Deck 11: Using Performance-Based Pay to Achieve Strategic Objectives

Question 1

Which of the following types of businesses would have the highest labor costs in proportion to other costs?

A)auto parts manufacturer
B)Mississippi River barge transport company
C)nursing home
D)chicken-processing plant
E)nuclear energy plant

Answer 1

C

Question 2

_____ have spurred many organizations to reevaluate their use of merit raises.

A)Value analyses
B)Cost considerations
C)Governmental inquiries
D)Legislative changes
E)Social audits

Answer 2

B

Question 3

In order for performance-based pay to be used effectively in an organization,it is necessary to:

A)link performance to outcomes important to management but not necessarily the employee
B)develop valid performance measures
C)promote a secret pay policy so everyone will work to their maximum
D)do away with merit based pay increases
E)reduce the cost of benefits so performance based pay can be afforded

Answer 3

B

Question 4

Which of the following statements about specifying and measuring performance is true?

A)Many firms rely heavily on financial performance measures
B)One of the easiest to use measures for employee performance is a qualitative measure such as customer satisfaction.
C)Organizations should look for ways to measure employee results not employee behavior.
D)Organizations should take the same approach to measuring performance whether taking a long-term or short-term perspective.
E)Traditional commissions focus on long-term performancE.

Question 5

Which of the following statements about incentive pay plans is true?

A)Unlike merit pay plans,base pay is set at the market rate for incentive plans.
B)With incentive pay,high performers earn more but no permanent adjustment is made to an employee's base pay.
C)Once earned,the incentive pay becomes a part of the employee's base pay.
D)Caps are used to keep incentive pay levels even with the industry pay level.
E)There is no difference between how merit pay plans and how incentive pay plans are used to reward employee performance

Question 6

To gain employee support for the implementation of a performance-base pay plan,the implementing organization can:

A)make sure the plan is understood,and bonuses are easy to calculate
B)provide methods for employees to lodge an appeal if they feel they were treated unfairly
C)let the employees have a hand in establishing and administering the plan
D)gain the employees' trust and make them believe they have job security
E)do all of the above

Question 7

As a compensation expert in the HR department,you have been assigned the responsibility for reviewing the company's reward system developing a performance-based pay (PBP)system.All of the following are your responsibilities,except:

A)working with line managers to establish the strategic objectives of the PBP
B)fairly implementing the PBP
C)monitoring the effects of the PBP on employees and organizational outcomes
D)develop and deliver training about PBP to line managers and employees
E)ensure the PBP is consistent with other areas of HR

Question 8

An executive's average incentive payout is about _____ percent of base pay compared to the average technical/professional's incentive payout of 8 percent.

A)200
B)100
C)30
D)50
E)25

Question 9

_____ are used to determine which employees are covered by various components of a total pay plan.

A)Rules of earnings dispensation
B)Eligibility rules
C)Equal Pay Act guidelines
D)Rules for qualification
E)The principles of pay equity

Question 10

Decisions about how to design pay systems should follow a careful consideration of all of the possible consequences associated with alternative forms of pay.Which of the following is the most important reason for introducing performance-based pay?

A)to reward top management
B)to keep up with competitors
C)to motivate employees
D)to help achieve their strategic objectives
E)to integrate the pay system with the organizational mission

Question 11

A manager might decide to move from measuring performance on an individual basis to a team basis if:

A)individual performance can only be evaluated by subjective supervisory ratings
B)the tie of pay to individual performance is not critical
C)in order to be productive,employees cooperate
D)competition among employees is dysfunctional
E)any or all of the above conditions exist

Question 12

To be effective,performance-based systems must do all of the following except:

A)specify and measure performance
B)specify method for linking pay to performance
C)specify level of aggregation for reward distribution
D)gain employee acceptance
E)all of the above are necessary

Question 13

By definition,there will be discrimination between employees in performance based pay plans.Rewards awarded contingently cause low performers to improve and high performers to be more satisfied.The question becomes,"How can you do this fairly?"

A)Make sure performance measures are subjective
B)You can not be fair and discriminate at the same time
C)Let the person closest to the performance - the immediate supervisor - make the reward size decision
D)Apply the same reward decision rules to all employees
E)As long as you do not reward on the basis of gender,you are being fair.

Question 14

With which of the employee payment plans could an employee actually earn less than the market rate if the employer considered his or her performance to be unsatisfactory?

A)earnings-at-risk pay plan
B)merit pay plan
C)vested pay plan
D)incentive pay plan
E)none of the above because such a scenario is illegal

Question 15

With _____,high performers earn more but no permanent adjustment is made to an employee's base pay.

A)incentive pay
B)equity pay
C)fixed earnings
D)retained earnings
E)merit pay

Question 16

Which of the following statements about merit pay plans is true?

A)Under merit pay plans,performance is usually measured objectively.
B)Traditional merit pay plans entail considerable risk for employees.
C)With merit pay plans,base pay is set at the market rate.
D)Merit pay raises will be removed if performance declines.
E)The size of merit pay adjustments is typically greater than that awarded under the incentive and earnings-at-risk plans.

Question 17

Employees oppose the implementation of performance-based pay plans especially if:

A)such change generally precede mergers
B)a change in pay plans typically indicates a change in job descriptions
C)such plans typically reward only a small percentage of the work force
D)pay practices put earnings at risk.
E)employees are not concerned about the financial future of their employers

Question 18

Henry was able to bring his project to retool the plant to completion 10-days ahead of schedule.For this achievement,Henry received (as promised)a payment of $1,000 per day for each day he saved,plus an all-expense-paid one-week trip to Paris for him and his significant other.Which of the following is true?

A)the monetary payment is performance-based pay,the trip is a benefit
B)the monetary payment is performance-based pay,the trip is a perk
C)the monetary payment is performance-based pay,the trip is a performance-based nonmonetary reward
D)Neither of these qualifies as performance-based pay/rewards because Henry is a manager,not a production employee.

Question 19

Tying performance-based pay to achieving _____ usually improves performance in that area.

A)growth
B)profit
C)cost savings
D)project success
E)all of the above

Question 20

Besides merit pay,two other types of performance-based pay are:

A)retained earnings and reinvested pay
B)incentive pay and 401K plans
C)earnings at risk and protected earnings
D)earnings at risk and incentive pay
E)incentive pay and retained earnings

Question 21

How does merit pay differ from incentive pay?

A)Merit pay is awarded to salaried employees while incentive pay is a reward for those who are wage-employees.
B)Merit pay typically relies on subjective performance appraisal ratings,and incentive pay is often based on the achievement of performance that can be quantified.
C)Incentive pay is a permanent increase,and merit pay is a one-time increase in pay.
D)Merit pay plans give managers more latitude in determining large distributions of rewards
E)Merit pay is more closely tied to the organizational vision,strategy,and culture than incentive pay.

Question 22

Profit-sharing plans:

A)typically have clear strategic objectives
B)have a proven motivational impact on employees,even in the deferred version
C)are designed to pay out incentives when the organization is most able to afford them
D)often include employees in their administration
E)are accurately described by all of the above

Question 23

_____ are among the oldest and most popular forms of incentive pay.

A)Earnings at risk
B)Profit sharing
C)Individual incentives
D)Team stock options
E)Gain sharing

Question 24

Under a merit pay system with a small merit pool,it is likely that _____ will be dissatisfied with their raises.

A)poor performers
B)average performers
C)high performers
D)new employees making the entry level rate
E)employees being paid at market rate

Question 25

The Scanlon and Rucker plans for gain sharing are based on the principle that:

A)individuals can evaluate ideas better than committees
B)employees are more likely to make suggestions when the suggestion system is informal
C)management should adopt a philosophy of employee participation
D)employees should not be made to participate in gain sharing unless they want to
E)management takes responsibility for implementing all change and employees do the actual implementation;that way both are rewarded through gain sharing

Question 26

The Scanlon Plan

A)is appropriate to small,mature firms
B)focuses only on labor cost savings
C)uses simple measures of performance
D)was developed during the Depression Era
E)All of the above

Question 27

When compared to merit pay,incentive pay:

A)can be more subjectively based
B)is a permanent increase in pay
C)is not as useful in tying rewards to outcomes as merit pay
D)can take the form of profit sharing and gain sharing
E)is accurately described by all of the above

Question 28

Carmen is in the first quartile (bottom)of the pay range and she has displayed superior performance this year.Hugo is in the fourth quartile (top)of the pay range and he has also displayed superior performance this year.In terms of percentage of pay:

A)Carmen will receive a higher raise than Hugo
B)Hugo and Carmen will receive equal raises
C)Hugo will receive a higher raise than Carmen
D)Carmen will receive the same raise as Hugo,but she will be promoted to the second quartile.
E)None of the above are correct.

Question 29

Kiely's mother is paying her to read this summer.For every chapter of David Copperfield that she reads and prepares a written synopsis of in one and one-half hours or less,she receives $3.If she completes the task in more then the allotted time she receives only $2.What payment plan is Kiely's mother using to encourage Kiely to read at the faster rate?

A)the differential piece rate plan
B)the standard hour plan
C)the merit pay plan
D)the base rate plus standard output plan
E)the commission plan

Question 30

Which of the following statements about earnings-at-risk pay plans is true?

A)Earnings-at-risk plans involve upside risk for the employer.
B)Earnings-at-risk plans set base pay at or above the market rate.
C)Salespeople who work on straight commissions are paid through at earnings-at-risk plan.
D)Earnings-at-risk plans all have caps that prevent the employer from having to pay above a certain predetermined level.
E)Employees prefer earnings-at-risk plans to all other performance-based pay plans

Question 31

Improshare

A)requires the full involvement of all employees
B)focuses on labor hours saved,rather than labor costs saved
C)ties all incentives to savings plans
D)does not include non-production workers in the measurement of the organization's productivity
E)is not appropriate for service-providers like schools and hospitals

Question 32

Dixie Manufacturing uses a strict merit pay system.Angel is one of 12 assembly line workers in your department,and she has been a good performer for the last nine years.But this year,her performance has been significantly below average.Angel has not mentioned problems at home,but you noticed in the crime section of the local paper that her teenage son was convicted for driving under the influence at New Year's,and in the legal postings you learned she divorced her husband for desertion at Easter.The local paper also carried a story about children with learning disabilities,and you noticed that Angel's youngest daughter was featured.What should Angel's merit raise be this year? Angel's raise should be

A)an average of what she earned in previous years.She is obviously a good employee who is going through a hard time.
B)the average raise that everyone else in the department is getting.Otherwise,Angel will get discouraged,and you may lose a good employee.
C)a high raise.Angel has higher need for income since her husband deserted her and her family.
D)zero.Poor performance cannot justify a raise.
E)Under a strict merit raise system,none of the above is a correct responsE.

Question 33

When tax rates for long-term capital gains are _____ relative to tax rates for ordinary income,stock options become _____ popular.

A)high,more
B)low,more
C)high,less
D)low,less
E)none of the above

Question 34

Todd's grandmother makes quilts for a gallery in New York City.For each completed full-size quilt she completes and delivers to the gallery buyer,she earns $350.What payment plan is used by the gallery to pay Todd's grandmother for her work?

A)the differential piece rate plan
B)the standard hour plan
C)the merit pay plan
D)the base rate plus standard output plan
E)the straight piecework plan

Question 35

When designed appropriately,team-based incentives offer four major advantages when compared with individual incentive systems.Which of the following statements describes one of those advantages?

A)The performance of one group member can serve as a model,encouraging other team members to imitate successful behavior.
B)The mere presence of team members who have control over rewards evokes more vigorous and persistent behavior than is evidenced when individuals work alone.
C)The strength of the team-based incentive reward is increased since it is now paired with group-administered rewards such as praise and camaraderie.
D)The likelihood that peer pressure will evoke counterproductive control over behavior is reduceD.
E)All of the above statements describe advantages inherent in the team-based incentive plans.

Question 36

As a bank teller,Diane realized there was a problem in how customers waited in line.She made a suggestion that reduced the average customer wait by two minutes,causing an increase in customer satisfaction.Diane received a special plaque from the president of the bank and a $200 check.This is an example of a(n):

A)on-the-spot award
B)gainsharing award
C)Scanlon plan
D)Improshare plan
E)Third generation plan

Question 37

Current distribution plans:

A)place earnings in an escrow account for distribution upon termination,disability,or death
B)create retirement funds
C)are the fastest growing type of profit sharing plan
D)provide a percentage of profits to be distributed quarterly or annually to employees
E)are devised to relate short-term profitability to top management performance

Question 38

Dakota stopped by the alteration shop yesterday.In the shop was posted a sign that said,"Buttons put on for $3,zippers repaired for $8,dresses hemmed for $10,pants hemmed for $8.50,all other prices based on job." From this information,you should be able to tell that the alteration shop uses a:

A)differential piece rate plan
B)standard hour plan
C)merit pay plan
D)base rate plus standard output plan
E)straight piecework plan

Question 39

Gain-sharing plans are premised on the assumption that:

A)all employees deserve to be rewarded
B)it is possible to reduce costs by eliminating wasted materials and labor,developing new or better products,or working smarter
C)if top management is highly motivated to succeed,then the organization will naturally follow suit
D)performance-based pay must be closely linked with organizational strategy for the pay system to be effective
E)positive reinforcement is superior to negative reinforcement

Question 40

The most popular recognition award that firms use is

A)cash
B)certificates and plaques
C)gift certificates
D)travel
E)company merchandise

Question 41

With incentive pay,there is substantial downside risk for employees and there is less upside potential.

Question 42

Deferred distribution plans:

A)are types of gain-sharing plans
B)are devised to relate long-term profitability to top management performance
C)place earnings in an escrow account for distribution upon retirement,termination,disability,or death
D)are not as popular as current distribution plans because they lack immediacy
E)are accurately described by all of the above

Question 43

Broad-based stock option plans

A)are easy to develop because performance measures are easy to locate and quantify
B)seldom include cash payments
C)always relate incentives to the attainment of corporate or strategic business unit goals
D)seldom put earnings at risk.
E)are accurately defined by none of the above

Question 44

When the strategic goal is growth,it's reasonable to reward employees for achieving growth targets.

Question 45

Employee stock ownership plans (ESOPs):

A)are types of broad-based stock ownership plans
B)grant shares of stock to employees as a means of long-term savings and retirement
C)usually do not link stocks that can be purchased to individual or group performance indicators
D)vary in when payments are made
E)are accurately described by all of the above

Question 46

Stock option plans:

A)give the employee a chance to buy stock in the company under certain conditions
B)are being considered too hazardous after the Enron collapse in 2002
C)are restricted to executives
D)are always based on individual performance
E)all of the above are true

Question 47

In setting up a combined payment plan for salespeople,the most critical question for an organization to answer is,"

A)"What percentage of total compensation should be salary and what percentage should be commission?"
B)"How much of the salesperson's time should be spent selling and how much in nonselling activities?"
C)"How can the sales program compensation plan be devised so as not to cause other employees to become unmotivated?"
D)"How long will the plan be operational before it needs to be evaluated?"
E)"What is the strategic basis for the plan and how will its implementation be monitored?"

Question 48

In terms of labor costs,it is advantageous for the company to keep base pay rates stable,and tie added compensation to performance.

Question 49

Performance based pay recognizes that people working in the same job can contribute to the organization at a different level in terms of value and seeks to provide an incentive for maximizing their contribution.

Question 50

Combined distribution plans:

A)are types of gain-sharing plans
B)are devised to relate long-term profitability to top management performance
C)distribute a portion of profits immediately to employees,setting the remaining amount aside in a designated account.
D)are not as popular as current distribution plans because they lack immediacy
E)are accurately described by all of the above

Question 51

When a reward is paid in a lump sum,it seems to have more impact than when it is paid out as small additions to employees' weekly or monthly paychecks.

Question 52

By paying for performance,a company signals that it's interested in employees who want to be paid for good performance.

Question 53

A requirement of implementing a pay for performance system is to eliminate nonmonetary rewards at an organization.

Question 54

Cash rewards that are tied to some aspect of performance and paid in lump sums rather than as raises are known as merit pay.

Question 55

Which of the following questions need to be answered when an organization is establishing a commission pay program?

A)Can the company afford to do this?
B)How do we guarantee everyone receives the same commission payout?
C)Are the methods to be used to measure performance flexible enough to allow for any possible sales event?
D)To what measures should commissions be tied to curb salespersons' behaviors that could negatively affect the organization?
E)Does each salesperson have the same number of accounts?

Question 56

Incentive pay pegs base pay near the market average and employees earn additional monetary compensation for excellent performance.

Question 57

As one approach to implementing performance-based pay plans,indexed stock options:

A)allow employees to buy stock at a premium price
B)are also called premium-priced options
C)are used more often than any other plan
D)are designed to ensure that employees are not punished with the economy takes a downturn
E)are accurately described by all of the above

Question 58

A _____ plan is an award of shares with restrictions that require a predetermined length of service to elapse before vesting occurs.

A)premium-priced stock option
B)performance-vested restricted stock
C)time-based restricted stock
D)time-restricted stock option
E)indexed stock option

Question 59

When performance measures are deficient or contaminated,employees are less likely to feel that their efforts directly influence the performance measures used to determine performance-based pay.

Question 60

What challenges does a multinational company face in using performance-based pay?

A)Differences in laws,tax regulations,and cultural values all affect the applicability of performance-based pay.
B)Any incentive system developed in the parent country would immediately become policy in the host country.
C)Compensation for incentive systems is always paid in the currency of the host country.
D)Stock option plans are typically more valued by employees working in host countries as they are by employees working in the parent country.
E)Compensation for incentive systems is always paid in the currency of the parent country.

Question 61

Research shows that under some conditions,performance-based pay has no effects or even has detrimental effects.

Question 62

Generally speaking,the more quickly rewards follow desirable behavior,the more effective the rewards are in evoking subsequent desirable behavior by the employee.

Question 63

Whereas merit pay plans typically rely on objective performance appraisal ratings,incentive pay is often paid based on qualitative performance measures.

Question 64

ESOP-funded pensions are less risky for employees,because of their lack of diversification.

Question 65

Commission refers to incentive pay based on a percentage of the cost of the product.

Question 66

What are the three levels of aggregation for performance-based pay?

Question 67

Critics of profit sharing argue that tying pay to achieving more specific strategic objectives is preferable to tying pay directly to profitability.

Question 68

A piecework plan sets a standard time for each unit of production and uses this time unit to determine how much employees are paid.

Question 69

Differentiate between merit pay and incentive pay.

Question 70

How is the base pay set when merit pay plans are used?

Question 71

Gain-sharing plans are premised on the assumption that it is possible to reduce costs by eliminating waste,developing new or better products or services,or working smarter.

Question 72

Employee opposition can be a major obstacle to the successful implementation of performance-based pay,especially incentive plans.

Question 73

Team pay may create competition among groups.

Question 74

Performance-based systems can only use monetary rewards as incentives.

Question 75

Profit-sharing plans are designed to pay out incentives whenever the employee wants to receive them.

Question 76

There is less complexity in pay for performance when dealing with international pay practices.

Question 77

List four types of performance-based pay.

Question 78

The general pattern is that proportionately less incentive pay is used for employees higher in the hierarchy.

Question 79

Compared to merit pay,incentive pay often gives managers less latitude to make large distinctions in the rewards given to employees.

Question 80

Underwater stock options have an exercise price that is well below the market value of a company's stocks.