Deck 10: Pay-For-Performance Plans

Question 1

When a firm is _____ on business risk, and its outcomes are _____, its performance is more likely to be higher without any incentive plans.

A)variable; certain
B)high; uncertain
C)low; certain
D)low; invariable

Answer 1

B

Question 2

Which of the following statements about merit pay is NOT true?

A)It has a small but significant effect on performance.
B)Removal of merit pay lowers satisfaction but not performance.
C)Departments and units with merit pay show higher performance.
D)Merit pay has a sorting effect.

Answer 2

B

Question 3

Which of the following is the most commonly used team incentive performance standard?

A)Quality of goods
B)Customer satisfaction measures
C)Financial performance
D)Quality of services

Answer 3

B

Question 4

Which of the following is NOT true about individual spot awards?

A)Smaller companies may be more casual about recognition for spot awards.
B)Someone in an organization alerts top management about performances deserving of an award.
C)A majority of companies do not feel that these awards are effective.
D)Smaller companies are more subjective about deciding the size of the award.

Question 5

Which of the following statements is true of individual spot awards?

A)They are an example of long-term incentives.
B)They are more expensive than merit pay increases.
C)They are given to employees for exceptional performance as an add-on bonus.
D)They are given to all employees as a one-time cost-of-living adjustment.

Question 6

TreeDen Corp.experiences an increase in employee turnover rate.Upon investigating, it discovers that employees are dissatisfied with the company's pay.Employees cannot see a direct link between their performance and their pay.They are also unhappy about having to pay out of their pockets to obtain grants.In this case, TreeDen is most likely using a _____.

A)stock ownership plan
B)cash profit sharing plan
C)gain-sharing plan
D)team incentive plan

Question 7

Which of the following does NOT provide for incentives based on standards that are expressed in terms of time period per unit of production?

A)Gantt plan
B)Rowan plan
C)Halsey 50-50 method
D)Merrick system

Question 8

The authors argue that for merit pay to live up to its potential, all of the following should be done EXCEPT _____.

A)using more peer raters than supervisor raters
B)improving the accuracy of appraisals
C)allocating enough merit money to truly reward performance
D)ensuring the size of the merit increase differentiates across performance levels

Question 9

One common feature of all types of incentive plans is:

A)an established standard of performance that is used to determine the magnitude of the incentive pay.
B)a sharing contract between the employees and employers, which stipulates that the losses incurred by the companies will be shared by both employees and employers.
C)the established formula that specifies the maximum percentage of base pay allocated as incentives.
D)a risk-sharing plan that increases pay depending upon the turnover rate of a company.

Question 10

Which of the following is NOT true of merit bonuses?

A)They are viewed as less of an entitlement than merit pay.
B)They are more expensive than merit pay in the long run.
C)Employees dislike them.
D)They are thought to be a substitute for merit pay.

Question 11

If you had repair work done on your car, the shop most likely used the _____ plan to pay the mechanic.

A)Bedeaux
B)standard hour
C)Halsey 50-50
D)straight piecework

Question 12

Paying a dime for every bottle collected and turned into a collection center is an example of a:

A)standard hour plan.
B)Merrick system.
C)straight piecework system.
D)Rowan plan.

Question 13

Menthorp Inc.wants to design a variable-pay plan that fosters teamwork and business knowledge of its employees.In order to ensure maximum motivation, Menthorp wants its variable-pay plan to show a clear performance-reward link.Which of the following plans is most suitable for Menthorp?

A)Gain-sharing plan
B)Cash profit sharing plan
C)Stock ownership plan
D)Stock options plan

Question 14

The most frequently used incentive system is the:

A)standard hour plan.
B)straight piecework system.
C)Merrick system.
D)Taylor differential piece-rate plan.

Question 15

A _____ plan requires division of a task into simple actions and determination of the time required by an average skilled worker to complete each action.

A)standard hour
B)Rowan
C)Bedeaux
D)Merrick

Question 16

Maxwell Construction Corp.employs a lot of uneducated laborers.The company wants to introduce a variable-pay plan that is easy to understand and does not cost much to administer.Which of the following variable-pay plans is Maxwell most likely to introduce?

A)Balanced scorecard plan
B)Gain-sharing plan
C)Stock ownership plan
D)Cash profit sharing plan

Question 17

Which of the following is an advantage of providing stock ownership options as variable pay to employees?

A)It reinforces team identity.
B)It is the simplest type of variable-pay plan.
C)It defers a portion of taxes to employees.
D)It provides a direct pay-performance link.

Question 18

For any task completed in standard time or less, earnings are pegged at 120 percent of the time saved under the _____ plan.

A)Halsey 50-50
B)Gantt
C)Taylor
D)Rowan

Question 19

Surveys show the most popular type of variable pay plans are _____.

A)stock option plans
B)gainsharing plans
C)individual incentive plans
D)special recognition plans

Question 20

An incentive system with three piecework rates is the _____ plan.

A)Taylor
B)Gantt
C)Halsey 50-50
D)Merrick

Question 21

Which of the following is an advantage of gain-sharing plans?

A)They are the simplest type of variable-pay plan.
B)They allow payouts to occur even if a company's financial performance is poor.
C)They are administratively easy to implement.
D)They increase employees' knowledge of business.

Question 22

A team leader with a free-rider problem in his team can most likely maximize the performance of his team by:

A)instructing them to do their best.
B)specifying performance levels and due dates.
C)assigning tasks only to the top performers in the team.
D)punishing free riders who fail to meet standards.

Question 23

All of the following support the use of individual incentives EXCEPT:

A)the independent nature of task accomplishment.
B)the high commitment levels of workers to their profession.
C)the readily apparent performance standards.
D)the presence of a union.

Question 24

Which of the following is a disadvantage of gain-sharing plans?

A)Payouts can occur even if a company's financial performance is poor.
B)Pay-performance link is indirect.
C)Employees are required to put up money to exercise grants.
D)Mandatory stock ownership required by gain-sharing plans can increase turnover rates.

Question 25

The percentage of companies using some form of variable pay is declining because many employees prefer base wages.

Question 26

Standard hour plans are better for nonrepetitive jobs requiring numerous skills for completion.

Question 27

Employees working under individual incentive plans tend to resist the introduction of new technology.

Question 28

Individual incentives yield higher productivity gains than group incentives.

Question 29

_____ have the disadvantage of requiring employees to spend money to obtain their incentive.

A)Cash profit sharing plans
B)Balanced scorecard plans
C)Stock options plans
D)Deferred profit sharing plans

Question 30

Merit pay is a pay-for-performance plan used for more than three-quarters of all exempt, clerical, and administrative employees.

Question 31

In gain-sharing plan formulas, _____ are in the numerator and _____ are in the denominator.

A)productivity measures; inputs
B)productivity measures; labor inputs
C)costs; revenues
D)labor inputs; productivity outcomes

Question 32

Which of the following is NOT a long-term incentive plan?

A)ESOPs
B)Broad-based option plans (BBOPs)
C)Improshares
D)Performance plans

Question 33

In the long run, merit bonuses cost employers less than merit pay.

Question 34

The Rowan plan uses a standard that is purposefully set high requiring high performance levels.

Question 35

Components identified as vital to the success of both Scanlon and Rucker plans are:

A)top management support and primary focus on wage incentives.
B)a flexible pay out formula and low turnover rates.
C)union and top management support.
D)a productivity norm and effective worker committees.

Question 36

All incentive plans share an established standard against which worker performance is compared to determine the magnitude of the incentive pay.

Question 37

The trend in recent variable-pay design is to combine the best of _____ and _____ plans.

A)individual; group
B)gain-sharing; profit-sharing
C)Halsey 50-50; Rowan
D)balanced scorecard; cash profit sharing

Question 38

High performance ratings are nearly always statistically related to high merit increases.

Question 39

A fast and efficient worker would earn more money under a Rowan plan than under a Halsey 50-50.

Question 40

Which of the following is NOT an advantage of team incentives?

A)Stimulates problem solving
B)May better reflect how work is performed
C)Easy to set equitable targets for all teams
D)Minimizes distinctions between team members

Question 41

Discuss SVOP.

Question 42

A group performance-based pay plan is superior to an individual plan when production methods and labor mix must change to meet changing pressures.

Question 43

Why do companies prefer merit bonuses over merit pay increases?

Question 44

What is the difference between success-sharing plans and risk-sharing plans?

Question 45

Discuss the trends that are leading to the increased interest in variable pay.

Question 46

Many variable-pay plans have some form of profit trigger linked to revenue growth or profit margins.

Question 47

An advantage of group incentives is that it leads to increased line-of-sight.

Question 48

Gain-sharing plans do not to use a historical standard to set productivity standards since environmental conditions can change quickly.

Question 49

The free-rider problem is common in firms using individual incentive plans.

Question 50

A major problem in group incentive plans is that performance targets are not correctly set.

Question 51

Discuss the plans that provide for variable incentives linked to a standard expressed as a time period per unit of production.

Question 52

Unions prefer individual incentive pay plans to group incentive pay plans since members can earn more money.

Question 53

Performance plans typically feature corporate performance objectives for a time three years in the future.

Question 54

Scanlon plans are designed to lower labor costs by lowering the level of a firm's activity.

Question 55

A combination plan often favored by CEOs who don't like to make payouts when the company loses money is a completely self-funding plan.