Exam 10: Pay for Performance: Incentive Rewards

Standard hour plans are popular in service departments in automobile dealerships.

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?

Under a straight commission plan, compensation is based entirely on a percentage of sales.

Which of the following is a problem with creating team incentive plans?

In most profit-sharing plans, about 20 to 25 percent of net profits are shared with employees.

Which of the following would NOT be the basis for a merit raise?

Piecework is inappropriate where technology changes are frequent.

What does rate busting refer to?

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?

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

Which of the following is NOT likely to help an incentive plan succeed in an organization?

Incentive plans based on productivity can reduce labour costs.

Meshing compensation and organizational objectives helps employees assume ownership of their jobs, improve effort, and improve performance.

Where does the emphasis on stock options and executive stock ownership come from?

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.

Professional employees are difficult to develop incentive plans for only because their outputs are difficult to measure.

Under a straight piecework plan, five minutes is the standard time to produce one unit. The employee's hourly rate is $7.50. The piece rate is $1.50 per unit.

Saturn, the auto firm, has a sales incentive plan that permits salespeople to be paid for performing various duties not reflected immediately in their sales volume. What type of pay plan does this exemplify?

Which of the following is an advantage of merit increases on a lump-sum basis?

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