainsharing

Question 59

An "Owners Care" branding message would be linked to which type of compensation system?

A) profit-sharing
B) commissions
C) piece rates
D) perks

Question 60

Scenario 10.1
BioMetrics Imaging Ltd. is a small Saskatoon-based firm that designs and produces one-of-a-kind machines that are capable of capturing medical imaging similar to that of MRI machines but with a higher percentage of accuracy. So far, the company has been able to sell various units to privately owned medical clinics and a few hospitals in the United States. The problem currently facing BioMetrics Imaging is finding salespeople with the appropriate experience who not only understand the equipment but are also trustworthy and willing to work extremely hard to bring the product to the marketplace. It takes roughly six months to convince potential clients to purchase the machines. Sales agents receive a hefty paycheque when a unit is sold based on a percentage of the unit price, and all travel expenses are covered. Still, the company is not able to retain its employees because the time lag between beginning to sell machines and getting paid is too long.
Refer to Scenario 10.1. Which of the following factors is least likely to affect sales for this equipment?

A) economic and seasonal fluctuations
B) sales competition and changes in demand
C) producing the machines in a timely manner
D) the nature of the sales territory

Question 61

Merit pay plans have been criticized because the merit increase may not be sufficient to raise the employee's base pay.

Question 62

The operation of a merit pay plan depends on the effectiveness of the performance appraisal system.

Question 63

Differential piece rate plans guarantee employees at least a base pay.

Question 64

Standard hour plans are popular in service departments in automobile dealerships.

Question 65

Employees receive a specified payment for each unit produced under a straight piecework program.

Question 66

Piecework is inappropriate where technology changes are frequent.

Question 67

Under the merit pay system, employees who have better political connections within the company may bear a threat to their supervisor and therefore may end up with a larger share of the "merit pie" than their performance would warrant.

Question 68

Employees working under a standard hour plan are paid on the basis of a predetermined time allowed to finish the job.

Question 69

For incentive plans to be successful, one of the most critical requirements is that managers be willing to grant incentives based on differences in individuals, teams, or organizational criteria.

Question 70

Financial incentives for salespeople are widely used.

Question 71

Under straight piecework, employees receive a certain rate for each unit produced.

Question 72

Merit raises may be perpetuated year after year even if performance declines.

Question 73

Incentive plans based on productivity can reduce labour costs.

Question 74

Piecework pay plans permit an organization to predict its labour costs with considerable accuracy.

Question 75

Employers using a lump-sum merit program will need to periodically increase base salaries in order for employees to keep pace with the cost of living or general market wages.

Question 76

A merit raise is a form of bonus that is given to an employee beyond their base wage.

Question 77

Spot bonuses are usually provided for some employee effort that is not directly tied to an established performance standard.

Question 78

Management must be careful to ensure that incentive payments are viewed as both a reward and an entitlement.

Question 79

A bonus is supplemental to base wages.

Question 80

Lump-sum merit pay does not contribute to escalating base salary levels.