Question 1

What differentiates merit pay from other types of performance pay, such as piece rates, sales commissions, and target incentives?

Accepted Answer

Merit pay is typically based on appraised performance, where employees receive pay increases based on their performance evaluations, unlike piece rates, sales commissions, and target incentives which are directly tied to measurable outputs or achievements.

Question 2

Which of the following is NOT a suitable condition for merit pay?

Accepted Answer

Merit pay is usually awarded based on individual performance, so if performance is not controllable by the individual, such as external factors such as luck, then merit pay is not a suitable condition. The other three conditions listed (A, C, and D) are suitable for merit pay programs.

Question 3

What do employees receive under an employee stock bonus plan?

Accepted Answer

Under an employee stock bonus plan, employees typically receive shares at no cost to themselves.

Question 4

Which of the following statements best describes how North American employees view merit raises?

Accepted Answer

Merit raises are viewed with significant scepticism by North American employees, as they often perceive them to be unfair, subjective or too low. Many employees feel that promotions, job titles, and pay increases are not given based on actual performance and accomplishments, but are influenced by favoritism or politics. Additionally, merit raises can create tension among employees as they may foster competition rather than teamwork. Therefore, many employees prefer more transparent and objective compensation systems, such as performance-based bonuses or profit-sharing plans.

Question 5

As a human resources specialist, your job is to review the pattern of merit raises issued by managers last year. You found that the vast majority of managers did not differentiate between high and low performers, choosing to provide similar merit raises. What would you speculate is the driving force behind the managers' actions?

Accepted Answer

Managers may not be comfortable with the performance management process, leading them to avoid differentiating between high and low performers in merit raises.

Question 6

Which of the following managerial practices, combined with an employee stock plan, will increase the performance effects of employee ownership?

Accepted Answer

The answer of Which of the following managerial practices, combined...

Question 7

An automotive shop wants to reward employees for demonstrating creative customer service that leads to repeat business. A particular employee received a 10 percent bonus for suggesting that the company contact customers 24 hours after repairs to ensure customers are satisfied. What type of incentive would be the most appropriate in this scenario?

Accepted Answer

The scenario describes a specific employee receiving a specific bonus for a particular idea. This is an example of a special-purpose plan, which is designed to reward or recognize particular behaviors or outcomes. The other options - merit-raise plans, goal-sharing plans, and gain-sharing plans - are more focused on rewarding overall performance or achieving specific targets, rather than recognizing individual contributions.

Question 8

Which of the following is normally seen as an advantage associated with long-term incentives plans?

Accepted Answer

Long-term incentives plans can encourage a better understanding of the business because it incentivizes employees to think about the company's success in the long-term and consider how their actions can contribute to that success. This can lead to a more engaged and committed workforce, which can benefit the company in the long run.

B, C, and D are incorrect as they do not represent advantages of long-term incentives plans. B is actually a disadvantage of long-term incentives plans because rewards are tied to the company's ability to pay, which is outside of the control of the employee. C is also a disadvantage as it negatively impacts existing shareholders. Lastly, D is incorrect because goals can be difficult to determine in dynamic industries, making it harder to structure effective long-term incentive plans.

Question 9

As a human resource specialist, you have been asked by your organization to lead a discussion on the merits of using internal promotions as a main reward mechanism. Which of the following point(s) would you most likely NOT raise?

Accepted Answer

The given option is not a valid reason not to consider internal promotions as a main reward mechanism. In fact, although promotions may be associated with pay increases, they are often more cost-effective than hiring new employees externally and they have a positive impact on employee motivation and retention. Therefore, option A is not a point that HR specialist should raise while discussing the merits of using internal promotions as a main reward mechanism.

Question 10

Which are the main types of profit sharing plans?

Accepted Answer

The main types of profit sharing plans are combination plan, deferred plan, and current distribution plan. The other options listed do not accurately reflect commonly used profit sharing plan types.

Question 11

Which of the following management strategies is likely to benefit from a suggestion bonus system set on a group basis?

Accepted Answer

The answer of Which of the following management strategies is...

Question 12

From an employer's point of view, what is the most attractive feature of gain-sharing plans?

Accepted Answer

The most attractive feature of gain-sharing plans from an employer's point of view is that the plans are self-funding, meaning they do not require additional financial resources from the employer. This allows the employer to offer a performance-based incentive to employees without incurring extra costs. Additionally, gain-sharing plans often lead to increased productivity and cost savings, which further benefits the employer financially.

Question 13

Which of the following management strategies is likely to benefit the most from using a gain-sharing plan as part of their compensation strategy?

Accepted Answer

A high-involvement management strategy involves empowering employees and involving them in decision-making, which can lead to increased productivity and efficiency. A gain-sharing plan, which rewards employees for meeting specific performance targets or improving productivity, can be a useful tool in incentivizing and motivating employees in this kind of management approach.

Question 14

A publically traded Canadian corporation provides employees with one year of continuous service and the opportunity to place 6% of their pre-tax income in a plan that may be invested in the company's stock. Furthermore, the company matches the shares by 50% up to a limit of 4% of the employees' pre-tax income. From the perspective of the employee, what are the potential drawbacks of participating in this program?

Accepted Answer

The potential drawback of participating in this program is that if the company does poorly, the employee's job and savings may be at risk. This is because a significant portion of the employee's investment is tied to the company's stock performance. Other potential drawbacks, such as administrative costs or tax burdens, are not mentioned or implied in the passage.

Question 15

Your employer is considering tying the bonus pool to the firm's profitability and then allocating this amount to employees based on individual merit. With reference to expectancy theory, which component of the merit system will be weakened and thus make it less motivational for you as an employee?

Accepted Answer

According to expectancy theory, instrumentality refers to the belief that increased effort will lead to better performance and ultimately, better rewards. If employees perceive that there is a low likelihood of a bonus being tied to their individual merit, then they may perceive a low instrumentality between their performance and the potential bonus they could receive. Therefore, if the bonus pool is tied to the firm's profitability, rather than individual performance, the instrumentality component of the merit system will be weakened, making it less motivational for employees.

Question 16

Which of the following characteristics of profit-sharing plans may be viewed as negative from the perspective of an employer?

Accepted Answer

Profit-sharing plans may require sharing financial and other confidential information with employees in order to determine the amount of profit to be shared. This may not be desirable for employers who are concerned about maintaining confidentiality.

Question 17

According to the textbook, what is the main drawback associated with attendance plans?

Accepted Answer

Attendance plans do not address the underlying cause of the attendance problem. They only focus on improving attendance through rewards or consequences, which may temporarily improve attendance but do not address the root cause of the issue.

Question 18

Your CEO is concerned that employees are not saving enough for their retirement. At the same, the CEO wants to have some of the company's profits shared with all employees. To address these issues, your CEO asks you, a human resource compensation specialist, to recommend the most appropriate profit-sharing plan to address this retirement issue. Which of the following profit-sharing plans would you recommend?

Accepted Answer

Deferred profit sharing plans offer a way for employees to contribute part of their income to a retirement plan. Typically, the company contributes to the plan based on a percentage of the employee's salary or the company's profits. The benefit is deferred, meaning that the employee will not receive the money until they retire or leave the company. This type of plan encourages employees to save for the future and can also help to reduce upfront costs for the company. Additionally, by tying the profit-sharing plan to retirement savings, employees are incentivized to save more, which addresses the CEO's concern.

Question 19

Which plans are set up so that a payout is contingent on the achievement of three- to five-year performance goals?

Accepted Answer

Long-term incentives are typically set up with performance goals that span three to five years, with payouts contingent on achieving those goals. Pension plans and deferred profit-sharing plans involve regular contributions or investment returns, rather than performance-based payouts. Goal-sharing plans involve sharing profits based on the achievement of specific goals, but do not typically involve a three- to five-year performance period.

Question 20

As the owner of a real estate firm with multi-office operations, you provide a bonus to all sales personnel in the highest-producing office each month. What type of performance pay plan are you using?

Accepted Answer

The real estate firm is using a competitive bonus performance pay plan by rewarding the sales personnel in the highest-producing office each month. This incentivizes competition among the different offices and encourages employees to strive for higher performance in order to receive the bonus.

Quiz 5: Performance Pay Choices