Question 1

A problem with rewarding managers only on the basis of residual income is that:
A)residual income is difficult to measure
B)on occasion the items in the residual income calculation are not quantifiable
C)residual income can depend on items over which the manager has little control
D)All of these answers are correct.

Accepted Answer

Residual income can be influenced by factors outside a manager's control, such as economic conditions or changes in corporate policy, making it an imperfect measure of a manager's performance.

Question 2

The situation in which an employee prefers to exert less effort compared with the effort desired by the owner because the employee's effort CANNOT accurately be monitored and enforced is known as a(n):
A)incentive
B)moral hazard
C)objective
D)imputed cost

Accepted Answer

Moral hazard refers to the situation where one party takes risks because the costs associated with those risks will not be felt by that party. In the given scenario, the employee knows that their effort cannot be accurately monitored and enforced, which creates a moral hazard problem. The incentive is related to rewards given for good performance. Objectives are goals set by the organization, while imputed cost is an estimated cost that is not necessarily a real cost incurred by the organization.

Question 3

Team incentives encourage cooperation by:
A)forcing people to work together on difficult tasks
B)improving morale
C)letting individuals help one another as they strive toward a common goal
D)rewarding all teams the same amount

Accepted Answer

Team incentives encourage cooperation by allowing individuals to help one another as they work towards a shared objective, fostering a collaborative environment.

Question 4

Tying performance measures more closely to a manager's efforts:
A)encourages the use of nonfinancial measures
B)results in a strict use of financial ratios
C)results in the salary component of compensation dominating the total compensation package
D)Both A and C are correct.

Accepted Answer

Tying performance measures to a manager's efforts encourages the use of nonfinancial measures because these can better reflect the manager's direct impact and contributions beyond just financial outcomes.

Question 5

One way to achieve greater comparability of historical cost-based ROIs for a company's foreign division is to restate performance in dollars.

Accepted Answer

Restating performance in dollars can remove the effects of currency fluctuations and provide a more standardized basis for comparison.

Question 6

________ describes contexts in which an employee prefers to exert less effort than the effort that the owner wants because the employee's effort cannot be accurately monitored and enforced.
A)Goal congruence
B)Moral hazard
C)Management compensation
D)Incentive compensation

Accepted Answer

Moral hazard refers to situations where one party has an incentive to take risks because they do not bear the full consequences of their actions. In an employment context, an employee may not work as hard as the owner wants because they know it is difficult to accurately monitor and enforce their effort, leading to moral hazard. The other options are not directly related to this concept.

Question 7

Another term for benchmarking is a relative performance evaluation.

Accepted Answer

Benchmarking involves comparing an organization's performance to that of its competitors or peers, which is a form of relative performance evaluation.

Question 8

If a company is a multinational company with operations in several different countries, one way to achieve comparability of historical-cost based ROIs for facilities in different countries is to:
A)restate the results of operations using the cash basis method of accounting
B)use GAAP for all reporting and calculations
C)restate the results of all operations in dollars
D)All of these answers are correct.

Accepted Answer

Restating the results of all operations in dollars allows for a consistent currency basis, facilitating comparability across different countries.

Question 9

________ and ________ would be uncontrollable factors that a firm would need to consider when evaluating the return on investment of an international division.
A)Manager's experience; currency stability
B)Manager's compensation; political climate
C)Required rate of return; legal requirements
D)Custom duties; cultural environment

Accepted Answer

The answer of ________ and ________ would be uncontrollable factors...

Question 10

In performance evaluations:
A)the performance of the division prior to the manager assuming control should be considered
B)economic conditions for the specific industry should not be considered
C)to have an effective and fair evaluation, a manager should be evaluated over several time periods
D)Both A and C are correct.

Accepted Answer

It is important to consider the performance of the division prior to the manager assuming control to understand the impact of their leadership. Economic conditions for the specific industry should also be taken into account as they can affect performance. To have a more accurate evaluation, a manager's performance should be evaluated over several time periods to see trends and identify areas of improvement. Therefore, both options A and C are correct.

Question 11

Comparing the performance of divisions of a multinational company operating in different countries is difficult due to the differences in economic, legal, political, social, and cultural environments.

Accepted Answer

Differences in economic, legal, political, social, and cultural environments can significantly impact the performance of divisions of a multinational company in different countries, making it challenging to compare their performance.

Question 12

Managers only employ one task as a part of their job, and thus evaluation of how well they do is simple to accomplish.

Accepted Answer

Managers have multiple tasks as a part of their job, and evaluation of their performance is complex and requires the evaluation of various aspects of their work.

Question 13

An important consideration in designing compensation arrangements is the tradeoff between creating incentives and imposing risks.

Accepted Answer

Compensation arrangements are designed to provide incentives to employees to work towards achieving organizational goals. However, the design of the compensation system should also take into account the potential risks associated with the incentives provided. For example, if the compensation system is solely based on individual performance, it may incentivize employees to engage in unethical behavior or take excessive risks to achieve their targets. Thus, creating incentives needs to be balanced with reducing risks.

Question 14

Discuss the issues and complications that may arise when multinational corporations conduct performance measurement and comparisons among divisions located in different countries.

Accepted Answer

The answer of Discuss the issues and complications that may...

Question 15

Designers of executive compensation plans emphasize which of the following factors?
A)achievement of organizational goals
B)administrative ease
C)the probability that the executives affected by the plan will perceive the plan as fair
D)All of these answers are correct.

Accepted Answer

Designers of executive compensation plans emphasize all of the factors listed, including achievement of organizational goals, administrative ease, and the perception of fairness by the executives affected by the plan. These factors are all important in ensuring that the compensation plan effectively motivates executives to perform at a high level in order to achieve organizational success.

Question 16

Relative performance evaluation:
A)is called benchmarking
B)filters out the effect of common noncontrollable factors
C)results in managers having no incentive to help one another
D)All of these answers are correct.

Accepted Answer

Relative performance evaluation filters out the effect of common noncontrollable factors and results in managers having no incentive to help one another.

Question 17

Moral hazard describes contexts in which an employee prefers to exert less effort than the effort that the owner wants because the employee's effort CANNOT be accurately monitored and enforced.

Accepted Answer

Moral hazard occurs when there is asymmetry of information between the employer and the employee, leading to the employee having an incentive to take risks or behave inefficiently because the negative consequences will not fall solely on them. In situations where the employee's effort cannot be easily monitored or enforced, such as in some service industries, there is a greater likelihood of moral hazard occurring.

Question 18

Many manufacturing, marketing, and design problems require employees with multiple skills; therefore, teams are used and the members have the added encouragement of:
A)individual incentives
B)management incentives
C)morale incentives
D)team incentives

Accepted Answer

Team incentives are the most appropriate option in this scenario since the members of the team require the added encouragement of working together to solve complex problems. In addition, team incentives can help to promote collaboration and a sense of belonging among team members, which can lead to increased job satisfaction and productivity. Individual incentives, management incentives, and morale incentives may be useful in other contexts, but they are not as effective when it comes to promoting teamwork and collaboration.

Question 19

Evaluating an executive's performance using the annual return on investment would sharpen an executive's long-run focus.

Accepted Answer

Evaluating performance based on annual returns may encourage executives to focus on short-term gains rather than long-term strategic goals.

Question 20

Which of the following statements is true?
A)The economic, legal, political, social, and cultural environments differ across countries.
B)Governments in some countries may impose controls and limit selling prices of a company's products.
C)Because of advances in telecommunications and transportation, the availability of materials and skilled labor does not differ significantly across countries.
D)Both A and B are correct.

Accepted Answer

Both statements A and B are true. The economic, legal, political, social, and cultural environments vary significantly by country, which can impact a company's success in the market. Additionally, some governments may impose regulations or price controls that limit a company's ability to sell their products in that country. However, statement C is incorrect as there are still significant differences in the availability of materials and skilled labor between countries, even with advances in telecommunications and transportation.

Quiz 23: Performance Measurement, Compensation, and Multinational Considerations

A problem with rewarding managers only on the basis of residual income is that:

The situation in which an employee prefers to exert less effort compared with the effort desired by the owner because the employee's effort CANNOT accurately be monitored and enforced is known as a(n) :

Team incentives encourage cooperation by:

Tying performance measures more closely to a manager's efforts:

One way to achieve greater comparability of historical cost-based ROIs for a company's foreign division is to restate performance in dollars.

________ describes contexts in which an employee prefers to exert less effort than the effort that the owner wants because the employee's effort cannot be accurately monitored and enforced.

Another term for benchmarking is a relative performance evaluation.

If a company is a multinational company with operations in several different countries, one way to achieve comparability of historical-cost based ROIs for facilities in different countries is to:

and would be uncontrollable factors that a firm would need to consider when evaluating the return on investment of an international division.

In performance evaluations:

Comparing the performance of divisions of a multinational company operating in different countries is difficult due to the differences in economic, legal, political, social, and cultural environments.

Managers only employ one task as a part of their job, and thus evaluation of how well they do is simple to accomplish.

An important consideration in designing compensation arrangements is the tradeoff between creating incentives and imposing risks.

Discuss the issues and complications that may arise when multinational corporations conduct performance measurement and comparisons among divisions located in different countries.

Designers of executive compensation plans emphasize which of the following factors?

Relative performance evaluation:

Moral hazard describes contexts in which an employee prefers to exert less effort than the effort that the owner wants because the employee's effort CANNOT be accurately monitored and enforced.

Many manufacturing, marketing, and design problems require employees with multiple skills; therefore, teams are used and the members have the added encouragement of:

Evaluating an executive's performance using the annual return on investment would sharpen an executive's long-run focus.

Which of the following statements is true?