Deck 14: Incentive Pay Systems

Question 1

Under an Incentive Stock Option (ISO),a manager does not have to pay any tax until he/she sells the stock.

Answer 1

True

Question 2

Revised data indicates that ESOPs grew rather dramatically from the mid-1980s through the late 1990s.

Answer 2

False

Question 3

Nonqualified stock options are similar to qualified options,except that they are subject to a more favorable tax rate.

Answer 3

False

Question 4

Incentive plans usually function in place of the base wage/salary structure.

Question 5

In recent times,stock options have often represented the largest portion of an executive's total compensation.

Question 6

Most suggestion systems offer nonmonetary rewards such as vacations and cruises for cost savings ideas.

Question 7

Standard hour plans involve paying employees more if they work more hours,increasing their payment once they cross a certain number of hours.

Question 8

"Say-on-pay" proposals require an annual binding shareholder vote regarding executive compensation.

Question 9

Research indicates that suggestion systems are basically a waste of time and money for employers.

Question 10

Stock option plans are generally designed to give managers an option to buy company stock at a variable price.

Question 11

Top management executives constitute the vast majority of private-sector employees who hold stock options.

Question 12

When a company establishes an ESOP,the shareholders risk losing voting control of company.

Question 13

The most common type of incentive award for managerial employees is the annual cash bonus.

Question 14

Restricted stock plans normally require that an executive remain with a company for a number of years after the grant in order for him/her to cash them in.

Question 15

The Scanlon plan technically is not a profit-sharing plan,but rather a plan that shares with employees measurable savings in labor and production costs.

Question 16

Incentive pay plans attempt to strengthen the performance-reward relationship and thus motivate the affected employees.

Question 17

One advantage of individual incentive plans is the direct observable relation between rewards and individual performance.

Question 18

A gain-sharing program is also known as a performance-sharing plan.

Question 19

Self-directed work teams are well established in Europe and especially in Scandinavia,but are relatively new in the United States.

Question 20

Piece rate plans have been in effect for over 150 years.

Question 21

Performance-vesting options are also called:

A)premium-priced options.
B)price-vesting options.
C)suggestion awards.
D)restricted-vesting plans.

Question 22

Which of the following does NOT reflect the attitude of an organization toward employees when offering an incentive pay plan?

A)Share rewards of doing business with employees.
B)Assure employees that the business is totally secure.
C)Have employees think of themselves as business partners.
D)Share risks of doing business with employees.

Question 23

Performance share plans involve units whose value is determined:

A)by an evaluation of the responsible person's contribution.
B)over a multi-year period.
C)upon retirement or other separation of the recipient from the company.
D)at the moment that declaration of the recipient is made.

Question 24

According to the text,managerial personnel generally receive incentives in the form of all of the following EXCEPT:

A)annual bonuses.
B)COLA increases.
C)long-term performance planning.
D)stock options.

Question 25

Qualified stock options are known for their:

A)predominant use on behalf of non-managers.
B)more favorable tax treatment.
C)lack of restrictions.
D)Internal Revenue Service exemption as earned income.

Question 26

The incentive pay plan typically identified with many salespeople,which rewards employees,at least partly,on the basis of sales volume is termed a _____ plan.

A)commission
B)piece work
C)time saved
D)unit

Question 27

If incentives are to be based on performance,all of the following are necessary concerning the affected workers EXCEPT that:

A)employees believe in the integrity of the plan.
B)evaluations are accurate.
C)employees approve all details of the plan.
D)evaluations are fair.

Question 28

Over the last 15 years,incentive pay as a percentage of payroll has:

A)been basically constant.
B)fluctuated.
C)markedly declined.
D)almost doubled.

Question 29

A reward offered on a one-time basis for high performance called is a:

A)merit pay increase.
B)bonus.
C)suggestion system.
D)differential piece-rate system.

Question 30

An advantage to the organization of incentive pay over salary increases is that it:

A)is almost always a lesser percentage of total compensation than other increases.
B)is not subject to payroll consideration for taxes and other deductions.
C)promotes equity since all employees end up with an equal amount of compensation.
D)is not permanent and would need to be earned each designated period.

Question 31

A merit pay increase is:

A)identical to a bonus.
B)not a performance-based incentive.
C)a one-time supplement with no effect on base pay.
D)perpetuated throughout future years.

Question 32

The key to having a successful suggestion system is to:

A)adopt every contribution that is submitted.
B)keep rewards out of it to prevent over-submission by those wanting a payoff.
C)clearly communicate how the system works.
D)keep anonymous those who supply top ideas.

Question 33

Which of the following is the primary advantage of individual incentives as opposed to group or organizational incentives?

A)Greater total reward is assured
B)Works especially well for those involved in team projects
C)Clear relationship perceived between actions and rewards
D)No need for confidentiality

Question 34

Which of the following is an individual incentive plan devised by Frederick W.Taylor that pays one rate for all acceptable units produced up to some standard and then a higher rate for all pieces produced if the output exceeds the standard?

A)Differential piece rates
B)Quality circles
C)Time-and-a-half for overtime wages
D)Commission plan

Question 35

In a differential piece rate plan,the rate is raised:

A)after a given number of pieces have been produced.
B)for each piece that exceeds standard quality.
C)when specifications of pieces produces changes.
D)for the top producer,who is paid a premium rate.

Question 36

All of the following are reasons for offering incentive plans in addition to the base wage/salary structure EXCEPT that:

A)calculations are simpler when both systems are taken together.
B)payroll expenses can grow or shrink in response to the success of the business.
C)labor market competition necessitates the use of incentives.
D)minimum wage laws specify the use of such a system.

Question 37

A technique that allows an executive to share in the increase of a company's stock without putting up the money to buy stock via the exercise of options is called:

A)phantom stock plan.
B)qualified stock option plan.
C)stock appreciation rights.
D)nonqualified options.

Question 38

One requirement of an incentive plan is that it be:

A)based on performance.
B)based on seniority.
C)limited to employees in manufacturing.
D)limited to nonmonetary redemption options.

Question 39

A major disadvantage of commission plans is:

A)the use of draws in conjunction with commissions.
B)the weak linkage of performance to reward.
C)the inability to combine salary with commission.
D)the effects of uncontrollable factors on sales.

Question 40

A pay plan in which an individual is paid for the typical time required to complete a job is a(n):

A)piecework pay plan.
B)differential piecework pay plan.
C)standard hour plan.
D)draft plan.

Question 41

According to the text,which of the following is a disadvantage of group incentives?

A)Different groups can become considerably less competitive with one another to the detriment of the entire organization.
B)The members of the group may not perceive a direct relationship between their individual performances and that of the group.
C)High-performing individuals in a group mask low-performing individuals,thus shielding them from being terminated.
D)A group may monopolize certain tasks to garner more incentives,thus limiting knowledge-sharing.

Question 42

Describe Scanlon-type plans.

Question 43

Discuss the difference between a bonus and merit pay plan.

Question 44

Discuss group incentive plans.

Question 45

Which of the following require(s)an annual nonbinding shareholder vote regarding executive compensation?

A)Gain-sharing plans
B)The Scanlon plan
C)"Say-on-pay" proposals
D)ESOPs

Question 46

What are the two basic requirements of an effective incentive pay plan?

Question 47

Define the following stock option-related plans: stock-for-stock swaps,stock appreciation rights,phantom stock plans,restricted stock plans,premium-priced options,and performance-vesting options.

Question 48

Which of the following is a major benefit of employee stock ownership plans to stockholders?

A)Allows use of pretax dollars to finance debt.
B)Can result in preferential consideration for a government-guaranteed loan.
C)Favorable tax treatment of lump-sum distribution,deferment of tax until distribution,and gift and estate tax exemptions.
D)Provides a ready buyer for stock.

Question 49

Discuss the major issues related to the executive pay controversy.

Question 50

Which of the following is true about self-directed work teams?

A)They are teams of employees that accomplish tasks within their area of responsibility with direct supervision.
B)They are well established in the United States.
C)They are relatively new in Europe and especially in Scandinavia.
D)Most companies that use such teams usually incorporate some type of group incentive pay based on the performance of the respective work teams.

Question 51

In employee stock ownership plans:

A)a company establishes a trust,which contains company stock to be purchased for the benefit of employee participants.
B)there is an assumption that employees work less because they are company owners.
C)meager tax benefits are earned,making these plans unpopular.
D)the organization provides for employee purchase of its stock based on the employee's experience.

Question 52

A Scanlon Plan is ordinarily a(n)_____ incentive.

A)organizationwide
B)commission
C)individual
D)group

Question 53

Which of the following is true regarding stock options for nonmanagerial personnel?

A)Presently,stock options in the private sector are available only to executives and managerial employees.
B)Nonmanagerial personnel also widely hold stock options.
C)The number of employees in nongovernment companies who hold stock options is much lower than previously thought.
D)Several laws require companies to expand stock option offerings with rank-and-file employees.

Question 54

What is the primary advantage of an individual incentive plan? Also identify a related disadvantage.

Question 55

Discuss piece rate plans,plans based on time saved and plans based on commissions.

Question 56

Discuss the qualified and nonqualified forms of stock options.

Question 57

Most Scanlon Plans pay _____ percent of the bonus fund to the employee.

A)25
B)50
C)75
D)100

Question 58

Which of the following generally refers to incentive plans that involve employees in a common effort to achieve the company's productivity objectives,based on the concept that the resulting incremental economic gains are shared among employees and the company?

A)Gain sharing
B)Organizationwide incentives
C)Scanlon-type plans
D)Employee stock ownership plans

Question 59

Describe employee stock ownership plans (ESOPs).

Question 60

A new law was passed that prohibits cash bonuses and other incentives for the five most-senior officers and the 20 highest paid executives at companies that have received funds under the:

A)Corporate and Financial Institutions Compensation Fairness Act.
B)Troubled Asset Relief Program.
C)Financial Accounting Standards Board.
D)Scanlon plan.