Deck 12: Variable Pay and Executive Compensation

Question 1

Which of the following statements is true of group/team incentives?

A) They ensure that members of a group are not put under social pressure.
B) They are always distributed equally among team members.
C) They can foster cohesiveness among team members.
D) They are in the form of cash bonuses and cannot be given in the form of nonmonetary incentives.

Answer 1

C

Question 2

Which of the following statements is true of commissions and tips?

A) Tips are paid by the employer; commissions are paid by the customer.
B) Both tips and commissions are paid by the customer.
C) Both tips and commissions are paid by the employer.
D) Tips are paid by the customer; commissions are paid by the employer.

Answer 2

D

Question 3

AirCar LLC, a producer of consumer electronics, had provided its employees an annual bonus. After a change in management, the company has decided to replace bonuses with a stock option plan. Which of the following statements is true of AirCar LLC?

A) It provided group incentives; now it provides organizational incentives.
B) It provided individual incentives; now it provides group incentives.
C) It provided individual incentives; now it provides organizational incentives.
D) It provided organizational incentives; now it provides individual incentives.

Answer 3

C

Question 4

A differential piece-rate system pays employees_____.

A) one piece-rate wage for all units produced irrespective of employee productivity or work output
B) one piece-rate wage for units produced up to a standard output and the employee is not paid for units produced over the standard
C) one piece-rate wage for units produced up to a standard output and the employee is compensated through nonmonetary incentives for units produced over the standard
D) one piece-rate wage for units produced up to a standard output and a higher piece-rate wage for units produced over the standard

Question 5

Which of the following is typically classified as an organizational incentive?

A) Commissions
B) Group team results
C) Executive stock options
D) Cost reductions

Question 6

Which of the following is an example of a retention bonus?

A) An organization offering a project manager a bonus to remain with the company until the project is finished
B) An organization that gives a one piece-rate wage for all units produced irrespective of employee productivity
C) A sponsor rewarding an athlete for participation in an event
D) An organization rewarding an employee for referring someone who is later hired

Question 7

Leah LLC, a producer of sporting goods, provided its employees with a stock option plan. After organizational restructuring, the management has decided to replace the stock option plan with profit sharing. Which of the following is true of Leah LLC?

A) It provided organizational incentives; now it provides individual incentives.
B) It provided organizational incentives; now it provides group incentives.
C) It provided organizational incentives; now also it provides the same.
D) It provided individual incentives; now also it provides the same.

Question 8

Variable pay is _____.

A) compensation that is tied to the employee's performance
B) compensation that is tied to the employee's seniority
C) compensation that is tied to the employee's ethnicity
D) compensation that is tied to the employee's qualification

Question 9

Which of the following is true of recognition awards?

A) The criteria used for rewarding performance is typically the length of service rather than employees' actual performance.
B) They can be awarded only during appraisals.
C) They are given to a team and not to individual employees.
D) The criteria for selecting award winners may be determined subjectively in some situations.

Question 10

RedCat LLC, a footwear manufacturing company, practiced gainsharing. After organizational restructuring, the management has decided to replace gainsharing with profit sharing. Which of the following is true of RedCat LLC?

A) It provided individual incentives; now it provides group incentives.
B) It provided organizational incentives; now it provides individual incentives.
C) It provided individual incentives; now it provides organizational incentives.
D) It provided group incentives; now it provides organizational incentives.

Question 11

Which of the following is a disadvantage of the individual incentive system?

A) The net result is typically less than optimal for the competing individual.
B) Employees may primarily focus on what is best for them personally.
C) This system can be used only for providing monetary incentives.
D) This system does not include any form of bonus.

Question 12

Team Spark LLC, a producer of consumer goods, practiced gainsharing. After organizational restructuring, the management has decided to replace gainsharing plans with a piece-rate system. Which of the following is true of Team Spark LLC?

A) It provided group incentives; now it provides individual incentives.
B) It provided individual incentives; now it provides group incentives.
C) It provided group incentives; now it provides organizational incentives.
D) It provided individual incentives; now it provides organizational incentives.

Question 13

Which of the following is true of spot bonuses?

A) They are only given in the form of nonmonetary incentives.
B) They can be awarded only during appraisals.
C) They can be given for extra time worked.
D) They are given to a team and not to individual employees.

Question 14

Hikoma LLC, a toy manufacturer, provides employees with incentives depending on their individual performances. This best exemplifies _____.

A) an employee stock plan
B) a commission
C) an executive stock option
D) a deferred compensation

Question 15

Which of the following is a disadvantage associated with spot bonuses?

A) They are typically given in the form of nonmonetary incentives.
B) They can be awarded only during appraisals.
C) They can fuel jealousy among employees.
D) They are given to a team and not to individual employees.

Question 16

Group Viewer LLC, a software company, provides profit sharing plans for its employees. After organizational restructuring, the management has decided to replace the profit sharing plan with commissions for each employee. Which of the following is true of Group Viewer LLC?

A) It provided individual incentives; now it provides group incentives.
B) It provided individual incentives; now it provides organizational incentives.
C) It provided group incentives; now it provides individual incentives.
D) It provided organizational incentives; now it provides individual incentives.

Question 17

Which of the following is the best example of variable pay?

A) Basic pay
B) Conveyance allowance
C) Severance pay
D) Incentive

Question 18

Which of the following is the most commonly used frequency of distributing team/group incentives?

A) Monthly
B) Semiannually
C) Annually
D) Quarterly

Question 19

In a straight piece-rate system, wages are determined by_____.

A) dividing the number of units produced by the piece rate for one unit
B) multiplying the number of units produced by the piece rate for one unit
C) adding the piece rate for one unit by the number of units produced
D) dividing the piece rate for one unit by the number of units produced

Question 20

Which of the following best exemplifies spot bonus?

A) An organization that gives a one piece-rate wage for all units produced irrespective of employee productivity
B) An organization rewarding an employee for installing a software upgrade
C) A sponsor rewarding an athlete for participation in an event
D) An organization rewarding an employee for referring someone who is later hired

Question 21

Which of the following is an allocation choice in profit-sharing plans?

A) Fixed percentage of profits
B) Based on years of service
C) Sliding percentage based on sales
D) Unit profits

Question 22

Which of the following is typically a funding choice in profit-sharing plans?

A) Based on percentage of employee earnings
B) Based on years of service
C) Based on sliding percentage of purchases
D) Based on sliding percentage of sales

Question 23

To avoid conflict when team members determine the reward for other team members, they often_____.

A) distribute the reward equally
B) give themselves a larger reward than other team members
C) give the team leader a larger reward than the team members
D) reward team membersbased on the amount of work performed by each person

Question 24

Group incentives is least likely to work if _____.

A) most of the members are free riders
B) cooperation is necessary to do the job
C) the reward is distributed equally among the members
D) the reward involved is in the form of cash

Question 25

Which of the following is a metric of sales programs in variable pay plans?

A) Return on investment
B) Turnover costs
C) Accident rates
D) Increase in market share

Question 26

Which of the following statements is true of the salary-only approach?

A) The salary-only approach is useful when an organization emphasizes serving and retaining existing accounts.
B) The salary-only approach is useful when an organization emphasizes on generating new sales and accounts.
C) The salary-only approach is useful only when an organization is compensating experienced sales executives.
D) The salary-only approach is not useful in compensating sales representatives who are new to a job.

Question 27

An example ofgainsharingis_____.

A) using employee committees to calculate and pass on savings to the employees
B) setting group piece-rate standards and paying weekly bonuses when those standardsare exceeded
C) identifying favorable employee behavior and rewarding employees who adhere to the set standards
D) using employee unions to encourage and promote a positive environment in an organization

Question 28

A free rider is a _____.

A) member of a group who contributes a lot
B) member of a group who contributes little
C) member of a group who contributes on par with other team members
D) member of a group who contributes only during the time of a need

Question 29

Which of the following is a disadvantage of profit-sharing plans?

A) Employees must trust that management will accurately disclose financial and profit information.
B) Employees are taxed heavily on the income that they generate from profit sharing plans.
C) Employees cannot access the funds that they receive from profit sharing plans for up to three years.
D) Employers get little or no rebate on income tax for choosing profit-sharing plans.

Question 30

Gainsharing is the system of_____.

A) treating all employees as equals irrespective of their productivity and the gains they bring
B) sharing with employees the gains in profits and productivity equally
C) rating employees on the basis of their productivity and the profits they bring
D) sharing with employees greater-than-expected gains in profits and productivity

Question 31

In a stock option plan, if the market price of the stock exceeds the exercise price, _____.

A) employees can then exercise the option and buy the stock
B) employees have to purchase the stock at the new price
C) employees have to forfeit their claims to the company shares
D) employees will make a loss through stock ownership

Question 32

The focus of gainsharing is to _____.

A) decrease discretionary efforts
B) decrease pay variances
C) increase discretionary efforts
D) increase pay variances

Question 33

Which of the following is a metric of human resources in variable pay plans?

A) Revenue growth
B) Employee satisfaction
C) Customer satisfaction
D) Return on investment

Question 34

Which of the following is an advantage of establishing employee stock ownership plans?

A) Employees are not dependant on the employers for their retirement benefits.
B) Firms can receive favorable tax treatment.
C) Firms have lesser control over organizational productivity.
D) The employees can purchase shares of company stock for an unlimited period of time.

Question 35

Stock option plans give employees the right to purchase_____.

A) an unlimited number of shares of company stock at a specified exercise price for a limited period of time
B) an unlimited number of shares of company stock at a specified exercise price for an unlimited period of time
C) a fixed number of shares of company stock at a specified exercise price for a limited period of time
D) a fixed number of shares of company stock at a specified exercise price for an unlimited period of time

Question 36

_____ is a compensation typically computed as a percentage of sales in units or dollars.

A) Severance pay
B) Wage
C) Basic salary
D) Commission

Question 37

Which of the following statements is true of discretionary efforts?

A) It is the difference between the amount of effort a person has exerted and the minimum amount of effort that he or she needs to exert to keep from being fired.
B) It is the difference between the maximum amount of effort a person can exert and the minimum amount of effort that he or she needs to exert to keep from being fired.
C) It is the difference between the maximum amount of effort a person can exert and the amount of effort a person has exerted while on-the-job.
D) It is the difference between the amount of effort a person has exerted and the maximum amount of effort that a person can exert while on-the-job.

Question 38

Entitlement culture is the idea that _____.

A) basic salaries are extra pay for sales performance rather than deferred bonuses
B) basic salaries are deferred bonuses rather than extra pay for extra sales performance
C) bonuses are extra pay for sales performance rather than deferred salary
D) bonuses are deferred salary rather than extra pay for extra sales performance

Question 39

Which of the following is the most accurate metric of organizational performance in variable pay plans?

A) Customer satisfaction
B) Accident rates
C) Revenue growth
D) Employee satisfaction

Question 40

Group incentives are most likely to work efficiently if _____.

A) the social pressure on members of the group is high
B) the individual performance level is clear
C) the incentive plan is imposed in the absence of employee input
D) individual performance cannot be identified

Question 41

Variable pay plans attempt to provide tangible rewards, or incentives, to employees for performance beyond normal expectations.

Question 42

The "clawback" provision in the _____ allows a company to recover any incentive-based pay that was paid out during the prior three years if it would not have been paid under restated financial statements.

A) Sarbanes-Oxley Act
B) Dodds-Frank Act
C) Lilly Ledbetter Fair Pay Act
D) Walsh-Healy Public Contracts Act

Question 43

Which of the following is typically classified as a regular benefit?

A) Health insurance
B) Corporate-owned employee life insurance
C) Company-paid financial planning for executives
D) Estate planning

Question 44

Cost reduction is classified as a work unit/team incentive.

Question 45

_____ refer to the compensation given to an executive if he or she is forced to leave an organization.

A) Perquisites
B) Golden parachutes
C) Commissions
D) Short-term Incentives

Question 46

Recognition awards ensure that the award winners are determined objectively.

Question 47

Merchandise, gift certificates, and travel are the most frequently used incentives for recognition awards.

Question 48

Which of the following statements is true of a discretionary system of determining bonuses?

A) The federal and state governments decide the bonuses.
B) All the shareholders of the company decide the bonuses.
C) The labor unions and employees decide the bonuses.
D) The CEO and the board of directors decide the bonuses.

Question 49

According to the provisions of the _____, publically listed companies now must allow shareholders to vote on executive compensation.

A) Sarbanes-Oxley Act
B) Dodds-Frank Act
C) Lilly Ledbetter Fair Pay Act
D) Walsh-Healy Public Contracts Act

Question 50

The compensation committee is a_____.

A) subgroup of the board of directors that is composed of directors who are not officers of the firm
B) subgroup of the management that is composed of managers who are currently the officers of the firm
C) subgroup of the union that is composed of employees who are not officers of the firm
D) subgroup of the shareholders that is composed of investors who are currently the officers of the firm

Question 51

The most common means of providing individual variable pay are profitsharing plans and employee stock plans.

Question 52

Nonfinancial rewards cannot be used as incentives in pay-for-performance plans.

Question 53

_____ are special benefits:usually noncash items:for executives.

A) Executive salaries
B) Base salaries
C) Perquisites
D) Golden parachutes

Question 54

A significant portion of an executive's compensation package is_____.

A) health insurance
B) performance-based incentives
C) a retention bonus
D) a commission

Question 55

Under a straight piece-rate system, wages are determined by dividing the number of units produced by the piece rate for one unit.

Question 56

To ensure that spot bonuses works efficiently, employers must keep the amounts reasonable and provide them only for exceptional performance accomplishments.

Question 57

Which of the following is an advantage of perquisites?

A) Perks offer substantial tax savings because some of them are not taxed as income.
B) Perks offer substantial tax savings because some of them are not taxed as an expenditure.
C) Perks ensure a source of regular additional income for the employees apart from the salary.
D) Perks help in reducing the total cost of benefits provided by the organization.

Question 58

A differential piece-rate system pays employees one piece-rate wage for units produced up to a standard output and a higher piece-rate wage for units produced over the standard.

Question 59

The most prevalent forms of organization-wide incentives are piece-rate systems, sales commissions, and individual bonuses.

Question 60

Which of the following is typically classified as a supplemental benefit plan?

A) Health insurance
B) Financial planning
C) Retirement insurance
D) Basic salary

Question 61

Supplemental benefit plans are plans that are available to nonexecutive employees.

Question 62

Thedifferential piece-rate system pays a flat rate for all items produced.

Question 63

Employee stock ownership plan is a plan designed to give employees significant stock ownership by their employers.

Question 64

A stock option plan gives employees the right to purchase an unlimited number of shares of company stock at a specified exercise price for a limited period of time.

Question 65

The salary-only approach is useful only when an organization emphasizes generating new sales and accounts.

Question 66

The focus of gainsharing is to increase "discretionary efforts."

Question 67

The "clawbacks" provision in Civil Rights Act of 1964 allows a company to recover any incentive-based pay that was paid out during the prior three years if it would not have been paid under restated financial statements.

Question 68

A restricted stock option indicates that company stock shares will be paid as a grant of shares to individuals.

Question 69

A corporation gives a golden parachutes to encourage anexecutive to stay with the company.

Question 70

Profit sharinguses employee committees to calculate and pass on profits to the employees.

Question 71

A free rider is a member of the group who contributes the most in a group venture.

Question 72

According to the Dodds-Frank Act, publicly listed companies now must allow shareholders to vote on executive compensation.

Question 73

Compensation given to an executive if he or she is forced to leave an organization is called a golden parachute.

Question 74

Perquisites (Perks) are special benefits, usually noncash items, for executives.

Question 75

The straight commission system combines the stability of a salary with the performance aspect of a commission.

Question 76

A straight salary has no additional commission incentive, while a straight commission has all compensation tied to the incentive.

Question 77

Compensation is given in the form of incentivesbecause it isan effectiveway tomotivate employees,improve corporate performance, and increase stock values.

Question 78

Profit sharing distributes some portion of organizational profits to employees.

Question 79

A draw is a system in which sales representatives can draw advance payments against future commissions.

Question 80

The advantage of a salary-plus-commission system is that it requires the sales representative to sell to receive any form of payment.