Deck 12: Recognizing Employee Contributions With Pay

Question 1

Individual-oriented plans tend to use a broader range of performance measures than do group incentive pay plans.

Answer 1

False
Explanation: Group incentives (like individual incentives)tend to measure performance in terms of physical output, whereas team award plans may use a broader range of performance measures (like cost savings, successful completion of product design, or meeting deadlines).

Question 2

Employee Stock Ownership Plans (ESOPs)carry significant investment risks for employees.

Answer 2

True
Explanation: Employee Stock Ownership Plans (ESOPs)carry significant investment risks for employees.

Question 3

Pay plans are typically used to energize, direct, or control employee behavior.

Answer 3

True
Explanation: Pay plans are typically used to energize, direct, or control employee behavior.

Question 4

The reinforcement theory to compensation management suggests that monetary rewards will not motivate employees.

Question 5

An employee's assessment of the fairness of his or her compensation based on the amount received is referred to as distributive fairness.

Question 6

One significant difference between gainsharing and profit-sharing plans is that gainsharing-plan payouts are generally distributed more frequently.

Question 7

Individual incentives are rolled into base pay of employees.

Question 8

Gainsharing programs offer a means of sharing productivity gains with employees based on organization-level performances.

Question 9

A major criticism of merit pay programs is that the differential in pay between high performers and mediocre or even poor performers is not significant enough to influence employee behavior or attitudes.

Question 10

One solution to profit-sharing during a downturn is to design plans that have upside but not downside risk.

Question 11

Deferred profit-sharing plans increase employee motivation.

Question 12

The performance motivational effects of profit sharing is likely to be stronger in smaller firms or units than in larger organizations or units.

Question 13

Pay and benefits are examples of intrinsic rewards.

Question 14

The performance motivation of stock option plans is particularly high from a reinforcement theory standpoint.

Question 15

Merit pay has the ability to define and reward a broad range of performance dimensions.

Question 16

While the agency theory has value in the analysis and design of managerial compensation, it is not applicable to nonmanagerial compensation.

Question 17

Organizations that provide individual incentives are more likely to attract team-oriented employees.

Question 18

Linking annual pay increases to performance appraisal ratings refers to incentive pay system.

Question 19

The flow of feedback tends to be multi-directional in merit pay programs.

Question 20

Gainsharing plans encompass more than just a monetary component.

Question 21

According to expectancy theory, motivation is a function of which of the following functions?

A)Effort
B)Power
C)Structure
D)Instrumentality
E)Confirmation

Question 22

Agency theory says that the principal must choose a contracting scheme that _____.

A)is not based on compensation systems such as merit pay
B)helps the agent maximize his/her benefits
C)provides complete autonomy to the agent
D)does not offer outcome-oriented compensation to agents
E)helps align the agent's interests with the principal's interests

Question 23

Organizations decentralize pay decisions when using the concentration strategy.

Question 24

Employee involvement in the design and implementation of pay policies has been linked to higher pay satisfaction and job satisfaction.

Question 25

Which of the following is most likely to provide intrinsic motivation?

A)A sponsored vacation to Europe
B)A monthly salary of $10,000
C)Medical insurance
D)Paid leave for three months
E)An interesting work assignment

Question 26

Agency theory is of particular value in compensation management because of its emphasis on the _____ trade-off.

A)performance-reward
B)risk-reward
C)motivation-reward
D)ability-reward
E)behavior-reward

Question 27

______ refer to decisions about whether to join or remain with an organization.

A)Membership behaviors
B)Identification behaviors
C)Organizational habits
D)Associative habits
E)Organizational norms

Question 28

Which of the following is true about outcome-oriented principal-agent contracts?

A)The principal must monitor with little cost what the agent has done.
B)When profits drop, agent's compensation goes up.
C)Agents do not demand compensating wage differentials in such contracts.
D)Agents face minimal risks in such contracts.
E)The interests of the company and employees are aligned in such contracts.

Question 29

The Securities and Exchange Commission (SEC)requires companies to report compensation levels for the five highest paid executives.

Question 30

Which of the following theories emphasizes the importance of a reward following a certain productive behavior?

A)Reinforcement theory
B)Expectancy theory
C)Agency theory
D)Equity theory
E)Social exchange theory

Question 31

Which of the following is compensation system used in behavior-oriented contracting schemes?

A)Stock options
B)Profit sharing
C)Commissions
D)Merit pay
E)Revenue sharing

Question 32

Agents prefer a behavior-based contract when _____.

A)they are inclined toward risk-taking
B)the job outcomes are measurable
C)they require higher compensation
D)outcome uncertainty is high
E)they want to minimize monitoring by principal

Question 33

Which of the following is most likely to provide extrinsic motivation to employees?

A)Autonomy
B)Challenging work
C)Variety of work
D)Hike in salary
E)Social interaction

Question 34

Agency costs can arise when _____.

A)principals and agents have different goals
B)ownership of a company is not separated from organizational control
C)most stockholders are involved the day-to-day operations of companies
D)payments are not rolled into base pay
E)there is information symmetry between the agent and the principal

Question 35

A balanced scorecard helps companies track financial results while simultaneously monitoring progress in building the capabilities they would need for future growth.

Question 36

Compensation systems differ according to their impact on the dimensions of expectancy theory. On which of the following dimensions do they have the greatest impact?

A)Expectancy
B)Instrumentality
C)Reinforcement
D)Valence
E)Equity

Question 37

_____ can be described as a function of ability and motivation.

A)Attitude
B)Behavior
C)Reinforcement
D)Team work
E)Expectancy

Question 38

Which of the following theories emphasizes expected rewards rather than experienced rewards?

A)Social exchange theory
B)Equity theory
C)Agency theory
D)Expectancy theory
E)Reinforcement theory

Question 39

In agency theory, the _____ seeks to direct the behavior of the _____.

A)owner; principal
B)agent; principal
C)buyer; agent
D)agent; owner
E)principal; agent

Question 40

The bulk of executive compensation comes from restricted stock, stock options, and other forms of long-term compensation.

Question 41

Which type of compensation program is most likely to attract learning-oriented employees?

A)Skill-based pay
B)Merit pay
C)Incentive pay
D)Gainsharing
E)Profit sharing

Question 42

Which of the following is a design feature according to which employee contribution programs differ?

A)Employees' skills
B)Type of work
C)Frequency of payout
D)Number of employee groups
E)Company's annual output

Question 43

Which of the following is a factor that determines the size and frequency of pay increases when using a merit increase grid?

A)Time spent in the current pay grade
B)Overall profitability of the company
C)Employees' seniority
D)Compa-ratio of employees
E)The skills developed by the employee

Question 44

Culture based on _____ is most likely to prevail in companies that use a profit-sharing compensation program.

A)individual competition
B)knowledge of business
C)organizational learning
D)problem solving orientation
E)group competition

Question 45

Employees are assessing fairness using distributive dimension when they base their assessments on _____.

A)organizational procedures
B)the systems used to assess performance
C)how much they receive
D)the skills and abilities they possess
E)their judgment of the management

Question 46

Overtime is an attraction of the _____ program.

A)merit pay
B)profit sharing
C)gainsharing
D)skill-based
E)ownership

Question 47

Employees are assessing fairness using the _____ dimension when they base their assessments on the process that was used to decide the amount of compensation?

A)distributive
B)procedural
C)quantitative
D)ownership
E)outcome

Question 48

Which of the following is a compensation program that would support an organizational culture of cooperation and problem solving?

A)fixed pay
B)merit pay
C)gainsharing
D)incentive pay
E)skill-based pay

Question 49

Which of the following is the pay system where performance is measured as physical output?

A)Profit sharing
B)Ownership program
C)Gainsharing
D)Individual incentive
E)Merit pay

Question 50

In merit pay programs majority of information on individual performance is collected from _____.

A)organizational databases
B)human resource managers
C)the immediate supervisor
D)the employee being evaluated
E)performance indicators

Question 51

Which of the following is a criticism of traditional merit pay programs?

A)Peer and subordinate ratings are rare and they tend to receive less weight than supervisory ratings.
B)The feedback under this system tends to occur frequently, which causes discouragement among employees.
C)The program lacks emphasis on individual performance and leave the organization with a group of nonachievers.
D)It often involves gathering inappropriate feedback from external sources.
E)The program discourages teamwork and organizational performance often declines.

Question 52

Which of the following pay programs has the highest frequency of payout?

A)Merit pay
B)Profit sharing
C)Skill-based
D)Incentive pay
E)Gainsharing

Question 53

A(n)_____ is suitable for an organization whose culture promotes individual competition.

A)gainsharing plan
B)profit sharing plan
C)merit pay plan
D)ownership plan
E)skill-based plan

Question 54

Which compensation program offers payouts on a monthly or quarterly basis?

A)Skill based pay
B)Gainsharing
C)Profit sharing
D)Merit pay
E)Incentive pay

Question 55

In merit pay programs, an individual's compa-ratio represents his or her _____.

A)ability to multitask
B)performance rating
C)position in the pay range
D)knowledge of business
E)ratio of pay to benefits

Question 56

In _____ programs, annual compensation increases are usually linked to performance appraisal ratings.

A)skill-based pay
B)gainsharing
C)merit pay
D)incentive pay
E)cost-based pay

Question 57

Which of the following compensation programs uses a management style that gives importance to control?

A)Gainsharing plan
B)Incentive pay
C)Ownership
D)Merit pay
E)Profit sharing

Question 58

Which of the following is a compensation program that relates costs to the ability to pay?

A)skill-based program
B)incentive pay
C)fixed pay
D)merit pay
E)profit sharing

Question 59

Which of the following payment programs uses equity changes as the payment method?

A)Merit pay
B)Skill-based payment
C)Profit sharing payment
D)Ownership payment
E)Incentive pay

Question 60

According to a merit increase grid, one of the factors that determines the size and frequency of pay increases is the _____.

A)company's annual output
B)attrition rate in the company
C)company's stock price
D)recruitment ratio
E)individual's performance rating

Question 61

Of the following pay programs, the weakest link between employees' performance and their earnings is found in _____ plans.

A)individual incentive
B)merit pay
C)profit-sharing
D)group incentive
E)skill-based

Question 62

The Scanlon plan is an example of a(n)_____ plan.

A)profit sharing
B)skill-based
C)merit pay
D)individual incentive
E)gainsharing

Question 63

A(n)_____ plan gives employees the opportunity to buy the company's shares at a previously fixed price.

A)mutual fund
B)gain sharing
C)group incentive
D)profit sharing
E)stock option

Question 64

By law, what percent of assets must an ESOP invest in its company's stock?

A)26 percent
B)51 percent
C)80 percent
D)75 percent
E)76 percent

Question 65

In a(n)_____ plan, performance is usually measured as physical output and the payment is not rolled into the base pay.

A)skill-based
B)profit sharing
C)individual incentive
D)merit pay
E)gainsharing

Question 66

Under _____, payments are based on a measure of organization performance, and the payments do not become part of the base salary.

A)fixed pay systems
B)merit pay programs
C)profit sharing programs
D)individual incentives
E)skill-based payments

Question 67

Gainsharing can motivate employees as much as individual plans do because of the:

A)controllable nature of the performance measure and the frequency of payouts.
B)need to change and the strong commitment to organizational improvement.
C)direct relationship with organizational success and organizational goals.
D)relatively simplistic performance targets and large payouts.
E)high levels of employee ownership and organizational performance-based compensation.

Question 68

Which of the following is characteristic of profit sharing programs?

A)Employers are encouraged to think like employees.
B)Organizations feel the need to rely on layoffs during tough times.
C)Payments do not become part of base pay in such programs.
D)Labor costs automatically increase during difficult economic times.
E)Employees' self-interest is encouraged when using such plans.

Question 69

Which of the following is a difference between a profit-sharing plan and an employee ownership plan?

A)Unlike an ownership plan, base pay is not reduced when a profit-sharing plan in introduced.
B)Ownership focuses on the success of the organization as a whole unlike profit-sharing.
C)Profit sharing plans promote individual competition whereas ownership plans promote group competition.
D)The link between pay and performance is less obvious under ownership than under profit sharing.
E)Ownership plans promote individual competition whereas profit-sharing plans promote group competition.

Question 70

Individual incentives:

A)contribute to a flexible, proactive, problem-solving workforce.
B)are helpful in the pursuit of total quality management objectives.
C)encourage employees to go beyond the call of duty.
D)support the goal of acquiring multiple skills and proactive problem solving.
E)must be continuously earned and re-earned.

Question 71

Which of the following is a drawback of using profit sharing?

A)It promotes individual goals rather than organizational goals.
B)It promotes competition between work groups.
C)It increases the probability of individual competition.
D)It increases the labor cost in difficult economic times.
E)It runs the risk of contributing to employee dissatisfaction.

Question 72

Individual incentive plans are relatively rare because:

A)most jobs have physical output measures.
B)they are not useful in industries where physical output is produced.
C)they are often inconsistent with the goals of acquiring multiple skills and proactive problem solving.
D)they reward quality of output at the expense of physical quantity.
E)individual incentives promote negative group cohesion.

Question 73

A(n)_____ program is a based on group or plant performance that does not become part of the employee's base salary.

A)merit pay
B)profit sharing
C)stock option
D)gainsharing
E)individual incentive

Question 74

Because employees will not realize any financial gain until they actually sell their stock, the link between pay and performance is less obvious in employee ownership. Thus, from a(n)_____ standpoint, the effect on performance motivation may be limited.

A)agency theory
B)equity theory
C)efficiency wage theory
D)reinforcement theory
E)contract theory

Question 75

Which of the following is an example of an ownership plan used in compensation systems?

A)Gainsharing plans
B)Profit sharing programs
C)Group incentives
D)Stock options
E)Individual incentive plans

Question 76

Which of the following makes ESOPs less attractive?

A)Less diversification of investment risk
B)Increased dependence on individual performance
C)High levels of liquidity
D)Lack of dependence on organizational performance
E)The right they offer employees to vote securities

Question 77

Which of the following is true of individual incentive pay programs?

A)Individual incentive pay programs are not rolled into base pay.
B)Individual incentives often motivate employees do whatever they get paid for and nothing else.
C)Individual incentives are calculated based on the annual profit of the company.
D)Individual incentives are not effective in manufacturing industries where employees work independently.
E)Individual incentive pay programs are common in organizations.

Question 78

_____ programs offer a means of sharing productivity gains of a group or plant with employees.

A)Ownership
B)Merit pay
C)Gainsharing
D)Individual incentive
E)Skill-based

Question 79

Gainsharing plans differ from profit-sharing plans in that they:

A)use organization-wide performance parameters.
B)distribute payouts more frequently.
C)make lump sum payments.
D)can be attached to all types of jobs in the organization.
E)discourage pursuit of broader goals of the group.

Question 80

In expectancy theory terms, the fundamental drawback of profit sharing in encouraging employee effort occurs because of weak _____ perceptions.

A)instrumentality
B)valence
C)expectancy
D)equity
E)generalizability