Exam 10: Pay for Performance: Incentive Rewards

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. Which of the following factors is least likely to affect sales for this equipment?

The most important lesson learned from Scanlon and Improshare plans is that if management wants to gain the cooperation of its employees in improving efficiency, they must permit the employees to become involved psychologically as well as financially in the organization.

ESOPs can increase employees' pride of ownership in the organization, providing an incentive for them to increase productivity and help the organization prosper and grow.

What is a potential consequence of "rate busting"?

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. One way to address the turnover problem that is driven by the frequency of payout would be to have some form of guaranteed pay. Which pay method for sales employees addresses this issue?

Sales incentives can be affected by external factors beyond the salesperson's control.

Piecework pay plans permit an organization to predict its labour costs with considerable accuracy.

Perquisites are special benefits given to executive employees.

Approximately 50 percent of Canadian companies offer some form of variable pay.

Several organizations have an incentive that managers can give to their employees for outstanding singular effort not tied to any planned performance standard. What is such an incentive usually called?

What is a consequence of lump-sum merit raises?

Lana works as a salesperson at Fashion Galore. She is paid on a percentage of her sales only. What type of pay plan is this?

When is piecework most appropriate?

Which of the following is a type of stock plan?

Which of the following is an advantage of piece rate pay systems?

As part of her compensation package, Mariana was granted the rights to purchase shares of her organization's stock at an established price for a fixed period of time. What type of compensation is this?

What is the largest component (in dollars) of CEO compensation in Canada's largest firms?

Who normally decides the compensation package for the Chief Executive Officer in a Fortune 500 firm?

What's the overarching philosophy of gainsharing plans?

A key advantage of incentive plans is that they represent variable costs that are linked to the realization of goals as opposed to a fixed cost such as salary that may be largely unrelated to true performance (i.e., output).