Deck 10: Pay for Performance: Incentive Rewards

Question 1

Which of the following is NOT a problem with merit raises?

A) Employees expect the raise even when performance declines.
B) Employees do not trust management.
C) The raise may be based on favouritism.
D) The raise may be based on achieving an objective standard.

Answer 1

D

Question 2

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

Answer 2

A

Question 3

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

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

Answer 3

C

Question 4

Which of the following would NOT be a problem with merit raises?

A) if they are based upon objective, measurable criteria
B) if they are based upon the rise in the cost of living
C) if they are based on subjective performance appraisals
D) if they are tied to the length of service of the employee

Question 5

Which of the following is an advantage of piece rate pay systems?

A) they allow for teamwork
B) they have a direct link to performance
C) they help to groom better managers
D) they allow employees to break down their work piece by piece

Question 6

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 7

Under what condition is piecework appropriate?

A) technology changes are frequent
B) quality is more important than quantity
C) productivity standards are difficult to develop
D) the job is fairly standardized

Question 8

What does rate busting refer to?

A) increased productivity
B) an increase in output that results in the disapproval of fellow employees
C) setting incentive performance standards
D) decreased productivity

Question 9

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 10

Why are some compensation plans referred to as variable pay?

A) because employee pay varies with market pay
B) because employee pay is comprised of varying components
C) because employee pay is linked to performance
D) because employer costs vary with the incentives offered

Question 11

Which of the following is NOT likely to help an incentive plan succeed in an organization?

A) identifying important organizational metrics that encourage employee behaviour
B) involving employees; incentive programs should seem fair to employees
C) finding the right incentive payout
D) ensuring that employees believe that performance standards are unachievable

Question 12

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 13

Which of the following would NOT be the basis for a merit raise?

A) achieving an objective performance standard
B) a superior's subjective evaluation
C) a gainsharing decision
D) successfully performing the job

Question 14

Many potential errors, as well as discrimination, can occur in the performance appraisal process. Which of the following can such errors lead to?

A) problematic stock options
B) problematic merit pay
C) problematic job evaluations
D) problematic market pay rates

Question 15

What is the term for an incentive given for a special employee contribution not directly tied to a performance standard?

A) a piece rate plan
B) a differential piece rate
C) merit pay
D) a spot bonus

Question 16

Which of the following is NOT a reason given by organizations for implementing incentive plans?

A) to improve or maintain high levels of productivity
B) to focus employee efforts on specific performance targets
C) to link compensation rewards to the achievement of results
D) to increase employee benefits

Question 17

A new start-up firm wants to encourage team behaviours and a "culture of ownership" among all employees in the organization. Which of the following pay plans would you advise against?

A) profit sharing
B) stock options
C) differential piece rates
D) employee stock ownership plans

Question 18

Why are performance measures vital in incentive plans?

A) because they communicate the importance of the organizational goals
B) because they ensure fair pay for women
C) because they drive profitability
D) because they are fair and equitable

Question 19

If the standard time for producing one unit of work in a job paying $5.00 per hour were set at 6 minutes, what would the piece rate be?

A) $1.00 per unit
B) $1.50 per unit
C) $0.50 per unit
D) $0.75 per unit

Question 20

When employees receive a higher rate of pay for all of their work if production exceeds a standard level of output, which incentive plans are they are working with?

A) differential piece rate
B) standard piece rate
C) exception bonus rate
D) individual rate pay

Question 21

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?

A) executive perquisites
B) stock options
C) bonuses
D) benefits

Question 22

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

A) straight ratio plan
B) straight salary plan
C) straight commission plan
D) straight bonus plan

Question 23

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 24

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 25

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 26

Which of the following often applies to professional employees?

A) They cannot advance in salary beyond a point without taking on administrative duties.
B) They cannot participate in profit-sharing plans.
C) They cannot own stock due to conflict of interest.
D) They can fully utilize their professional skills only after being promoted.

Question 27

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

A) executives' desire for deferred bonuses
B) shareholders' desire for dilution
C) competitive pressures to find creative ways to compensate executives
D) the desire of the company and investors for senior managers to have a stake in the success of the business

Question 28

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?

A) the pay gap between CEOs and employees
B) the perks that CEOs enjoy
C) the need to raise the minimum wage for workers
D) the relative basic education of executives versus the increasing sophistication of employees' knowledge

Question 29

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

A) straight salary
B) straight commission
C) combined salary and commission
D) commission plus bonus

Question 30

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?

A) her employer would give her a bonus of $5,000
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 2010 compensation components-base pay, incentives, benefits, and perks
D) $5,000 would be added to her 2010 base pay

Question 31

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?

A) a merit plan
B) a straight salary plan
C) lump-sum merit pay
D) a standard hour plan

Question 32

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

A) there is emphasis on cost-reduction
B) teamwork is important
C) coordination among workers is important
D) unions have demanded team incentive plans

Question 33

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

A) the timing of the bonus
B) the growing gap between leaders and the company's lowest-paid employees
C) the lack of perquisites
D) the lack of objective market data

Question 34

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

A) It is based on individual merit.
B) It is based on productivity gains resulting from a reduction in production time.
C) It is based on dollar savings.
D) The organization does not share in the gains.

Question 35

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?

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 36

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?

A) the vice-presidents or the second level of executives under the CEOs
B) the shareholders of the firm
C) the unions through collective bargaining
D) a compensation committee

Question 37

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

A) establishing fair and precise measurement standards
B) ensuring that bonus payout formulas are easy to calculate
C) ensuring that bonus payouts are large enough to encourage future employee effort
D) registering the plan with appropriate federal authorities

Question 38

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 39

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

A) they encourage cooperative rather than individualistic behaviour
B) not all teams are alike
C) they enable employees to share efficiency gains
D) they pay only when agreed-upon standards are met or exceeded

Question 40

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 41

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

Question 42

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

Question 43

Which of the following is NOT an advantage of ESOPs?

A) Firms can reward employees with shares.
B) The employees' pensions are less vulnerable due to diversification.
C) ESOPs can increase employees' pride of ownership.
D) ESOPs can provide an incentive for employees to increase productivity.

Question 44

Scenario 10.2
Meritas Financial Ltd. is a financial advisory firm located in downtown Toronto. Most of the firm's senior employees (referred to as partners)are paid top dollar for bringing in huge accounts regardless of whether these accounts bring in the appropriate amount of business to justify the incentives paid. The partners are compensated on the net worth of the companies that sign on to use Meritas as their financial advisor. The owner is now concerned about this pay arrangement and wants to make changes to the way he compensates his employees. However, he is worried that with a potential reduction of salary and short-term incentives, he might lose some of his most valuable employees and the accounts that they brought on board.
Refer to Scenario 10.2. In implementing a new profit sharing plan, Meritas has various options by which payouts can be made to its employees. Which of the following is the best way for Meritas to distribute profits?

A) deferred payment added to pension
B) bonus payments added to yearly salaries
C) disbursements in cash paid monthly
D) a combination of deferred and cash payouts

Question 45

Profit-sharing plans represent one way that wealth can be redistributed at which of the following levels?

A) the firm level
B) the regional level
C) the national level
D) the international level

Question 46

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

Question 47

Which of the following best describes profit sharing?

A) The employer pays employees an incentive based on their merit.
B) The employer pays employees an incentive based on labour cost savings.
C) The employer pays employees a bonus based on the overall productivity of their particular work group.
D) The employer pays employees a special current or deferred sum based on the profits of the enterprise.

Question 48

Scenario 10.1
BioMetrics Imaging Ltd. is a small Saskatoon-based firm that designs and produces one-of-a-kind machines that are capable of capturing medical imaging similar to that of MRI machines but with a higher percentage of accuracy. So far, the company has been able to sell various units to privately-owned medical clinics and a few hospitals in the United States. The problem currently facing BioMetrics Imaging is finding salespeople with the appropriate experience who not only understand the equipment but are also trustworthy and willing to work extremely hard to bring the product to the marketplace. It takes roughly six months to convince potential clients to purchase the machines. Sales agents receive a hefty paycheque when a unit is sold based on a percentage of the unit price, and all travel expenses are covered. Still, the company is not able to retain its employees because the time lag between beginning to sell machines and getting paid is too long.
Refer to Scenario 10.1. What type of compensation plan is BioMetrics utilizing for its salespeople?

A) a straight commission plan
B) a straight salary plan
C) a combination salary and commission plan
D) a sales plus bonus plan

Question 49

Which of the following is NOT a weakness of profit-sharing plans?

A) They cause intense competition at the individual employee level.
B) Profits shared may be affected by external economic factors.
C) The line of sight between reward and individual performance is weak.
D) The performance of other firms on the stock market may affect profits.

Question 50

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

Question 51

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 52

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

Question 53

Scenario 10.1
BioMetrics Imaging Ltd. is a small Saskatoon-based firm that designs and produces one-of-a-kind machines that are capable of capturing medical imaging similar to that of MRI machines but with a higher percentage of accuracy. So far, the company has been able to sell various units to privately-owned medical clinics and a few hospitals in the United States. The problem currently facing BioMetrics Imaging is finding salespeople with the appropriate experience who not only understand the equipment but are also trustworthy and willing to work extremely hard to bring the product to the marketplace. It takes roughly six months to convince potential clients to purchase the machines. Sales agents receive a hefty paycheque when a unit is sold based on a percentage of the unit price, and all travel expenses are covered. Still, the company is not able to retain its employees because the time lag between beginning to sell machines and getting paid is too long.
Refer to Scenario 10.1. Which of the following factors is LEAST likely to affect sales for this equipment?

A) economic and seasonal fluctuations
B) sales competition and changes in demand
C) producing the machines in a timely manner
D) the nature of the sales territory

Question 54

Scenario 10.1
BioMetrics Imaging Ltd. is a small Saskatoon-based firm that designs and produces one-of-a-kind machines that are capable of capturing medical imaging similar to that of MRI machines but with a higher percentage of accuracy. So far, the company has been able to sell various units to privately-owned medical clinics and a few hospitals in the United States. The problem currently facing BioMetrics Imaging is finding salespeople with the appropriate experience who not only understand the equipment but are also trustworthy and willing to work extremely hard to bring the product to the marketplace. It takes roughly six months to convince potential clients to purchase the machines. Sales agents receive a hefty paycheque when a unit is sold based on a percentage of the unit price, and all travel expenses are covered. Still, the company is not able to retain its employees because the time lag between beginning to sell machines and getting paid is too long.
Refer to Scenario 10.1. One way to address the turnover problem that is driven by the frequency of payout would be to have some form of guaranteed pay. Which pay method for sales employees addresses this issue?

A) straight commission
B) salary and commission
C) bonuses
D) gainsharing

Question 55

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

Question 56

Scenario 10.2
Meritas Financial Ltd. is a financial advisory firm located in downtown Toronto. Most of the firm's senior employees (referred to as partners)are paid top dollar for bringing in huge accounts regardless of whether these accounts bring in the appropriate amount of business to justify the incentives paid. The partners are compensated on the net worth of the companies that sign on to use Meritas as their financial advisor. The owner is now concerned about this pay arrangement and wants to make changes to the way he compensates his employees. However, he is worried that with a potential reduction of salary and short-term incentives, he might lose some of his most valuable employees and the accounts that they brought on board.
Refer to Scenario 10.2. Meritas wants to keep these employees happy and motivated. Which of the following is NOT a positive impact of implementing profit sharing?

A) having an adverse effect on productivity and employee morale
B) helping stimulate employees to think and feel more like partners
C) encouraging a total commitment from employees
D) contributing to the growth of the organization's profit

Question 57

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).

Question 58

Scenario 10.2
Meritas Financial Ltd. is a financial advisory firm located in downtown Toronto. Most of the firm's senior employees (referred to as partners)are paid top dollar for bringing in huge accounts regardless of whether these accounts bring in the appropriate amount of business to justify the incentives paid. The partners are compensated on the net worth of the companies that sign on to use Meritas as their financial advisor. The owner is now concerned about this pay arrangement and wants to make changes to the way he compensates his employees. However, he is worried that with a potential reduction of salary and short-term incentives, he might lose some of his most valuable employees and the accounts that they brought on board.
Refer to Scenario 10.2. Meritas may be able to increase short-term incentives and retain its most valuable employees by embarking on which of the following?

A) an employee stock bonus plan
B) an employee stock purchase plan
C) profit-sharing plans
D) employee stock option plans

Question 59

Which of the following is a major problem of ESOPs?

A) Employees may become demotivated and frustrated if the share price falls, even though they have worked productively.
B) ESOPs place employees' pensions at risk because they are tied to the market performance of the organization.
C) Because of the cash involved, ESOPs can be damaging to the financial well-being of the organization.
D) Employees view the ESOP as a form of management control.

Question 60

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 61

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

Question 62

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 63

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

Question 64

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 65

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

Question 66

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

Question 67

Piecework is inappropriate where technology changes are frequent.

Question 68

Financial incentives for salespeople are widely used.

Question 69

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

Question 70

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

Question 71

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

Question 72

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 73

A bonus is supplemental to base wages.

Question 74

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

Question 75

Incentive plans based on productivity can reduce labour costs.

Question 76

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 77

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 78

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

Question 79

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

Question 80

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