Deck 12: Incentive Issues

Question 1

Which of the following statements is true concerning the agency view of motivation?

A)The agency view of motivation provides desirable rewards.
B)The agency view of motivation provides a high probability that behaving as the organization wishes will lead to the rewards.
C)The agency view of motivation looks for ways to encourage agents to act in the interests of principals.
D)None of the answers is correct.

Answer 1

C

Question 2

Which statement is true concerning the agency view of motivation?

A)The agency view of motivation focuses on the relationships between principals and agents.
B)The agency view of motivation looks for ways to encourage agents to act in the interests of principals.
C)The agency view of motivation looks for ways to encourage agents to act in the interests of principals.
D)The agency view of motivation focuses on the relationships between shareholders and management.

Answer 2

A

Question 3

Effective incentive compensation plans must induce individual behavior compatible with increasing the firm's wealth,so for particular actions or extraordinary performance firms give

A)cash bonuses and profit sharing.
B)deferred compensation.
C)special awards.
D)reorganizations.

Answer 3

C

Question 4

What are the four stages of a product's life cycle?

A)design and development,growth,maturity,and decline.
B)development,controlling,feedback,and decline.
C)design,planning,redesign,and maturity.
D)planning,controlling,monitoring,and feedback.

Question 5

Which of the following is a key characteristic of divisional incentive compensation plans for rewarding short-term performance?

A)Cash bonuses and profit sharing
B)Deferred compensation
C)Employee stock options
D)Retirement plans

Question 6

Which statement is true concerning the expectancy view of motivation?

A)The expectancy view of motivation focuses on the relationships between principals and agents.
B)The expectancy view of motivation recommends providing a high probability that behaving as the organization wishes will lead to desirable rewards.
C)The expectancy view of motivation looks for way to encourage agents to act in the interests of principals.
D)None of the answers is correct.

Question 7

Which of the following are key characteristic(s)of divisional incentive compensation plans?

A)cash bonuses and profit sharing for short-term performance.
B)deferred compensation for long-term incentive.
C)special awards for particular actions or extraordinary performance.
D)All of the answers are correct.

Question 8

Effective incentive compensation plans must induce individual behavior compatible with increasing the firm's wealth.Why are special awards given?

A)to improve short-term performance.
B)as a long-term incentive.
C)for particular actions or extraordinary performance.
D)None of the answers is correct.

Question 9

Effective divisional incentive compensation plans must induce individual behavior compatible with increasing which of the following?

A)firm's wealth.
B)suppliers' wealth.
C)customers' wealth.
D)employees' agency wealth.

Question 10

The theory of motivation which deals with relationships between supervisors and workers where the principals assign responsibility to the workers and the workers work on behalf of the supervisors is called

A)agency theory.
B)principal theory.
C)expectancy theory.
D)traditional theory.

Question 11

Which stage of a product's life cycle establishes 80 to 90 percent of what the product's costs will be?

A)Product design and development
B)Product manufacturing
C)Product controlling
D)Product planning

Question 12

The theory which maintains that people act in ways to obtain the rewards that they desire and prevent the penalties that they wish to avoid is called the

A)agency theory.
B)expectancy theory.
C)reward-penalty theory.
D)mini-max theory.

Question 13

The agency theory of motivation deals with relationships between supervisors and workers where the principals assign responsibility to the workers and the workers work on behalf of the supervisors.Supervisors and workers,respectively,are called

A)principals and agents.
B)agents and employees.
C)masters and slaves.
D)lords and serfs.

Question 14

Which of the following are components of deferred compensation?

A)cash bonuses.
B)profit sharing plans.
C)special awards.
D)stock options.

Question 15

The expectancy view of motivation recommends

A)improving performance evaluation processes.
B)providing a high probability that behaving as the organization wishes will lead to rewards.
C)creating incentive plans that include stock options.
D)both a and b above.

Question 16

Deferred compensation that gives an individual the right to purchase a specified number of shares of the company's stock at a specified price within a specified time period is/are called

A)stock puts.
B)stock options.
C)stock calls.
D)stock puts and stock calls.

Question 17

The agency theory of motivation deals with relationships between supervisors and workers where the principals assign responsibility to the workers and the workers work on behalf of the supervisors.Examples of principals and agents includes

A)shareholders and the board of directors.
B)board of directors and top management.
C)top management and division managers.
D)All of the answers are correct.

Question 18

Effective incentive compensation plans must induce individual behavior compatible with increasing the firm's wealth.Deferred compensation is given for

A)short-term performance.
B)long-term incentive.
C)particular actions or extraordinary performance.
D)None of the answers is correct.

Question 19

The expectancy view of motivation recommends providing which of the following?

A)cash rewards for all employees.
B)extended vacation time during periods of high growth.
C)encouragement for agents to act in the interests of principals.
D)A high probability that behaving as the organization wishes will lead to the rewards.

Question 20

Because effective incentive compensation plans must induce individual behavior compatible with increasing the firm's wealth,for long-term incentives firms give

A)cash bonuses and profit sharing.
B)deferred compensation.
C)special awards.
D)reorganizations.

Question 21

Which of the following is a model based on four perspectives: (1)learning and growth, (2)internal business and production process efficiency, (3)customer,and (4)financial?

A)Zero-based budgeting
B)Planning programming and budgeting
C)Management by objectives
D)Balanced scorecard

Question 22

The agency theory of motivation deals with relationships between supervisors and workers where the principals assign responsibility to the workers and the workers work on behalf of the supervisors.Examples of principals and agents includes

A)board of directors and top management.
B)top management and division managers.
C)division managers and department managers.
D)All of the answers are correct.

Question 23

The balanced scorecard is a causal model of lead and lag indicators of performance and is based on the financial perspective and the non-financial perspective(s)of

A)learning and growth.
B)internal business and production process.
C)customer.
D)All of the answers are correct.

Question 24

Which of these is the perspective of the balanced scorecard that includes supplier relationships and outsourcing?

A)financial perspective.
B)internal business and production process perspective.
C)learning and growth perspective.
D)customer perspective.

Question 25

According to the agency view,the objective of a good incentive compensation system is to minimize agency costs by balancing the costs of controls and

A)disincentives against the risks of divergent behavior.
B)incentives against the risks of divergent behavior.
C)incentives against the cost of divergent behavior.
D)disincentives against the cost of divergent behavior.

Question 26

Which of the following would be considered an intrinsic reward?

A)the satisfaction from studying hard.
B)providing help to someone in need.
C)doing a good job.
D)All of the answers are correct.

Question 27

Extrinsic rewards include rewards from a(n)

A)teacher.
B)parent or a spouse.
C)organization.
D)All of the answers are correct.

Question 28

The balanced scorecard is used to tie performance measures to which of the following?

A)organizational goals.
B)short-term objectives only.
C)long-term objectives only.
D)regulatory requirements.

Question 29

Rewards that include grades,money,praise,and prizes are called

A)traditional rewards.
B)intrinsic rewards.
C)extrinsic rewards.
D)outside rewards.

Question 30

Which of these is the perspective of the balanced scorecard that is measured by employee satisfaction,employee retention,and employee productivity?

A)financial perspective.
B)internal business and production process perspective.
C)learning and growth perspective.
D)customer perspective.

Question 31

What is the focus of the agency view of motivation?

A)relationships between customers and agents.
B)Ways to discourage agents to act in the interests of principals.
C)Ways to encourage principals to act in the interests of agents.
D)Ways to encourage agents to act in the interests of principals.

Question 32

According to the agency view,the objective of a good incentive compensation system is to do which of the following?

A)maximize principal wealth.
B)maximize agent wealth.
C)strike a fair balance between principal and agency wealth.
D)minimize agency costs.

Question 33

What is true concerning the agency view of motivation?

A)The theory recommends providing desirable rewards and a high probability of behaving as the organization wishes will lead to the rewards.
B)The theory looks for ways to encourage agents to act in the interests of principals.
C)The theory looks for ways to discourage agents from acting in the interests of principals.
D)The theory looks for ways to encourage principals to act in the interests of agents.

Question 34

Which of the following are rewards that come from the individual,such as the satisfaction from studying hard,providing help to someone in need,or doing a good job?

A)extrinsic rewards.
B)intrinsic rewards.
C)self rewards.
D)performance-based rewards.

Question 35

According to the agency theory of motivation,which of the following are agency costs?

A)the costs incurred by agents to control principal's actions.
B)the costs to the agents if principals pursue interests that are not in the interests of the agents.
C)rewards,penalties,monitoring devices,and audits.
D)All of the answers are correct.

Question 36

Getting a bonus is a(n)____________ reward and getting satisfaction from one's own performance is a(n)____________ reward.

A)intrinsic,extrinsic
B)extrinsic,intrinsic
C)material,immaterial
D)monetary,intangible

Question 37

Rewards that come from outside the individual,such as rewards from a teacher,a parent,an organization,or a spouse that include grades,money,praise,and prizes are called

A)traditional rewards.
B)intrinsic rewards.
C)extrinsic rewards.
D)outside rewards.

Question 38

Which of the following is not usually one of the perspectives used in the balanced scorecard?

A)Learning and growth
B)Congeniality
C)Customer
D)Financial

Question 39

A causal model of lead and lag indicators of performance based on financial and non-financial perspectives is known as which of the following?

A)balanced scorecard.
B)managerial report card.
C)hierarchical scorecard.
D)management by objectives.

Question 40

Which statement best describes the balanced scorecard?

A)A causal model for lead and lag indicators of performance.
B)A replacement for zero-based budgeting.
C)A product of zero-sum game theory.
D)A tool to evaluate customer profitability.

Question 41

Tying a managers' compensation to the company's stock performance aligns managers' incentives with those of the which of the following groups?

A)shareholders.
B)creditors.
C)employees.
D)vendors.

Question 42

What provides rewards to managers for upside company stock performance but no out-of-pocket penalty for downside company stock performance,yet gives the manager an orientation to how well the company's stock is doing?

A)Stock rights
B)Stock options
C)Stock warrants
D)Stock dividends

Question 43

Which of these is the perspective of the balanced scorecard that is at the top of the list for a company's lenders and shareholders?

A)financial perspective.
B)internal business and production process perspective.
C)learning and growth perspective.
D)customer perspective.

Question 44

Which of these is the perspective of the balanced scorecard that indicates whether the company's strategy and operations add value to shareholders?

A)financial perspective.
B)internal business and production process perspective.
C)learning and growth perspective.
D)customer perspective.

Question 45

Which is a disadvantagefor a company to use relative performance evaluations?

A)Forces managers to seek,new,more profitable opportunities.
B)Shields managers from the risk of managing a division in a poorly performing industry.
C)Does not provide incentives for managers to move out of low-performing to high-performing industries.
D)None of the answers are disadvantages.

Question 46

What is true concerning companies that use absolute performance evaluations?

A)Divisional performance is compared with that of other divisions in the same industry.
B)Managers are shielded from the risk of managing a division in a poorly performing industry.
C)Incentives are provided for managers to move out of low-performing to high-performing industries.
D)Managers are forced to seek,new,more profitable opportunities.

Question 47

Which of these is a disadvantage for compensating on future performance?

A)a short-term orientation.
B)a disincentive to invest in new technology.
C)a focus of attention on the long-run.
D)rewards that come too far in the future to be motivational.

Question 48

What occurs when applying expectancy theory to employees in nonprofit organizations?

A)Cash awards are more attractive,and therefore more motivating than prizes.
B)Prizes are more attractive,and therefore more motivating than cash awards.
C)Stock options are more attractive,and therefore more motivating than cash awards.
D)Stock options are more attractive,and therefore more motivating than prizes.

Question 49

Which of these is the perspective of the balanced scorecard that is at the top of a nonprofit organizations mission statement?

A)financial perspective.
B)internal business and production process perspective.
C)learning and growth perspective.
D)customer perspective.

Question 50

What is a disadvantage for companies to award managerial performance based on a subjective approach?

A)The subjective approach considers factors not explicitly captured in the formula approach.
B)The subjective approach is subject to favoritism,political maneuvering,and a "good old boy network."
C)Managers who do not fully trust their superiors tend to prefer this approach.
D)All of the answers are correct.

Question 51

What happens when a company ties manager compensation to the company's stock performance?

A)It creates a significant amount of risk because of a lack of diversity since the performance indicator is based on just one stock - that of the company.
B)It has the risk that a company's stock can fluctuate widely based on factors over which the manager has no control.
C)It is accomplished through issuing stock options which shields some of risk.
D)All of the answers are correct.

Question 52

Which of these is an advantage for companies to award managerial performance based on a subjective approach?

A)The subjective approach considers factors not explicitly captured in the formula approach.
B)Managers know what reward they will get if they achieve expectations.
C)Managers who do not fully trust their superiors tend to prefer this approach.
D)All of the answers are correct.

Question 53

How do decentralized companies that have many divisions doing diverse activities tend to weight the performance evaluation?

A)more on each division's performance and less on company-wide performance.
B)less on each division's performance and more on company-wide performance.
C)on the stock market performance of the company's shares,only.
D)equally between each division's performance and company-wide performance.

Question 54

Which of these is the perspective of the balanced scorecard that uses such measures as customer satisfaction,customer retention,market share,and customer profitability?

A)financial perspective.
B)internal business and production process perspective.
C)learning and growth perspective.
D)customer perspective.

Question 55

Companies generally base most of the divisional managers' compensation on which of the following?

A)management-based performance.
B)performance based on financial measures.
C)the company's stock performance.
D)accounting-based performance.

Question 56

How do companies that are large,highly integrated and very centralized,weight the performance evaluation?

A)more on each division's performance and less on company-wide performance.
B)less on each division's performance and more on company-wide performance.
C)on the stock market performance of the company's shares,only.
D)equally between each division's performance and company-wide performance.

Question 57

When making deferred awards to divisional managers and below,recent research has found that companies usually defer the award for only

A)one year or less.
B)one to two years.
C)three to five years.
D)five to ten years.

Question 58

What is true of companies that use relative performance evaluation?

A)Divisional performance is compared with that of other divisions in the same industry.
B)Managers are not shielded from the risk of managing a division in a poorly performing industry.
C)Incentives are not provided for managers to move out of low-performing to high-performing industries.
D)All of the answers are correct.

Question 59

Which of the following is an advantage for compensating on future performance?

A)a short-term orientation.
B)a disincentive to invest in new technology.
C)"golden handcuffs" for managers because they have incentives to stay with the company.
D)rewards that come too far in the future to be motivational.

Question 60

Which of the following is an advantage for companies to award managerial performance based on a formula-based approach?

A)Managers know precisely what is expected of them.
B)Managers know what reward they will get if they achieve expectations.
C)Managers who do not fully trust their superiors tend to prefer this approach.
D)All of the answers are correct.

Question 61

High-pressure performance evaluation systems designed to meet the demands of stockholders,the expectation of financial analysts,or managements' egos

A)will not motivate employees.
B)may not create incentives to commit fraudulent financial reporting.
C)may increase the present value of a company's tax payments.
D)All of the answers are correct.

Question 62

Which of these is a common fraud in financial reporting?

A)improper revenue recognition.
B)understating inventory.
C)overstating liabilities.
D)understating assets.

Question 63

What are common causes of financial fraud?

A)short-term profit orientation.
B)pressure to achieve unreasonable targets.
C)sudden decreases in revenue or market share.
D)All of the answers are correct.

Question 64

What is true concerning applications of incentive compensation plans to nonprofit organizations?

A)These plans rely heavily on intrinsic rewards.
B)These plans lack high financial payoffs for excellent performance.
C)These plans involve adherence to rules set down by top authorities.
D)All of the answers are correct.

Question 65

Which of the management methods developed in the private sector are being used by nonprofit organizations?

A)Balanced scorecard.
B)Deferred stock options.
C)Bonuses based on achieving profit targets.
D)Extended vacation time.

Question 66

Controls that can be instituted to prevent financial fraud includes

A)separation of duties where a single person carrying out a series of tasks could commit fraud and take steps to hide it.
B)the presence of the independent auditors and their review of a company's internal controls.
C)the presence of the internal auditors and their review of a company's internal controls.
D)All of the answers are correct.

Question 67

High-pressure performance evaluation systems not only put pressure on people to perform well but also create incentives to

A)be motivated.
B)"manage earnings."
C)leave the company.
D)None of the answers is correct.

Question 68

What is true concerning applications of incentive compensation plans to nonprofit organizations?

A)These plans are usually based on performance on nonfinancial dimensions.
B)These plans lack relevant,market-based comparisons.
C)These plans are usually based on adherence to rules set down by top authorities.
D)All of the answers are correct.

Question 69

Misstatements that are material to the financial statements caused by intentional or reckless conduct is(are)called

A)collusion.
B)fraudulent financial reporting.
C)gross errors.
D)internal controls.

Question 70

Which of these is a common fraud in financial reporting?

A)understating revenues.
B)overstating inventory.
C)overstating liabilities.
D)understating assets.

Question 71

How does overstated ending inventory leads to overstated earnings?

A)By understating cost of good sold.
B)By overstating cost of good sold.
C)By understating contribution margin.
D)By understating gross margin.

Question 72

Which of these falls under the responsibility of top management?

A)assuring the integrity of financial information presented to outsiders.
B)maintaining adequate internal control.
C)unintentional errors in preparing financial statements.
D)assuring the integrity of financial information presented to outsiders and maintaining adequate internal control.

Question 73

Which of the following is considered to be fraudulent financial reporting?

A)intentional conduct resulting in materially misleading financial statements.
B)embezzlement or theft of assets.
C)unintentional errors in preparing financial statements.
D)None of the answers is correct.

Question 74

Which of these is a common type of fraud on financial statements?

A)overstating inventory.
B)overstating cash.
C)understating inventory.
D)overstating cost of goods sold.

Question 75

Which of these is considered to be a key concept in fraudulent financial reporting?

A)the conduct must be unintentional or not reckless.
B)the misstatement must be immaterial to the financial statements.
C)employees at all levels in the organization could be involved in fraudulent financial reporting.
D)All of the answers are correct.

Question 76

When does improper revenue recognition usually occur?

A)When reporting profit-decreasing effects of revenue in the wrong accounting period.
B)When reporting profit-increasing effects of revenue in the wrong accounting period.
C)When reporting profit-decreasing effects of cash flows in the wrong accounting period.
D)When reporting profit-increasing effects of cash flows in the wrong accounting period.

Question 77

Fraudulent financial reporting that results in higher reported earnings sometimes

A)also overstates taxable income.
B)shifts income from a future period to the present period,and then overstates taxable income in the present period that might be offset by lower taxable income in a future period
C)sometimes overstates taxable income in early periods that likely increases the present value of a company's tax payments.
D)All of the answers are correct.

Question 78

Which of these are two common frauds in financial reporting?

A)understating revenues and overstating inventory.
B)overstating revenues and overstating inventory.
C)understating revenues and understating inventory.
D)overstating revenues and understating inventory.

Question 79

Which of these is a common type of fraud on financial statements?

A)improper revenue recognition.
B)improper expense recognition.
C)understating inventory.
D)miscounting cash

Question 80

Why do managers often have incentives for committing financial fraud?

A)Bonuses,merit pay increases,and promotions often depend on reported accounting numbers.
B)Managers given a long-term perspective by their employment and pay arrangements will have an incentive to "manager earnings."
C)Bonuses,merit pay increases,and promotions often depend on reported accounting numbers,and managers given a long-term perspective by their employment and pay arrangements will have an incentive to "manager earnings."
D)None of the answers is correct.