Exam 10: Pay for Performance: Incentive Rewards

From an employer's perspective, which of the following is an advantage of merit increases on a lump-sum basis?

Straight commission plans may induce salespeople to grant price concessions.

Employers using a lump-sum merit program will need to periodically increase base salaries in order for employees to keep pace with the cost of living or general market wages.

Peter Drucker, the management expert, has argued that CEO pay should not be more than 20 times that of the rank-and-file employee. What did his concern focus on?

Scenario 10.2 Meritas Financial Ltd. is a financial advisory firm located in downtown Toronto. Most of the firm's senior employees (referred to as partners) are paid top dollar for bringing in huge accounts regardless of whether these accounts bring in the appropriate amount of business to justify the incentives paid. The partners are compensated on the net worth of the companies that sign on to use Meritas as their financial advisor. The owner is now concerned about this pay arrangement and wants to make changes to the way he compensates his employees. However, he is worried that with a potential reduction of salary and short-term incentives, he might lose some of his most valuable employees and the accounts that they brought on board. -Refer to Scenario 10.2. Meritas wants to keep these employees happy and motivated. Which of the following is NOT a positive impact of implementing profit sharing?

Which of the following pay plans can be plagued by the "free rider" effect?

Many potential errors, as well as discrimination, can occur in the performance appraisal process. Which of the following can such errors lead to?

It was revealed in the press that the former CEO of a Fortune 100 firm enjoyed special use of the company plane and a country club membership as a part of his reward package. Which of the following best describes these benefits?

Which of the following is a major problem of ESOPs?

Piecework is inappropriate where technology changes are frequent.

A potential difficulty with pay-for-performance programs is how to measure employee performance.

Scenario 10.1 BioMetrics Imaging Ltd. is a small Saskatoon-based firm that designs and produces one-of-a-kind machines that are capable of capturing medical imaging similar to that of MRI machines but with a higher percentage of accuracy. So far, the company has been able to sell various units to privately owned medical clinics and a few hospitals in the United States. The problem currently facing BioMetrics Imaging is finding salespeople with the appropriate experience who not only understand the equipment but are also trustworthy and willing to work extremely hard to bring the product to the marketplace. It takes roughly six months to convince potential clients to purchase the machines. Sales agents receive a hefty paycheque when a unit is sold based on a percentage of the unit price, and all travel expenses are covered. Still, the company is not able to retain its employees because the time lag between beginning to sell machines and getting paid is too long. -Refer to Scenario 10.1. What type of compensation plan is BioMetrics utilizing for its salespeople?

Merit raises may be perpetuated year after year even if performance declines.

Aren received a $500 pay bonus as a result of his job performance last year; however, this extra money was not added to his base pay. This is an example of which of the following?

Employers use stock ownership incentive plans to increase employee "ownership" in the company.

One philosophy of incentive systems is that tying compensation to employee effort will improve employee performance.

Lump-sum merit pay does not contribute to escalating base salary levels.

Management must be careful to ensure that incentive payments are viewed as both a reward and an entitlement.

Balanced scorecards refer to the use of operational yardsticks as well as traditional financial measures as a basis for computing executive pay.

The operation of a merit pay plan depends on the effectiveness of the performance appraisal system.