Deck 11: Designing Performance Pay Plans

Question 1

Which statement does NOT accurately describe a profit-sharing plan?

A) For motivational reasons,fixed formula profit-sharing plans are recommended.
B) Stock bonus plans provide employees with the right to purchase shares in the future at a fixed price.
C) Deciding the split is an important issue in gain-sharing plans.
D) A key issue in designing profit-sharing plans is the form of the bonus payout.

Answer 1

B

Question 2

According to research on Canadian firms,in the majority of cases,which employees are included in the profit-sharing plan?

A) all full-time and part-time employees
B) non-unionized employees only
C) designated employees only
D) all full-time employees

Answer 2

D

Question 3

The Scanlon plan has changed over the years.A central reason for these changes is the notion that employees can reduce labour input as a function of output by increasing other costs.

Answer 3

True

Question 4

In designing gain-sharing plans,why is there a need to decide on the historical baseline against which to compare productivity?

A) to determine whether real productivity gains actually occurred
B) to satisfy the unions
C) to allow for flexibility
D) to increase employee participation

Question 5

The Scanlon Plan helps in the development of a cooperative relationship among workers,unions,and management.

Question 6

Which gain-sharing plan requires that management has access to historical data so as to be able to calculate a so-called "normal labour cost"?

A) Rucker plan
B) family of measures plan
C) Scanlon plan
D) Improshare plan

Question 7

What is NOT the "best practice" when designing nonmonetary reward plans?

A) For large organizations,the usage of an elected committee of employees and managers should be considered when providing significant rewards to employees.
B) A champion or group of champions should be considered to keep the program "alive."
C) Whenever possible,reward only those employees in the top 10 percent.
D) Whenever possible,all deserving employees should be recognized.

Question 8

Research supports the notion that if adequate monetary compensation is in place,coupled with an open and supportive management-employee environment,nonmonetary-based recognition tends to offer little value to stakeholders.

Question 9

Working as a human resources compensation specialist for a manufacturing company,you become concerned employees will attempt to reduce labour costs "by any means" so as to enhance available bonuses via the company's gain-sharing plan.This behaviour may potentially lead to more work-related accidents or dissatisfied customers.What would you do to mitigate this reduction in labour costs due to "by any means" mentality?

A) Expand the pool.
B) Introduce a modifier.
C) Use a Scanlon plan.
D) Introduce a "top hat" program.

Question 10

In order for the Scanlon plan to work,organizations must be able to predict future cost of inputs,particularly labour.

Question 11

Employee participation is not necessarily a component of goal-sharing plans.

Question 12

A phantom stock plan ties an employee's bonus to the performance of company stock,but that employee never actually receives any stock.

Question 13

Full-time employees at ABC Company are given the opportunity to purchase company stock at a future time at a fixed price.What type of performance-based pay is ABC Company using?

A) stock option plan
B) stock purchase plan
C) stock bonus plan
D) phantom share plan

Question 14

Which statement does NOT accurately describe employee share purchase plans?

A) Employees receive shares at no cost to themselves,usually as a bonus.
B) Employees provide a direct payment of some sort in exchange for the shares.
C) Often the price employees pay for the shares is less than market value.
D) Often employers will match the amount of shares purchased by the employee up to a set limit.

Question 15

Goal-sharing plans have increased in popularity over the last decade.

Question 16

Gain sharing is not a viable plan to use if no valid historical benchmark can be set.

Question 17

A management report identified the following labour usage ratios for a window manufacturer in Richmond,British Columbia: 1.4 hours of labour per window in 2015; 1.25 hours of labour per window in 2016.Management makes the arbitrary decision to set next year's gain-sharing cutoff at 1.325 labour hours per window (the average of the 2015 and 2016 figures).Which gain-sharing plan is management using?

A) Scanlon plan
B) family of measures plan
C) Rucker plan
D) Improshare plan

Question 18

Financially funded plans combine at least two criteria in establishing goal-sharing bonuses.Often,one of those variables is organizational profitability,making such plans highly motivational to employees.

Question 19

ABC Ltd.generated one million Canadian dollars in profits this year.ABC Ltd.decides to place 200,000 Canadian dollars (20 percent of pre-tax profits)in a bonus pool.In previous years,this figure has ranged from zero to 50 percent of pre-tax profits.What type of formula is ABC Ltd.using to determine contributions into the pool?

A) fixed percentage
B) fixed threshold
C) discretionary
D) percentage approach

Question 20

Deferred profit-sharing plans are often used as quasi pension plans,particularly in medium-sized companies.

Question 21

A group of farm workers normally pick 10,000 kilograms of cherries during a regular eight-hour shift.Joe,the operations manager,decides he will provide each picker in the group with a meaningful monetary reward if the farm workers are able to meet a new "stretch goal" of 12,500 kilograms per eight-hour shift? Which term best describes this new "stretch goal"?

A) standard plus
B) goal plus
C) goal level
D) red circle plus

Question 22

Historically,which group has received the most access to stock options?

A) top executives
B) human resource managers
C) full-time employees
D) unionized employees

Question 23

Which of the following is NOT associated with gain-sharing plans?

A) cooperation between employees and management
B) teamwork among employees
C) equality in gains
D) individual rewards

Question 24

Human resource professionals have identified three types of goal-sharing plans.Which of the following is NOT one of those types?

A) standard plus plans
B) single-goal plans
C) multi-goal plans
D) financially funded plans

Question 25

As a medium-sized company owner,you believe that it is morally just that employees receive a portion of the profits they help generate,and you want to provide them with some form of pension plan.Which type of plans should you consider using?

A) deferred profit sharing
B) share appreciation rights
C) registered retirement savings
D) current distribution

Question 26

Management decides to allocate 1,000 shares to a particular employee at a market value of $50.00 per share under a share appreciation rights plan.One year later,the value of these shares has increased to $65.00.How many shares would this employee actually receive as a bonus at the end of the year?

A) 15.4 shares
B) 20 shares
C) 230.8 shares
D) 1,000 shares

Question 27

Which statement best explains a phantom stock plan?

A) Although their bonus is tied to the performance of company stock,the employees never receive any stock.
B) Rewards are based on the stock performance of client firms.
C) Employees are awarded stock at no cost to themselves.
D) Employees can purchase stock at a fixed price within a set period of time.

Question 28

Which plan does NOT make employee involvement an important part of the system?

A) Rucker
B) Scanlon
C) Improshare
D) family of measures

Question 29

What is generally NOT considered in allocating the bonus in goal-sharing plans?

A) seniority
B) salary
C) organizational performance
D) individual performance

Question 30

Your company has decided to distribute a goal-sharing bonus according to the salary levels of employees.What is likely to be a natural outcome of this decision?

A) It discourages free riding by some employees.
B) It is the most egalitarian distribution method.
C) It maintains the same proportion of goal-sharing compensation in the compensation mix for all employees.
D) It adjusts for actual time worked during bonus period.

Question 31

What is NOT a necessary component of goal-sharing plans?

A) employee participation
B) performance goals
C) bonus payouts
D) achievement levels

Question 32

Which of the following is NOT an issue to be considered when designing a gain-sharing plan?

A) deciding on the split among employees
B) deciding on the share price
C) deciding on the frequency for payout
D) developing procedures for communicating results

Question 33

The authors identified eight major issues that should be considered when designing a gain-sharing plan.Which potential issue is NOT identified by the authors of the textbook?

A) making a decision on the bonus plan
B) making a decision on frequency of payouts
C) making a decision to use a fixed or discretionary plan
D) making a decision on how to communicate results

Question 34

Which bonus allocation method best supports the philosophy of gain sharing?

A) Everyone receives an equal share after minor adjustments are made for time worked.
B) Higher performers receive a greater share.
C) Higher-paid employees receive a greater share.
D) Part-time and newly hired employees receive nothing.

Question 35

Which of the following is NOT an example of a nonmonetary award?

A) stock bonuses
B) a pat on the back for a job well done
C) a company picnic
D) an all-expenses-paid holiday

Question 36

An employer issues Johnny 2,000 stock options in recognition of a very good year.These particular options vest after 24 months from the date of issuance with an exercise price of $21.00 per share.After 24 months,these shares trade in the open market at $25.00 per share,and Johnny decides to exercise his 2,000 options,generating a gain of $8,000 (minus transaction fees).Which statement best describes Johnny's tax situation pursuant to these gains?

A) Because these options were a bonus provided by the employer,there are no tax consequences attributable to Johnny.
B) Because these shares are "under water," Johnny's employer is responsible for any taxes on the gains.
C) Johnny will have to pay taxes based on the corporate tax rate.
D) Johnny's gain will be deemed as income,but taxes will be paid at the capital gains rate.

Question 37

What is the least common basis for allocating profit-sharing bonuses across employees in Canadian firms?

A) seniority
B) individual performance
C) salary level
D) equal distribution across all employees

Question 38

Which condition makes a gain-sharing plan NOT viable and requires you to consider another option?

A) No valid historical benchmark can be set.
B) Employee involvement is not an integral part of the system.
C) The plan involves large expenditures to implement.
D) Employees receive only 50 percent of the share.

Question 39

In which type of organization is profit-sharing the most common?

A) high-involvement
B) human relations
C) defender
D) classical

Question 40

You have been tasked with providing management with a list of factors distinguishing goal-sharing plans from gain-sharing plans.Which of the following should NOT be included in your list?

A) Both have lost popularity in recent years.
B) Goal-sharing plans typically include several levels of attainment.
C) Goal-sharing plans quantify cost savings and then share those benefits with both employees and the company using a fixed formula.
D) Both require that management identify the group participating in the plan.

Question 41

Identify and briefly comment on the key issues in designing profit-sharing plans.

Question 42

Discuss the key issues in designing a nonmonetary reward plan.

Question 43

Identify how design issues for stock plans differ for private corporations.

Question 44

Briefly describe the Scanlon Plan.

Question 45

Identify the fundamental ways in which gain-sharing and goal-sharing plans differ.