Question 1

Last year, many CEOs of Canada's largest companies earned less than $300,000 base pay, yet their overall compensation was on average more than $10 million. What was the major reason for the huge overall pay?

Accepted Answer

The main reason for the huge overall pay was stock options, which allow executives to buy company shares at a discounted price, resulting in substantial profits when the stock price rises.

Question 2

Which of the following is a pay plan that only compensates sales employees based on a percentage of sales?

Accepted Answer

A straight commission plan is a pay plan that compensates sales employees based on a percentage of sales. They do not receive a salary or bonus, only a percentage of the sales they make. This acts as an incentive for employees to sell more and increase revenue for the company.

Question 3

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

Accepted Answer

Team incentives can be plagued by the "free rider" effect, where some team members may not perform well or contribute to the team effort but still receive the rewards based on the team's overall performance. Piece rates and base pay are based on individual performance, while retirement plans are based on long-term investment and savings.

Question 4

What is the philosophy behind the Scanlon Plan?

Accepted Answer

The philosophy behind the Scanlon Plan is that employees should offer ideas and suggestions to improve productivity, and they should be rewarded for their constructive efforts. This plan encourages employee participation and creates a sense of ownership in the organization's success. Other factors such as profits and sales are important, but the focus is on improving productivity through employee engagement.

Question 5

Which of the following is an advantage of merit increases on a lump-sum basis?

Accepted Answer

Merit increases on a lump-sum basis do not contribute to escalating base salary levels, which can help control labor costs and avoid overpaying employees.

Question 6

Which of the following often applies to professional employees?

Accepted Answer

Professional employees often have a salary cap based on their position, and cannot advance in salary beyond a certain point without taking on additional administrative duties.

Answer: B
 Professional employees may have the opportunity to participate in profit-sharing plans, which are common in many industries.

Answer: C
 Professional employees may be restricted from owning stock in their employer's company due to conflict of interest concerns.

Answer: D
 This statement is not necessarily true for professional employees, as they can often fully utilize their professional skills in their current position without being promoted.

Question 7

Where does the emphasis on stock options and executive stock ownership come from?

Accepted Answer

The emphasis on stock options and executive stock ownership comes from the desire of the company and investors for senior managers to have a stake in the success of the business. This aligns executives' interests with those of the shareholders and encourages them to make decisions that benefit the company's long-term success.

Question 8

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?

Accepted Answer

Peter Drucker's concern focused on the pay gap between CEOs and employees. He believed that a larger gap could lead to demotivation and reduced productivity among employees, and could also have negative effects on company performance and shareholder value. He therefore suggested a ratio of no more than 20:1 for CEO pay compared to that of the average employee.

Question 9

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

Accepted Answer

Combined salary and commission is the most widely used sales incentive program as it provides both stability and motivation for salespeople. A salary component ensures a minimum income while a commission component motivates salespeople to perform better and earn higher rewards. This type of program provides a balance between risk and reward for both the company and the salespeople.

Question 10

Amelia received a stellar performance appraisal in 2012, which translated to a 10 percent pay raise for the next year. Her 2010 base pay was $50,000. Which of the following applies to 2013?

Accepted Answer

Amelia's 10 percent pay raise would be calculated based on her 2010 base pay of $50,000, resulting in an additional $5,000 for 2013.

Question 11

Saturn, the auto firm, has a sales incentive plan that permits salespeople to be paid for performing various duties not reflected immediately in their sales volume. What type of pay plan does this exemplify?

Accepted Answer

A straight salary plan pays employees a fixed salary regardless of sales volume, allowing for compensation for duties beyond direct sales.

Question 12

Which of the following is NOT a reason that team incentive plans have grown more popular?

Accepted Answer

Unions have not played a significant role in the popularity of team incentive plans. The other options are all valid reasons for their increasing popularity.

Question 13

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

Accepted Answer

The growing gap between leaders and the company's lowest-paid employees is a major concern about executive compensation. This creates inequality and can lead to negative morale among employees, as well as potential public backlash. The other options, such as the timing of the bonus or lack of perquisites, may also be concerns but are not as significant as the widening pay gap. The lack of objective market data is also a concern, but it is not as directly related to the negative impact on company dynamics and culture.

Question 14

How does the bonus given to employees under Improshare differ from that given under the Scanlon Plan?

Accepted Answer

The bonus given under Improshare is based on productivity gains resulting from a reduction in production time, whereas under the Scanlon Plan, the bonus is based on dollar savings. Additionally, under Improshare, the organization shares in the gains, whereas this is not specified under the Scanlon Plan. Improshare also does not necessarily reward individual merit, as it is based on team productivity gains.

Question 15

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 Naveen's pay decline?

Accepted Answer

Intrinsic motivation refers to internal factors that drive an individual to perform well, such as personal satisfaction or a desire to learn and grow. While intrinsic motivation can impact job performance, it is not a likely cause for a decline in pay on a commission plan. Changes in the economy, increased competition, and seasonal fluctuations are all external factors that can affect sales and commission earnings.

Question 16

Given that the CEO is the chief executive and decides on most, if not all, major decisions of the firm, who usually sets his or her pay?

Accepted Answer

The CEO's pay is usually determined by a compensation committee, which consists of a group of independent directors who do not have any conflict of interest. They evaluate the CEO's performance, set goals, and determine appropriate compensation based on the CEO's achievements. This process ensures transparency, fairness, and alignment of the CEO's pay with the company's long-term interests. Shareholders can also vote on executive pay during annual meetings, but their decision is non-binding and advisory only.

Question 17

Which of the following is NOT an important component of a meaningful gainsharing plan?

Accepted Answer

Registering the plan with appropriate federal authorities is not a component of a meaningful gainsharing plan. The other options listed are important components that help ensure the success and effectiveness of the plan.

Question 18

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?

Accepted Answer

This type of payment is known as a lump-sum merit pay, which is a one-time payment made in recognition of an employee's performance, rather than a permanent increase to their base pay. This is different from an annual merit raise, which would permanently increase an employee's base pay, and a percentage wage increase, which would be a percentage increase to an employee's base pay. A group incentive plan would be a type of incentive plan that rewards a group of employees for collectively achieving a goal or objective.

Question 19

Which of the following is a problem with creating team incentive plans?

Accepted Answer

Not all teams are alike, meaning that a team incentive plan that works well for one team may not be effective for another. Teams can have different goals, work processes, and team dynamics, which can affect the effectiveness of the incentive plan.

Question 20

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?

Accepted Answer

These benefits are known as perquisites or "perks," which are additional benefits beyond an executive's salary and can include things like a company car, travel allowances, and club memberships. While they are not illegal, they can sometimes be seen as excessive or unfair, especially if lower-level employees do not receive similar benefits. Golden parachutes, on the other hand, refer to generous severance packages that executives receive if they are fired or the company is acquired.

Quiz 10: Pay for Performance: Incentive Rewards