Deck 11: Rewarding Performance

Question 1

The incentive stock option that gives an executive the right to purchase stock is priced higher than the market price.

Answer 1

False

Question 2

Team-based PFP is a better approach when it is part of a comprehensive team-based model of HRM and compensation.

Answer 2

True

Question 3

Winsharing combines gain sharing with profit sharing.

Answer 3

True

Question 4

Profit sharing is a group incentive system that gives participating employees an incentive allocation based on improvements in quality measurements.

Question 5

Workforce interdependence is one of the factors to be considered in designing a gain sharing program.

Question 6

An important determinant of effective PFP is the incentive being valued relative to other rewards.

Question 7

Stock awards and stock options,identified as a means for rewarding performance,are well suited for meeting short-run objectives.

Question 8

A draw,in a sales incentive plan,is essentially an interest-free loan to the salesperson,repayable when commissions are below the draw limit.

Question 9

IMPROSHARE is similar to Scanlon except that the IMPROSHARE ratio uses labor costs rather than standard hours.

Question 10

The three major types of group-based incentive plans,profit sharing,gain sharing,and employee stock option plans,are all designed to establish a link between pay and performance.

Question 11

Merit pay plans are also known as piece-rate systems.

Question 12

Reliability is defined as the extent to which the measure used to define performance is correlated with some criterion of organizational performance.

Question 13

The piece-rate system and the standard hourly rate,as the two types of individual incentive systems,are based on rated output.

Question 14

One reason for the failure of PFP systems is that employees do not understand the connection between their performance and changes in pay.

Question 15

Considering the procedure to calculate the standard rate,if the standard time for a task is two hours and the fair hourly wage is $10,the standard rate is $20.

Question 16

The piece-rate approach is recommended if individual performance can be accurately measured and teamwork or worker collaboration is not important for the desired performance outcomes.

Question 17

The standard hourly rate is calculated by dividing the base wage by the standard.

Question 18

The flaw with a bonus incentive system is that due to the repetition of payments,it can be difficult to manage from a budgetary perspective.

Question 19

Incentives that are not permanently tied to an individual's base pay are easier to manage in terms of budgets when performance declines.

Question 20

The lowest level recommended for a PFP system is four percent of the base salary in order for the money to be considered significant and for the PFP system to be effective.

Question 21

The individual incentive plan in which the worker is paid solely per unit of production is known as __________.

A)differential rate plan
B)straight piecework plan
C)standard hourly rate plan
D)Halsey plan
E)Rucker plan

Question 22

When there is relatively little differential pay associated with using merit pay systems,one of the major problems that arise is:

A)company has a problem tracking payroll costs.
B)best performers perceive it as inequitable.
C)middle performers complain.
D)poor performers become worse.
E)top management takes the opportunity to give itself raises.

Question 23

When is a group pay for performance plan more effective than an individual plan?

A)When tasks are independent
B)When cooperation and teamwork are essential
C)When it is difficult to measure an employee's specific contributions
D)Both "A" and "B"
E)Both "B" and "C"

Question 24

In general,pay for performance systems are more effective when specific worker contributions can be clearly measured.

Question 25

When forced distribution is used to reduce leniency bias,this can cause __________ if a PFP system is in place.

A)increased trust in the organization
B)increased trust between employees
C)increased theft in the organization
D)decreased trust between employees
E)decreased trust in the organization

Question 26

Clawback provisions allow a company to grant an executive stock and then increase their stock gains by manipulating the price of the stock through corporate buy back programs.

Question 27

Which of the following plans calls for a distribution of pay based on an appraisal of a worker's performance?

A)Merit pay plan
B)Incentive plan
C)Halsey plan
D)Commission plan
E)Profit sharing plan

Question 28

Which of the following is associated with Taylor's differential rates?

A)There are two outcomes related to pay: one for performing below standard and the other for meeting or exceeding the standard.
B)They are used to pay a higher ranked worker more than one who is lower ranked.
C)The rate is based on a productivity index called labor contribution to value added.
D)They involve higher levels of employee involvement.
E)They are generally tied to company profits.

Question 29

Why do Deming and other quality experts think PFP is a bad idea?

A)Performance appraisal diverts attention away from the systems related to the quality of the product or service.
B)PFP places too much emphasis on getting employees to do their jobs right the first time.
C)PFP links rewards valued by the employee to organizational outcomes valued by the employer.
D)Performance appraisal decreases the intensity of competition among individual workers.
E)PFP only enhances organizational performance.

Question 30

Each of the following is true regarding individual PFP plans EXCEPT:

A)Individual PFP plans can be divided into merit pay systems and incentive systems tied to production rates.
B)For a merit pay plan, performance is generally measured through performance appraisal.
C)Incentive plans rely on some countable result as a basis for setting the PFP rate.
D)The greatest strength of the merit pay plan is its ability to create a clear linkage between employee performance and pay.
E)Incentive pay is based on units produced and provides the closest connection between performance and pay.

Question 31

Pay for performance plans are most effective when managers set the goals and have control over the pace of work.

Question 32

PFP is a High Performance Work Characteristic and is linked to a firm's performance particularly when the:

A)CEO pay is a lower base pay with the majority of compensation coming from incentive plans.
B)PFP system is closely aligned with the company's strategic objectives.
C)company has both profit sharing and employee stock option plans established.
D)performance is measurable.
E)size of the award is sufficient to stimulate increased effort.

Question 33

Your company has jobs that are highly interrelated and strategic in focus.You want to provide a pay for performance incentive with relatively long measures of performance.The best option would be to design a:

A)Merit pay plan
B)Commission pay plan
C)Profit Sharing plan
D)Piece rate plan
E)Behavioral modification plan

Question 34

When formulating a pay for performance system it is important to strike a balance between individual,team and business based incentives.

Question 35

All of the following statements are true regarding profit sharing plans EXCEPT:

A)they are often used as a means of reducing turnover.
B)they have been criticized as being remote and unrelated to performance.
C)they were designed to motivate cost savings.
D)the group that saves the most money receives the bonus.
E)they provide long-term incentives.

Question 36

Acme Shoe Company is expanding nation-wide,and they wish to develop an incentive plan for their door-to-door salespeople.Which of the following plans is most appropriate?

A)Piece-rate plan
B)Commission plan
C)Profit sharing plan
D)Straight salary
E)Scanlon plan

Question 37

A pay for performance plan negates the need to manage an employee's performance.The manager need only focus on the distribution of rewards in order to generate appropriate employee behaviors.

Question 38

In which of the following ways do incentive plans differ from merit pay plans?

A)They rely on countable results as basis for setting PFP rate.
B)They use performance appraisal data as the basis for the increase.
C)They use standard hours rather than labor costs to determine incentive pay.
D)They have less union support.
E)Are illegal under the Fair Labor Standards Act.

Question 39

Each of the following is a reason for the failure of PFP systems EXCEPT:

A)poor conceived connection between performance and pay.
B)the level of performance-based pay is too low relative to base pay.
C)lack of objective, countable results for most jobs, requiring the use of performance ratings.
D)faulty performance appraisal systems.
E)union support for PFP systems.

Question 40

The Standard Hourly Rate:

A)pays the worker an incentive based on units of production.
B)relies on countable results as a basis for setting the PFP rate.
C)uses a formula to determine the employees share of cost savings.
D)uses a production standard that is expressed in time units.
E)is usually folded into the base pay of the recipient and is usually granted as a percentage of a worker's base pay.

Question 41

What are the limitations of the individual and group-based pay plans?

Question 42

Research on Employee Stock Ownership Plans (ESOPs)shows:

A)ESOPs work better when combined with extensive employee involvement.
B)They have little effect on profitability.
C)Decrease in employee absenteeism under ESOPs.
D)ESOPs work better when the price of the stock is stable.
E)Restricted company flexibility in a competitive environment.

Question 43

How is gain sharing plans different from profit sharing?

Question 44

What are the advantages of Scanlon and Rucker plans over IMPROSHARE?

Question 45

As the manager of a sales team,you want to establish a pay for performance system.Currently they receive 100% commission in the form or cash.You want to diversify the pay and control the budget while offering value to your staff.Which of the following would you not consider?

A)Grant stock options for increases in repeat customer business.
B)Offer gift certificates to the gym, owned by the company, for sales above quota.
C)Increase their commission dollars per sale when they sell as a team.
D)Present a trip to the Bahamas, on the company yacht, to the team with the highest sales.
E)Award tickets for the company's box seats at the local music amphitheatre.

Question 46

Compare and contrast the three types of individual pay-for-performance plans.

Question 47

The Scanlon Plan:

A)uses standard hours rather than labor costs to determine incentive pay.
B)motivates the worker through rights to stock a fixed price which may be lower than the current stock market value.
C)is based on incentive pay based on units produced.
D)provides for less employee involvement than the Rucker Plan.
E)provides for a high level of employee participation through labor-management committees.

Question 48

What are the three major questions to be answered for designing a PFP system?

Question 49

Discuss the implications for employee stock option plans (ESOPs)

Question 50

Which of the following is not a factor to be considered in designing a gain sharing program?

A)Potential for employee efforts
B)Organized employee suggestion system
C)Workforce interdependence.
D)Workforce composition.
E)Key organizational factors that affect the pay system

Question 51

A current trend is to develop individual pay for performance plans where the incentive pay is:

A)Based on current performance, and not permanently tied to base pay
B)Linked to an absolute percentage of a the employee's base pay
C)A variable percentage of the employee's base pay.
D)A percentage of base pay budgeted a the beginning of the year and provides a permanent increase to an individual's salary
E)Determined by the board of directors for all employees, similar to executive compensation.

Question 52

A manager on a construction site wants to encourage safety on the job to minimize accidents.What sort of pay for performance system would you recommend?

A)Increase the employee's base pay.
B)Introduce a behavioral encouragement plan.
C)Change worker's pay from base pay to a draw commission plan.
D)Implement a piece rate reward plan.
E)Increase the level of benefits offered to all employees.

Question 53

Which reward is best suited to the following situation: Production workers making close to minimum wage; the manager wants to introduce a pay for performance plan that will increase production numbers.Work is interdependent.Production output is measured daily.

A)Individual bonus based on a percentage of company profits, paid at the end of the year.
B)Group incentive; reward is a grocery store gift certificate of $100 awarded weekly.
C)Merit increase determined annually and typically 1 to 3% of base pay.
D)Individual incentive, reward is two tickets to Disney World awarded at the end of the year.
E)Group incentive; reward is ten cent increase to base pay for the next year's pay.

Question 54

Which of the following statements is FALSE regarding short-term and long-term incentives?

A)Short-term incentives are usually additional salary rewards that an employee can receive on a quarterly or yearly basis.
B)Short-term incentives are based on meeting short-run objectives such as a quarterly sales or a production goal.
C)Long-term rewards focus on future profitability.
D)Stock options are a common short-term incentive.
E)Long-term incentives are usually best for upper-level executives who have a wider area of discretion in making decisions that affect the firm.

Question 55

Which of the following is TRUE regarding group incentive plans?

A)Increased interest in PFP has resulted in a declining number of group incentive plans.
B)The use of group plans is particularly effective when cooperation and teamwork are less essential.
C)Group plans are most useful when tasks are so interrelated that it is difficult to identify a measure of individual output.
D)There is increasing evidence that group incentives do NOT increase productivity.
E)Individual plans are generally preferable to group plans when tasks are interrelated and teamwork is essential.

Question 56

You have announced a pay for performance system,however,your budget is not large enough to truly differentiate between your top performers and your marginal performers.What is a possible outcome?

A)You may end up with high turnover among your marginal performers because of perceived inequity
B)All employees will be more motivated to achieve the new performance goals.
C)Employees will be motivated to work together in teams to increase the likelihood of rewards.
D)The composition of the workforce will shift to employees who thrive in high-risk situations.
E)Your top performers will perceive the plan as inequitable and may leave the company

Question 57

Discuss some of the reasons for past failures of Pay-For-Performance (PFP)systems.

Question 58

Compare and contrast the straight piecework and standard hourly rate plan.

Question 59

Compare and contrast the Scanlon and IMPROSHARE group incentive plans.

Question 60

List the factors to be considered in designing a gain-sharing program.