Which of the following statements is least true regarding the use of incentive pay for sales employees?
A)If a firm wants to tie pay to a performance measure that is affected by random factors, the firm need not compensate employees for the resulting increase in the variability of their pay
B)In determining how closely to tie pay to performance, the firm must weigh the costs of imposing risk on risk-averse employees against the benefits of providing additional incentives
C)When both risk and incentives are present, the optimal commission rate will reflect a tradeoff among these forces and will be somewhere between 0 percent and 100 percent
D)Stronger incentives are called for if the variance of measured performance is lower
E)When an employee captures all the value associated with extra effort, the employee chooses the effort level that equates the total marginal benefit of effort to the total marginal cost

Question

Quizplus · Accepted Answer

It is important to compensate employees for the resulting increase in the variability of their pay if a firm wants to tie pay to a performance measure that is affected by random factors. Failing to do so could result in employees feeling unfairly treated and demotivated.

Which of the Following Statements Is Least True Regarding the Use