Deck 10: Pay for Performance: Incentive Rewards

Question 1

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

Answer 1

True

Question 2

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).

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

Enterprise incentive plans allow all organizational members to participate in the plan's payout.

Question 6

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

Question 7

One clear trend in strategic compensation management is the growth of incentive programs for employees throughout the organization.

Question 8

Under a straight piecework plan,five minutes is the standard time to produce one unit.The employee's hourly rate is $7.50.The piece rate is $1.50 per unit.

Question 9

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

Question 10

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

Question 11

Sales incentives can be affected by external factors beyond the salesperson's control.

Question 12

A weakness of profit-sharing plans is that employees do not have total control over the profitability of the organization.

Question 13

The level of incentives given to executives may depend on their level in the firm.

Question 14

Because of failing popularity and media scandals,the number of Canadian companies granting stock options to nonexecutive personnel has been decreasing in recent years.

Question 15

Perquisites are special benefits given to executive employees.

Question 16

Employers use stock ownership incentive plans to increase employee "ownership" in the company.

Question 17

Financial incentives for salespeople are widely used.

Question 18

The idea behind the Scanlon Plan is that employees not only should offer ideas to improve productivity,but also should be rewarded for those ideas.

Question 19

Straight commission plans may induce salespeople to grant price concessions.

Question 20

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

Question 21

Under a differential piece rate plan,employees whose performance (i.e.,production)exceeds the standard amount of output receive a higher rate for all of their work than the rate paid to those who have not exceeded the standard amount.

Question 22

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

Question 23

Gainsharing plans are designed to improve productivity through more effective use of organizational resources.

Question 24

In most profit-sharing plans,about 20 to 25 percent of net profits are shared with employees.

Question 25

Balanced scorecards refer to the use of operational yardsticks as well as traditional financial measures as a basis for computing executive pay.

Question 26

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

Question 27

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

Question 28

Performance measures are rather simple to develop and standardize,as sales volume is an objective measure of performance that is not dependent upon external factors.

Question 29

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

Question 30

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 31

Team incentive plans reward team members when performance standards are met or exceeded; however,they tend to foster a psychological climate that negatively impacts team cooperation.

Question 32

A straight salary plan is the most frequently used type of sales incentive plan.

Question 33

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

Question 34

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

Question 35

ESOPs can increase employees' pride of ownership in the organization,providing an incentive for them to increase productivity and help the organization prosper and grow.

Question 36

A salesperson with a sales volume of $275 000 earning a straight commission of 3 percent would receive $8250.

Question 37

A potential difficulty with pay-for-performance programs is how to measure employee performance.

Question 38

Under a straight commission plan,compensation is based entirely on a percentage of sales.

Question 39

Piecework is inappropriate where technology changes are frequent.

Question 40

The most important lesson learned from Scanlon and Improshare plans is that if management wants to gain the cooperation of its employees in improving efficiency,they must permit the employees to become involved psychologically as well as financially in the organization.

Question 41

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 42

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

Question 43

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 44

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 45

Professional employees are difficult to develop incentive plans for only because their outputs are difficult to measure.

Question 46

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 such as confusion and competition.
D)They tend to drive up organizational costs and decrease profits because more pay has to be given to employees.

Question 47

Which of the following is NOT a type of stock plan?

A)stock option plan
B)stock bonus plan
C)stock purchase plan
D)stock incentive plan

Question 48

Navin works as a sales representative for Rogers Pet Foods.He is on a commission plan.His individual performance has been steady over the past few months but he has noticed a decline in his pay.Which of the following is NOT a likely cause for Navin's pay decline?

A)changes in the economy
B)increased competition from rival pet food suppliers
C)his intrinsic motivation
D)seasonal fluctuations in the demand for pet food

Question 49

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

Question 50

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 51

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 52

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

Question 53

ESOPs have been criticized because of potential inabilities to pay back the stock of employees when they retire.

Question 54

Because profit-sharing plans often fail to pay off for several years in a row,they can have limited motivational value.

Question 55

Stock options are rights attached to the achievement of specific organizational objectives.

Question 56

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 57

Incentive plans based on productivity can reduce labour costs.

Question 58

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 59

A bonus is supplemental to base wages.

Question 60

Amelia received a stellar performance appraisal in 2014,which translated to a 10 percent pay raise for 2015.Her 2014 base pay was $50 000.Which of the following applies to 2015?

A)Her employer would give her a bonus of $5000.
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 2014 compensation components-base pay,incentives,benefits,and perks.
D)$5000 would be added to her 2014 base pay.

Question 61

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 62

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 63

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 instil commitment to the employee's immediate work group

Question 64

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 special incentive
D)a differential piece rate

Question 65

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 66

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

Question 67

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 68

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 69

When setting performance measures for incentive systems,what can we say about the best measures?

A)They are quantitative,simple to understand,and show a clear relationship to improved performance.
B)They are qualitative,flexible,and create competition between employees.
C)They are those measures that allow employers to "ratchet up" standards and base rewards on qualitative standards.
D)They are unattainable in order to inspire increased levels of performance.

Question 70

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 71

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 72

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 73

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 74

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 75

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 76

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 77

Which of the following is NOT a reason that merit raises may fail to achieve their intended purpose?

A)Merit raises may be based on seniority or favouritism.
B)The performance appraisal system is deficient.
C)Employees are unable to differentiate between merit and other pay increases.
D)Incentive rewards are linked to organizational goals.

Question 78

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 79

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 80

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.