Deck 11: Pay-For-Performance Plans

Question 1

Which of the following is an example of a long-term incentive in an executive compensation package?

A)low-cost loans
B)bonuses
C)pension plans
D)base pay
E)stock options

Answer 1

E

Question 2

Group incentive plans suffer from what is called the where at least one person doesn't carry his or her share of the load.

A)self-serving bias
B)halo effect
C)free rider problem
D)bandwagon effect
E)moral hazard problem

Answer 2

C

Question 3

The major focus of individual spot awards is on:

A)rewarding group or team performance
B)promising pay for some objective, pre-established level of performance
C)rewarding employees with monthly increments to keep up their motivation
D)awarding employees for exceptional performance on a special project
E)linking increases in base pay to employee ratings on performance evaluations

Answer 3

D

Question 4

Which of the following is true about gain-sharing pay plans?

A)They foster competition among employees, instead of cooperation.
B)They are simple to administer.
C)They do not bring about clear performance-reward links.
D)They ensure that payouts occur only when a company's financial performance is good.
E)They help increase employees' knowledge of business.

Question 5

Which of the following is true of a straight piecework system?

A)It is a complex system and hence is not readily accepted by employees.
B)It is the least frequently implemented incentive system.
C)It is based on providing end-of-year bonuses when the organization performs well.
D)It is a system where standards are based on time per unit.
E)It is a system where rate determination is based on units of production per time period.

Question 6

A provides two different ways of progressing in an organization, each reflecting different types of contributions to an organization's mission.

A)maturity curve
B)learning curve
C)balanced scorecard
D)broad-based option plan
E)dual career track

Question 7

What is the primary focus of a merit pay system?

A)to reward employees for exceptional performance on special projects
B)to reward employees for not being fired
C)to provide end-of-year bonuses that do not build into base pay
D)to offer a uniform merit increase to all employees across performance levels
E)to link increases in base pay to how employees are rated on a subjective performance evaluation

Question 8

Lump-sum bonuses are:

A)viewed more as an entitlement than merit pay
B)more expensive than merit pay over the long run
C)awarded for exceptional performance on special projects
D)focused on providing consistent increments in base pay through the year
E)end-of-year bonuses that do not build into base pay

Question 9

Which of the following is NOT a factor that influences the design of sales compensation packages?

A)size of the sales force
B)competitor practices
C)organizational strategy
D)the nature of people who enter the sales profession
E)the product to be sold

Question 10

Which of the following is true about broad-based option plans?

A)They are unable to inspire commitment and retention.
B)They maximize distinctions between employee groups.
C)They are capable of reinforcing either performance or a sense of ownership.
D)They have only short-term effects on employee performance.
E)They are applicable only to senior executives.

Question 11

Which of the following is an example of a perquisite for executives?

A)Bonuses
B)Low-cost loans
C)Life insurance
D)Executive stock options
E)Pension plans

Question 12

Which of the following is a problem with group compensation systems?

A)There is very little room for variation in designing group incentive plans.
B)At least one person in the group does not carry his or her share of the load.
C)Team membership constantly changes as teams are eager to share their star performers and take on new employees.
D)If teams are defined at a very narrow level, much of the motivational impact of incentives is lost.
E)Group incentive plans are often too simplistic and do not accurately reflect the efforts of the group.

Question 13

Which of the following is an example of an employee benefit in an executive compensation package?

A)pension plans
B)bonuses
C)special parking
D)low-cost loans
E)stock options

Question 14

Employee stock ownership plans:

A)grant stock options to employees at all levels rather than just senior executives
B)offer employees the opportunity to purchase company stock, often partially or fully matched by employer-paid stock for the employee
C)link increases in base pay to how highly employees are rated on a subjective performance evaluation
D)provide employees with end-of-year bonuses that do not build into their base pay
E)provide employees with the right to purchase stock at a specified (exercise)price for a fixed time period

Question 15

According to the agency theory approach to understanding CEO compensation:

A)the worth of a CEO should correspond closely to some measure of company success, such as profitability or sales
B)executives should not be allowed to own stock options
C)executive compensation should be regulated and monitored by government agencies
D)executive compensation should be designed to ensure that executives have the best interests of stockholders in mind when they make decisions
E)executive salaries bear a consistent relative relationship to the compensation of lower-level employees

Question 16

What is the main difference between a Scanlon plan and a Rucker plan?

A)A Scanlon plan involves a less complex formula than a Rucker plan for determining worker incentive bonuses.
B)A Scanlon plan requires worker committees while a Rucker plan does not.
C)A Scanlon plan is a gain-sharing plan while a Rucker plan is an individualized incentive plan.
D)A Scanlon plan is dependent on productivity norms while a Rucker plan works better without them.
E)A Scanlon plan focuses on reducing labour costs, while a Rucker plan focuses on increasing labour costs.

Question 17

Which of the following is true about the compensation strategies for scientists and engineers?

A)Organizations generally do not provide perks to scientists and engineers, such as flexible work schedules, large offices, and lavish athletic facilities.
B)Scientists and engineers generally advance their careers along the scientific track as they have few opportunities to pursue management responsibilities.
C)Most scientists and engineers are not entitled to performance-based incentives such as profit sharing and stock ownership incentives.
D)The knowledge and skills of engineers and scientists never become obsolete and hence their salaries continue to rise during the course of their careers.
E)Due to the volatile nature of jobs and salaries in these occupations, organizations rely heavily on external market data in determining the base pay for scientists and engineers.

Question 18

A(n)is an incentive plan that includes reductions in base pay in unsuccessful years.

A)profit-sharing plan
B)gain-sharing plan
C)broad-based option plan
D)Scanlon plan
E)earnings-at-risk plan

Question 19

Historically, _ have been the most widely used performance indicator for group incentive plans.

A)capability-focused measures
B)financial measures
C)customer-focused measures
D)internal process-focused measures
E)resource utilization measures

Question 20

A disadvantage of group incentive plans is that:

A)they deemphasize cohesiveness and team identity
B)it is difficult to set equitable targets for all teams
C)they are ineffective in stimulating ideas and problem-solving
D)they are often too simplistic in design
E)they maximize distinctions between team members

Question 21

How is perceived fairness of a formula a key element in designing a gain-sharing plan?

Question 22

Spot awards are examples of group incentive plans.

Question 23

The "free rider" problem is an issue associated with individual incentive plans.

Question 24

Maturity curves reflect the relationship between scientist/engineer compensation and years of experience in the labour market.

Question 25

What are dual career tracks?

Question 26

The most frequently implemented individual incentive system is a standard hour plan.

Question 27

Which of the following is a disadvantage of profit sharing?

A)Most profit sharing plans involve high administrative costs.
B)Most profit sharing plans are highly sophisticated and hence not easily understood by employees.
C)Most employees don't feel their jobs have a direct impact on profits.
D)Most employees are not concerned about the profitability of their organizations.
E)Most employees are unwilling to learn about financial measures and the business factors that influence them.

Question 28

To align the interest of the directors and the organizations, publicly traded companies are increasingly adopting mandatory or recommended share ownership guidelines.

Question 29

According to the social comparison view, when salaries of lower-level employees rise in response to market forces, top executive salaries also rise to maintain the same relative relationship.

Question 30

Stock options are valuable when they have exercise prices higher than the current market value.

Question 31

In broad-based option plans, stock options are granted to a wide variety of employees rather than just senior executives.

Question 32

Which of the following is a key element in designing a gain-sharing plan?

A)using a historical standard to calculate whether employees will receive an incentive payout
B)ensuring that administration involves complex calculations which tend to be more accurate
C)ensuring that all profits or savings generated are paid only to the management
D)factoring in environmental influences on performance which are not controllable by plan participants
E)limiting employee involvement in the implementation of the plan in order to avoid complications

Question 33

An individual incentive payment plan can be described as:

A)a pay for some objective, pre-established level of performance
B)an increase in base pay based on an employee's seniority
C)a pay increase given to employees for unexpected exceptional performance on a special project
D)a lump sum payment to an employee based on organizational performance
E)a form of pay determined by group level performance

Question 34

One disadvantage of individual incentive plans is that more direct supervision is required to ensure productivity increases.

Question 35

A good gain-sharing plan ensures that environmental influences on performance, not controllable by plan participants, are factored out when identifying incentive levels.

Question 36

Companies are now placing more and more emphasis on incentives at the expense of base salary.

Question 37

Which of the following is a disadvantage of individualized incentive plans?

A)more direct supervision is required to maintain reasonable levels of output
B)earnings of workers are reduced
C)costing and budgetary control are impeded
D)levels of mistrust between managers and workers are elevated
E)production costs are raised

Question 38

Improshare is a profit-sharing plan that is easy to administer and to communicate.

Question 39

With lump-sum bonuses, employees receive an end-of year bonus that builds into base pay.

Question 40

Over the long run for employers, merit pay is an inexpensive and efficient method of compensation.

Question 41

What are lump-sum bonuses? What advantages do they have when compared to merit pay?

Question 42

What are executive perquisites?

Question 43

Discuss the five basic elements of executive compensation packages.

Question 44

Discuss three possible explanations for extremely high levels of CEO compensation.

Question 45

Describe the difficulties in designing team compensation plans.

Question 46

Explain the "free-rider" problem associated with group compensation systems.

Question 47

Discuss the key elements in designing a gain-sharing plan.