Deck 11: Designing Performance Pay Plans

Question 1

Which of the following plans motivates employees to find ways to reduce the costs of raw materials or any other purchased inputs?

A) Rucker
B) Scanlon
C) Improshare
D) combination profit sharing

Answer 1

A

Question 2

Working as a human resources compensation specialist for a manufacturing company, you become concerned employees will attempt to reduce labour costs "by any means" so as to enhance available bonuses via the company's gain-sharing plan. This behaviour may potentially lead to more work-related accidents or dissatisfied customers. Which would you do to mitigate this reduction in labour costs due to "by any means" mentality?

A) Expand the pool.
B) Introduce a modifier.
C) Use a Scanlon plan.
D) Introduce a "top hat" program.

Answer 2

B

Question 3

Which of the following is NOT true when deciding on the "share" between the company and employees in a gain-sharing plan?

A) When productivity gains are defined on a relatively small base, the split tends to be skewed towards employees.
B) When companies use capital-intensive methods, the share tends to be lower.
C) When the base line increases significantly, the share needs to be higher so as to compensate for the increased level of difficulty in attaining productivity gains.
D) When productivity gains are defined on a relatively large base, the split tends to be skewed towards employees.

Answer 3

D

Question 4

Which of the following conditions makes a gain-sharing plan NOT viable and requires you to consider another option?

A) No valid historical benchmark can be set.
B) Employee involvement is not an integral part of the system.
C) The plan involves large expenditures to implement.
D) Employees receive only 50 percent of the share.

Question 5

A rolling baseline goes up each year there is a productivity gain, and last year's productivity becomes the new baseline.

Question 6

Research supports the notion that if adequate monetary compensation is in place, coupled with an open and supportive management-employee environment, nonmonetary-based recognition tends to offer little value to stakeholders.

Question 7

Which of the following gain-sharing plans requires that management has access to historical data so as to be able to calculate a so-called "normal labour cost"?

A) Rucker plan
B) family of measures plan
C) Scanlon plan
D) Improshare plan

Question 8

Improshare provides a ratio of labour hours per unit of output, generally based on metrics from the previous fiscal year.

Question 9

Financially funded plans combine at least two criteria in establishing goal-sharing bonuses. Often, one of those variables is organizational profitability, making such plans highly motivational to employees.

Question 10

Which of the following bonus allocation methods best supports the philosophy of gain sharing?

A) Everyone receives an equal share after minor adjustments are made for time worked.
B) Higher performers receive a greater share.
C) Higher-paid employees receive a greater share.
D) Part-time and newly hired employees receive nothing.

Question 11

As a general rule, the broader the formula used to determine the pool of funds available for gain sharing the lower the "share."

Question 12

The Scanlon plan has changed over the years. A central reason for these changes is the notion that employees can reduce labour input as a function of output by increasing other costs.

Question 13

In order for the Scanlon plan to work, organizations must be able to predict future cost of inputs, particularly labour.

Question 14

A phantom stock plan ties an employee's bonus to the performance of company stock, but that employee never actually receives any stock.

Question 15

Gain sharing is not a viable plan to use if no valid historical benchmark can be set.

Question 16

Deferred profit-sharing plans are often used as quasi pension plans, particularly in medium-sized companies.

Question 17

A management report identified the following labour usage ratios for a window manufacturer in Richmond, British Columbia: 1.4 hours of labour per window in 2009; 1.25 hours of labour per window in 2010. Management makes the arbitrary decision to set next year's gain-sharing cutoff at 1.325 labour hours per window (the average of the 2010 and 2009 figures). Which of the following gain-sharing plans is management using?

A) Scanlon plan
B) family of measures plan
C) Rucker plan
D) Improshare plan

Question 18

Which of the following plans does NOT make employee involvement an important part of the system?

A) Rucker
B) Scanlon
C) Improshare
D) family of measures

Question 19

The authors identified eight major issues that should be considered when designing a gain-sharing plan. Which of the following potential issues is NOT identified by the authors of the textbook?

A) making a decision to include or exclude certain employees
B) making a decision on frequency of payouts
C) making a decision to use a fixed or discretionary plan
D) making a decision on how to communicate results

Question 20

Which of the following would NOT be considered an advantage of the Scanlon plan, according to proponents?

A) There is improved communication between management and employees.
B) It is a formal process to deal with work challenges.
C) Given that the need for consultation is absent, this is a quick program to implement.
D) All members of the gain-sharing plan tend to benefit from improvements.

Question 21

Human resource professionals have identified three types of goal-sharing plans. Which of the following is NOT one of those types?

A) standard plus plans
B) single-goal plans
C) multi-goal plans
D) financially funded plans

Question 22

Which of the following statements regarding profit-sharing plans is NOT correct?

A) Deferred profit-sharing plans (DPSPs) need to be registered with the federal government.
B) So called "top-hat" plans are often widely available to all employees, thus making them eligible for registration as a DPSP.
C) Income generated by a DPSP is tax exempt until such time as the employee cashes in the plan.
D) The majority of Canadian profit-sharing plans are cash-based plans.

Question 23

What is the least common basis for allocating profit-sharing bonuses across employees in Canadian firms?

A) seniority
B) individual performance
C) salary level
D) equal distribution across all employees

Question 24

You are a minority shareholder in a private corporation, whereas your friend holds employee shares in a publicly traded corporation. Which of the following conditions will you NOT experience, in contrast to your friend?

A) owner reluctance to share ownership
B) little control over what goes on in the organization
C) no easy way to liquidate shares if you feel your interests are not being well represented
D) no external market to place a value on company shares

Question 25

Which of the following is NOT an example of a nonmonetary award?

A) a day off for perfect attendance
B) a pat on the back for a job well done
C) a company picnic
D) an all-expenses-paid holiday

Question 26

Which of the following is NOT a necessary component of goal-sharing plans?

A) employee participation
B) performance goals
C) bonus payouts
D) achievement levels

Question 27

Which of the following statements is NOT true?

A) For motivational reasons, fixed formula profit-sharing plans are recommended.
B) Stock bonus plans provide employees with the right to purchase shares in the future at a fixed price.
C) Deciding the split is an important issue in gain-sharing plans.
D) A key issue in designing profit-sharing plans is the form of the bonus payout.

Question 28

A group of farm workers normally pick 10,000 kilograms of cherries during a regular eight-hour shift. Joe, the operations manager, decides he will provide each picker in the group with a meaningful monetary reward if the farm workers are able to meet a new "stretch goal" of 12,500 kilograms per eight-hour shift? Which of the following terms best describes this new "stretch goal"?

A) standard plus
B) goal plus
C) goal level
D) red circle plus

Question 29

Your company has decided to distribute a goal-sharing bonus according to the salary levels of employees. Which of the following would be a natural outcome of this decision?

A) It discourages free riding by some employees.
B) It is the most egalitarian distribution method.
C) It maintains the same proportion of goal-sharing compensation in the compensation mix for all employees.
D) It adjusts for actual time worked during bonus period.

Question 30

ABC Ltd. generated one million Canadian dollars in profits this year. ABC Ltd. decides to place 200,000 Canadian dollars (20 percent of pre-tax profits) in a bonus pool. In previous years, this figure has ranged from zero to 50 percent of pre-tax profits. What type of formula is ABC Ltd. using to determine contributions into the pool?

A) fixed percentage
B) fixed threshold
C) discretionary
D) percentage approach

Question 31

According to the author, which of the following is the most important factor in the success of the goal-sharing plan?

A) identification of the goals to be rewarded
B) determination of levels for goal achievement
C) establishment of bonus amounts
D) determination of time frames for goal achievement

Question 32

Which of the following is a major issue with employee stock plans?

A) government support for employee share ownership
B) taxation
C) decline in popularity
D) senior executive involvement

Question 33

Which of the following statements regarding employee share purchase plans is NOT correct?

A) Employees receive shares at no cost to themselves, usually as a bonus.
B) Employees provide a direct payment of some sort in exchange for the shares.
C) Often the price employees pay for the shares is less than market value.
D) Often employers will match the amount of shares purchased by the employee up to a set limit.

Question 34

Which of the following best explains a phantom stock plan?

A) Although their bonus is tied to the performance of company stock, the employees never receive any stock.
B) Rewards are based on the stock performance of client firms.
C) Employees are awarded stock at no cost to themselves.
D) Employees can purchase stock at a fixed price within a set period of time.

Question 35

As a medium-sized company owner, you believe that it is morally just that employees receive a portion of the profits they help generate, and you want to provide them with some form of pension plan. Which of the following types of plans should you consider using?

A) deferred profit sharing
B) share appreciation rights
C) registered retirement savings
D) current distribution

Question 36

An employer issues Johnny 2,000 stock options in recognition of a very good year. These particular options vest after 24 months from the date of issuance with an exercise price of $21.00 per share. After 24 months, these shares trade in the open market at $25.00 per share, and Johnny decides to exercise his 2,000 options, generating a gain of $8,000 (minus transaction fees). Which of the following statements regarding Johnny's tax situation pursuant to these gains is true?

A) Because these options were a bonus provided by the employer, there are no tax consequences attributable to Johnny.
B) Because these shares are "under water," Johnny's employer is responsible for any taxes on the gains.
C) Johnny will have to pay taxes based on the corporate tax rate.
D) Johnny's gain will be deemed as income, but taxes will be paid at the capital gains rate.

Question 37

According to research on Canadian firms, in the majority of cases, which employees are included in the profit-sharing plan?

A) all full-time and part-time employees
B) non-unionized employees only
C) designated employees only
D) all full-time employees

Question 38

Management decides to allocate 1,000 shares to a particular employee at a market value of $50.00 per share under a share appreciation rights plan. One year later, the value of these shares has increased to $65.00. How many shares would this employee actually receive as a bonus at the end of the year?

A) 15.4 shares
B) 20 shares
C) 230.8 shares
D) 1,000 shares

Question 39

You have been tasked with providing management with a list of factors distinguishing goal-sharing plans from gain-sharing plans. Which of the following should NOT be included in your list?

A) The essence of gain sharing is simply to improve on past performance.
B) Goal-sharing plans typically include several levels of attainment.
C) Goal-sharing plans quantify cost savings and then share those benefits with both employees and the company using a fixed formula.
D) Both require that management identify the group participating in the plan.

Question 40

Which of the following would you consider NOT to be "best practice" when designing nonmonetary reward plans?

A) For large organizations, the usage of an elected committee of employees and managers should be considered when providing significant rewards to employees.
B) A champion or group of champions should be considered to keep the program "alive."
C) Whenever possible, reward only those employees in the top 10 percent.
D) Whenever possible, all deserving employees should be recognized.

Question 41

Identify the fundamental ways in which gain-sharing and goal-sharing plans differ.

Question 42

Identify how design issues for stock plans differ for private corporations.

Question 43

Briefly describe the Scanlon Plan.

Question 44

Discuss the key issues in designing a nonmonetary reward plan.

Question 45

Identify and briefly comment on the key issues in designing profit-sharing plans.