Question 1

The incentive stock option that gives an executive the right to purchase stock is priced higher than the market price.

Accepted Answer

Incentive Stock Options (ISOs) typically allow an executive to purchase stock at a price that is lower than the market price at the time the option is granted, providing a potential future financial benefit if the stock price increases.

Question 2

Team-based PFP is a better approach when it is part of a comprehensive team-based model of HRM and compensation.

Accepted Answer

Team-based PFP, or performance-based pay, can be an effective approach when it is implemented as part of an overall team-based HRM (human resource management) and compensation model. In this model, team performance is collectively rewarded, encouraging collaboration and cooperation within the team. This can lead to increased productivity and improved outcomes. However, if implemented without consideration for the broader HRM and compensation strategy, it may create a competitive and individualistic environment, leading to negative consequences such as decreased teamwork and employee engagement.

Question 3

Winsharing combines gain sharing with profit sharing.

Accepted Answer

Winsharing is a hybrid compensation system that combines elements of gain sharing (rewarding employees for achieving specific goals or efficiency improvements) with profit sharing (sharing a portion of a company's profits with employees).

Question 4

Profit sharing is a group incentive system that gives participating employees an incentive allocation based on improvements in quality measurements.

Accepted Answer

Profit sharing is a group incentive system that gives participating employees an incentive based on the company's profits, not improvements in quality measurements.

Question 5

Workforce interdependence is one of the factors to be considered in designing a gain sharing program.

Accepted Answer

Workforce interdependence refers to the extent to which employees must rely on each other to accomplish tasks or achieve goals. In designing a gain sharing program, it is important to consider the level of interdependence among employees because it can affect their motivation to work together towards shared goals and influence the outcomes of the program. Therefore, consideration of workforce interdependence is important in designing an effective gain sharing program.

Question 6

An important determinant of effective PFP is the incentive being valued relative to other rewards.

Accepted Answer

The incentive being valued relative to other rewards is an important determinant of effective PFP or pay for performance. This relates to the principle of reinforcement which states that behavior that is followed by positive consequences tends to be repeated or strengthened, as compared to behavior that is not followed by positive consequences or is punished. Therefore, if the incentive or reward offered through PFP is valued highly by employees in comparison to other rewards, such as salary, benefits, recognition, or work-life balance, they are more likely to be motivated to perform well and achieve desired outcomes. On the other hand, if the incentive is perceived as low or insignificant, the effectiveness of PFP may be reduced. Hence, it is important for organizations to consider the relative value of incentives and rewards in designing PFP programs.

Question 7

Stock awards and stock options,identified as a means for rewarding performance,are well suited for meeting short-run objectives.

Accepted Answer

Stock awards and stock options are typically used to align employees' interests with long-term company goals, making them more suitable for meeting long-term objectives rather than short-run objectives.

Question 8

A draw,in a sales incentive plan,is essentially an interest-free loan to the salesperson,repayable when commissions are below the draw limit.

Accepted Answer

The answer of A draw,in a sales incentive plan,is essentially...

Question 9

IMPROSHARE is similar to Scanlon except that the IMPROSHARE ratio uses labor costs rather than standard hours.

Accepted Answer

The answer of IMPROSHARE is similar to Scanlon except that...

Question 10

The three major types of group-based incentive plans,profit sharing,gain sharing,and employee stock option plans,are all designed to establish a link between pay and performance.

Accepted Answer

The statement is true.

Question 11

Merit pay plans are also known as piece-rate systems.

Accepted Answer

Merit pay plans are a type of compensation system where an employee's pay is based on their performance, while piece-rate systems are a type of compensation system where an employee's pay is based on the number of units they produce or services they provide. These are two different types of compensation plans.

Question 12

Reliability is defined as the extent to which the measure used to define performance is correlated with some criterion of organizational performance.

Accepted Answer

Reliability refers to the consistency of a measure, or the extent to which it produces the same results under the same conditions over time. It does not directly relate to the correlation with organizational performance criteria, which is more closely related to the concept of validity.

Question 13

The piece-rate system and the standard hourly rate,as the two types of individual incentive systems,are based on rated output.

Accepted Answer

The piece-rate system is based on rated output, paying workers for each unit produced, while the standard hourly rate pays workers for the time they work, not directly for output.

Question 14

One reason for the failure of PFP systems is that employees do not understand the connection between their performance and changes in pay.

Accepted Answer

This is a common reason identified for the failure of pay-for-performance systems in organizations. If employees do not understand how their performance relates to changes in pay, they may not be motivated to improve their performance or feel that the system is fair.

Question 15

Considering the procedure to calculate the standard rate,if the standard time for a task is two hours and the fair hourly wage is $10,the standard rate is $20.

Accepted Answer

This is because the standard rate is calculated by multiplying the standard time by the fair hourly wage, so in this case it would be 2 hours x $10 per hour = $20.

Question 16

The piece-rate approach is recommended if individual performance can be accurately measured and teamwork or worker collaboration is not important for the desired performance outcomes.

Accepted Answer

The piece-rate approach pays workers based on how much they produce, so it is suitable when individual performance can be accurately measured. However, it may not be the best choice if teamwork or collaboration is important for achieving the desired performance outcomes, as workers may prioritize their own output over working together to achieve common goals.

Question 17

The standard hourly rate is calculated by dividing the base wage by the standard.

Accepted Answer

The standard hourly rate is calculated by multiplying the base wage by the standard, not dividing it. The formula for calculating standard hourly rate is: base wage x standard = standard hourly rate.

Question 18

The flaw with a bonus incentive system is that due to the repetition of payments,it can be difficult to manage from a budgetary perspective.

Accepted Answer

The answer of The flaw with a bonus incentive system...

Question 19

Incentives that are not permanently tied to an individual's base pay are easier to manage in terms of budgets when performance declines.

Accepted Answer

Incentives that are not permanently tied to base pay, such as bonuses or one-time awards, can be adjusted or withheld more easily in times of reduced performance without affecting an individual's ongoing salary. This provides more flexibility for budget management.

Question 20

The lowest level recommended for a PFP system is four percent of the base salary in order for the money to be considered significant and for the PFP system to be effective.

Accepted Answer

Research and expert recommendations on Pay for Performance (PFP) systems vary widely, and there is no universally agreed-upon "lowest level" for effectiveness. The perceived significance of the incentive can depend on various factors including organizational context, individual expectations, and the overall compensation package.

Quiz 11: Rewarding Performance