Exam 10: Pay for Performance: Incentive Rewards

ESOPs have been criticized because of potential inabilities to pay back the stock of employees when they retire.

The level of incentives given to executives may depend on their level in the firm.

In most profit-sharing plans, about 50 percent of net profits are shared with employees.

Because of failing popularity and media scandals, the number of Canadian companies granting stock options to nonexecutive personnel has been decreasing in recent years.

Enterprise incentive plans allow all organizational members to participate in the plan's payout.

Employees working under a standard hour plan are paid on the basis of a predetermined time allowed to finish the job.

What is a likely external factor that would affect the incentives of sales employees?

What is a major problem with profit-sharing plans?

Which of the following is an important reason why employers use piece rate systems in their compensation strategy?

Incentive plans can create an organizational environment of "shared commitment," since individuals contribute to organizational success.

When is employee compensation referred to as variable pay?

Identify the principal methods for compensating salespeople and the advantages of each method.

What is the philosophy behind the Scanlon Plan?

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 may be able to increase short-term incentives and retain its most valuable employees by embarking on which of the following?

Incentive plans based on productivity can reduce labour costs.

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. In implementing a new profit-sharing plan, Meritas has various options by which payouts can be made to its employees. Which of the following is the best way for Meritas to distribute profits?

Recently, stock options have been strongly criticized in the press following controversies at several companies. What has this criticism focused on?

When employees receive a higher rate of pay for all of their work if production exceeds a standard level of output, what type of incentive plan is the employer using?

Why are performance measures vital in incentive plan design?

In setting up incentive systems, what is the key consideration in establishing performance standards?