Deck 16: Individual Performance Evaluation

Question 1

If performance evaluation of work is used to change wages, raises, bonuses, or dismissals, then the system is designed to:

A) indicate when training is required.
B) provide the employee with a system of self-assessment.
C) reduce risk-taking on the part of the employee.
D) determine rewards and sanctions for the employee.

Answer 1

D

Question 2

If an employee is paid a fixed wage in a production environment where the wage is independent of output, then the employee has an incentive to:

A) maximize output.
B) shirk.
C) innovate.
D) search for methods to overcome random elements in production.

Answer 2

B

Question 3

At TruLite Fred Powell is responsible for organizing a detailed review of each professional employee and manager by May 1 of the year. The rankings can then be computed and raises can be given right before Independence Day. But upon review, he finds that all of his employees are above average. Most probably this is indicative of:

A) the fact that all of the employees are from Lake Wobegon, Minnesota.
B) that every employee works extremely hard.
C) that the evaluations are not done frequently enough.
D) his managers shirking from this unpleasant task.

Answer 3

D

Question 4

If TruLite's basic production employee receives an hourly wage of Comp = $5.00 + .10 Q where Q is the number of light switches installed per hour, then:

A) the employee can remain completely risk-averse.
B) the employee must accept risk of production variability.
C) output becomes a subjective measure of performance.
D) there are no compensating differentials.

Question 5

Give examples of how government intervention helps reduce moral hazard and adverse selection problems in internal labor markets.

Question 6

If a work performance measure is based on both objective and subjective measures, the objective measure might be the:

A) number of units produced.
B) dependability of worker.
C) quality of units produced.
D) cooperation of worker.

Question 7

If the output of an employee is dependent on the marginal productivity of the employee, the effort of the employee, and random elements (changes) in the production environment, which one(s) is (are) actually easily observable to management?

A) Marginal productivity.
B) Effort of the employee.
C) Random elements.
D) Number of hours on the job.

Question 8

Most organizations provide a standard budget for every department, which must be spent during the fiscal year, usually in mid-May. A department forfeits any unspent amount. Every department's annual allocation depends upon the previous year's allocation. Is this an efficient allocation procedure? Are there more efficient allocation rules?

Question 9

If TruLite management studied the light fabrication department and found that the departments should assemble 25 lamps per hour per worker and set its piece rate to get workers to meet output level, then this standard is called the:

A) risk premium.
B) benchmark.
C) incentive adjustment.
D) random element of production.

Question 10

In the TruLite boxing department, management finds that the production team maintains several boxes of lights in a nearby storage closet. On days when the assembly line breaks down, the boxes are added back at the end of day to meet production goals. This is an example of:

A) beating the benchmark.
B) gaming the production system.
C) random elements in production.
D) risk premium adjustment factors.

Question 11

Make a case for 360-degree performance evaluation based on the informativeness principle. What problems may be encountered from implementation of such a system?

Question 12

In a very basic principal-agent model, output is contractible if:

A) output can be observed with some positive cost.
B) the employee produces many products.
C) the employee works in a team
D) output can be observed at zero cost

Question 13

If TruLite's basic production employee receives an hourly wage of Comp = $5.00 + .10 Q where Q is the number of light switches installed per hour, then:

A) $5.00 is the basic incentive to produce.
B) Q is completely dependent on random elements in the production system.
C) $0.10 is the incentive to increase effort.
D) effort is unimportant in this production system.

Question 14

A president of a large university issues the following policy for faculty pay-raises in the smaller satellite campuses: faculty pay increases will be possible only if enrollment increases above last year's targets. Evaluate the impact of this policy on the overall system.

Question 15

In a subjective evaluation system where an employee with many tasks is ranked from excellent to poor, a system like this called a:

A) standard rating scale system.
B) goal-based system.
C) piece work incentive system.
D) external benchmark system.

Question 16

A few years ago the state legislature of a particular state passed a bill that increased funding for only those public universities that showed an increase in graduation rates. In two years, the bill was retracted. Why was the bill enforced in the first place just to be withdraws so soon?

Question 17

TruLite is managed by Fred Powell. It has three stages of production: (1) light fabrication, (2) switch assembly, and (3) boxing. Chris Self works in the switch assembly department. He is productive and seems to work hard. Powell decides to change Chris Self's pay system to a performance system based on output per hour. Chris resists the change and asks for increase in his base pay. What is Chris Self's problem? Is he irrational or does he understand something about the production system that Fred Powell does not understand?

Question 18

The old saying is "Be careful what you pay for, because you may get it." Discuss commission based salaries and gaming in light of the saying.

Question 19

At Always Round Tire, managers and professional employees are evaluated each year with the Subjective Information Performance Survey (SIPS). SIPS allows bosses to rank their employees on several issues including achieving budget objectives, communication quality, continuing education and training activities, and emphasis of teamwork among subordinates. SIPS software computes means and standard deviations, and benchmarks each employee relative to all others in the same evaluation system. But nobody at the company believes in SIPS output. Why?

Question 20

The goal of a performance pay system is to get an employee to meet and exceed production quotas or goals. But an employee is always faced with events that are clearly beyond his/her control. What measures can be taken by management to understand and minimize the impact of these 'random' elements in the production system?

Question 21

The larger the number tasks and the greater the authority required in a job, then the evaluation of the person in the job will move from ____ to ____.

A) subjective; objective
B) subjective; risk based
C) objective; subjective
D) objective; risk based

Question 22

If a company wants an employee to average about $14.00 per hour to produce 60 units per hour, plus it provides a base salary of $7.00 per hour, what should be the incentive rate per hour?

A) $0.117
B) $8.54
C) $0.333
D) $1.25

Question 23

Employee performance evaluation is needed because:

A) it justifies the incredibly high wages of the CEOs.
B) it justifies the incredibly high fringe benefits of the CEOs.
C) it puts the employees in their places which is important for success.
D) it determines rewards and sanctions - wages, raises, bonuses, and dismissals.

Question 24

A salesperson's bonus for this year is based on meeting targets based on last year's sales. This year turns out to be an unusually good year. The salesperson is likely to:

A) meet the target easily and push forward with all potential sales.
B) fail to meet the last year's targets because of overconfidence.
C) just be satisfied with meeting last year's target.
D) defer some sales to the next fiscal year, as in processing delay of some of this year's orders.

Question 25

Objective measures included in an evaluation and incentive system might include:

A) improved quality of communications with subordinates.
B) meeting or exceeding sales goals.
C) reorganizing a department for improved human relations.
D) recognition for finding and solving problems.

Question 26

Gaming refers to a situation where:

A) employers fix unachievable output and target levels.
B) employees consistently understate the target levels so as to meet them.
C) employees increase output to gain commissions beyond the firm's capacity.
D) employees inappropriately increase output to gain commissions.

Question 27

In a very basic principal-agent model, output is contractible if:

A) output can be observed with some positive cost.
B) the employee produces many products.
C) the employee works in a team.
D) the employee produces a single output.

Question 28

Beyond some minimum level of effort, it usually expected that teamwork will have the impact of _______ relative to individual effort.

A) reducing output
B) leaving output the same
C) increasing output
D) reducing and then increasing the output

Question 29

Which of the following should not be on a list of things you should do to get an honest evaluation?

A) Have a list of creative solutions to problems that you have encountered.
B) Show how your output influenced the profitability of your division.
C) Illustrate how your actions will improve the company next year.
D) Take your boss to dinner the night before evaluations are due.

Question 30

If managers were rewarded for meeting quota, then:

A) some managers would rebel and not meet the necessary quota.
B) all managers would exceed quota.
C) all managers would just meet quota.
D) some managers would just barely exceed quota.

Question 31

Employee performance evaluation is needed because:

A) it justifies the incredibly high wages of the CEOs.
B) it justifies the incredibly high fringe benefits of the CEOs.
C) it puts the employees in their places which is important for success.
D) it provides feedback on achievement and indicates potential for improvement.

Question 32

In the model management cannot observe:

A) Q and e
B) Q and
C) Q and
D) e and

Question 33

Employees often limit their output and engage in soldiering because of the fear that if they exceed output levels this time, management will increase output goals for the next time period. This is called the:

A) incentive effect.
B) ratchet effect.
C) benchmark effect.
D) goal standard effect.

Question 34

Setting performance goals based on historical data and past performance creates:

A) horizon problem.
B) compensating differential.
C) opportunism.
D) ratchet effect.

Question 35

Which of the following is not a problem with subjective performance evaluations?

A) Shirking among supervisors.
B) Forced distributions of results by upper management.
C) The ability to rank employees on a standard rating scale.
D) Use of influence to bias outcomes.

Question 36

While production teams are important sources of productivity in business, they can suffer from the _______ problem.

A) free rider
B) risk premium
C) standard rating scale
D) benchmark

Question 37

Presidents who constantly react to their ratings in the Gallup Poll are:

A) likely to become very popular from historical point of view.
B) likely to take both long-term and short-term views of their actions seriously.
C) likely to take their legacy seriously and concentrate on the long run value of their actions.
D) likely to take popular short term actions rather than those with longer historical value.

Question 38

If output Q = 8.5e (e=units of effort) and Wage W = $6.70 + .25Q, then 20 units of effort are worth _____ to the firm.

A) $170.00
B) $0.425
C) $49.20
D) $35.80

Question 39

In a very basic principal-agent model, output is contractible if:

A) output can be observed with some positive cost.
B) the employee produces many products.
C) the employee works in a team.
D) the employee works independently and cannot game the process.