Deck 14: Incentive Pay Systems

Question 1

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

Answer 1

True
Explanation: Different companies know gain sharing by different names, such as profit sharing, performance sharing, or productivity incentives. These programs generally refer to incentive plans that involve employees in a common effort to improve organizational performance and then reward employees immediately when their performance improves.

Question 2

The intent of most incentive pay is to reward above-average performance rapidly and directly.

Answer 2

True
Explanation: Incentive or variable pay plans attempt to relate pay directly to the performance of the individual, group, the entire organization or some combination of these. The intent of most incentive pay is to reward above-average performance rapidly and directly.

Question 3

Revised data indicates that employee stock ownership plans (ESOPs)grew rather dramatically from the mid-1980s through the late 1990s.

Answer 3

False
Explanation: Revised data indicates that employee stock ownership plans (ESOPs) grew rather dramatically from the mid-1970s through the late 1980s.

Question 4

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

Question 5

Under stock-for-stock swaps,an executive has the right to relinquish a stock option and receive from the company an amount equal to the appreciation in the stock price from the date the option was granted.

Question 6

When a company establishes an employee stock ownership plan (ESOP),the shareholders risk losing voting control of the company.

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

Under an incentive stock option (ISO),a manager does not have to pay any tax until he or she sells the stock.

Question 13

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

Question 14

Stock option plans are generally designed to give managers an option to buy company stock at the existing market price.

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

To employers,an advantage of incentive pay over salary increases is that it:

A) disregards employees' performance.
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 during each designated period.

Question 22

Which of the following is the least effective practice when rewarding employees' good performance within an organization?

A) Sharing rewards of doing business with employees
B) Rewarding employees through the base wage or salary structure
C) Having employees think of themselves as business partners
D) Sharing the financial risks of doing business with employees

Question 23

The key to having a successful suggestion system,as a means to reward employee suggestions,is to:

A) adopt every contribution that is submitted.
B) penalize employees who make inappropriate suggestions.
C) clearly communicate how the system works.
D) limit the system to managerial personnel alone.

Question 24

Taurus Apparel Inc.uses a differential piece rate plan to reward good performance among its employees.In this incentive plan,the rate paid per unit produced is raised:

A) after a given number of pieces have been produced.
B) for each piece that exceeds standard quality.
C) based on the performance of the least productive employee.
D) with each piece produced.

Question 25

A major disadvantage of commission plans as an incentive pay system is the:

A) use of draws in conjunction with commissions.
B) weak link between performance and reward.
C) inability to combine salary with commission.
D) impact of uncontrollable factors on sales.

Question 26

Under ____,an executive is allowed to relinquish a stock option and receive from the company an amount equal to the increase in the stock price from the date the option was granted.

A) phantom stock plans
B) incentive stock options
C) stock appreciation rights
D) qualified stock options

Question 27

A merit pay increase is:

A) paid only if an employee is not eligible for bonus.
B) based on seniority alone.
C) fixed by the government.
D) perpetuated year after year.

Question 28

Qualified stock options are known for their:

A) lack of marketability.
B) favorable tax treatment.
C) lack of restrictions.
D) high rate of interests.

Question 29

A reward offered on a one-time basis for high performance is referred to as a:

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

Question 30

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) stock option
D) Scanlon

Question 31

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 32

Performance-vesting options are also called:

A) premium-priced options.
B) price-vesting options.
C) phantom stock plans.
D) restricted-vesting plans.

Question 33

Performance share plans involve performance units whose value is determined:

A) by the end of an employee's performance appraisal.
B) over a period of three to five years.
C) upon a recipient's retirement or other form of separation.
D) at the beginning of each new financial quarter.

Question 34

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

A) should have trust in management.
B) must believe that their performance is fairly evaluated.
C) should approve all details of the incentive plan.
D) must believe that the performance of others is accurately evaluated.

Question 35

Managerial personnel generally receive incentives in the form of all of the following EXCEPT:

A) annual bonuses.
B) cost-of-living allowances.
C) long-term performance planning.
D) stock options.

Question 36

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

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

Question 37

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 rate plan
B) Dual exchange rate system
C) Time-and-a-half for overtime system
D) Commission plan

Question 38

Family Goods,a chain of departmental stores,provides an incentive pay plan along with its base wage/salary structure.All of the following are reasons for the firm to offer an incentive plans in addition to its 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 39

Linda,a human resource executive,is trying to convince her colleagues that their organization should use an individual incentive plan as opposed to group incentive plans.Which of the following can Linda use as an argument to support her views on the individual incentive system?

A) Individual incentive plans ensure that competition among employees never produces negative results.
B) Individual incentive plans work especially well for those involved in team projects.
C) Individual incentive plans help employees see the clear relationship between their actions and rewards.
D) Individual incentive plans, unlike group incentive plans, do not have to be based on performance.

Question 40

For premium-priced stock options,a stockholder realizes a gain only when the:

A) market value is equal to the exercise price.
B) selling price is lower than the exercise price.
C) selling price is equal to the exercise price.
D) market value exceeds the exercise price.

Question 41

The Scanlon plan is designed to:

A) help companies rebuff an unfriendly takeover.
B) accommodate public opinion regarding executive compensation.
C) postpone the taxing of the income arising from the plan.
D) encourage employees to suggest changes that might increase productivity.

Question 42

Altitude Systems Inc.wants to plan stock grants and stock options for its managerial personnel.In this context,discuss all the available stock option-related plans that the company needs to know.

Question 43

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, but relatively new in Europe.
C) Most self-directed work teams are based on the basic idea that when employees are isolated from decision making, they can perform better.
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 44

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

Question 45

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

A) Increases cash flow
B) Provides ready market to sell stock
C) Limits organizational control to the top management
D) Allows an organization to use of pretax dollars to finance debt

Question 46

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

Question 47

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, like managerial personnel, also widely hold stock options.
C) Stock options for nonmanagerial personnel are regulated under the Troubled Asset Relief Program.
D) If companies continue to cut back on the use of stock options, many people believe that executives will be hurt more than regular employees.

Question 48

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

Question 49

Discuss the major issues related to the executive pay controversy.

Question 50

Discuss the difference between a bonus and merit pay plan.

Question 51

The management at Virtue Infra Inc.has decided to reward good performance within the organization through group incentives.Which of the following is a negative impact the firm will have to face as a result of using group incentives?

A) Groups can become considerably less competitive with one another, leading to the detriment of the entire organization.
B) The members of a group may not perceive a direct relationship between their individual performances and that of the group.
C) Group incentives are paid only when an employee retires or decides to separate from a company.
D) The members within a group are not motivated by group incentives to exert peer pressure on each other to perform.

Question 52

In employee stock ownership plans:

A) a company establishes a trust, which contains company stock purchased for the benefit of employee participants.
B) a company is not allowed to buy back shares when an employee retires or leaves the company.
C) meager tax benefits are earned, making these plans unpopular among employees and their organizations.
D) employees and their company equally share any incremental economic gains realized through increased productivity.

Question 53

Describe employee stock ownership plans (ESOPs).

Question 54

Most Scanlon plans pay ____ percent of the bonus fund to employees.

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

Question 55

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) Defends Retention Program.
B) Troubled Asset Relief Program.
C) Phantom stock plan.
D) Scanlon plan.

Question 56

Discuss group incentive plans.

Question 57

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) The Troubled Asset Relief Program

Question 58

A Scanlon plan is ordinarily a(n)____ incentive.

A) organizationwide
B) team-based
C) individual
D) group

Question 59

Discuss long-term performance plans for managerial personnel.

Question 60

Describe Scanlon-type plans.