Deck 12: Pay-for-Performance and Financial Incentives

Question 1

A type of incentive plan that generally is organization-wide and that provides employees with a share of the organization's profits in a specified period is a(n)

A)group incentive plan.
B)semi-variable incentive plan.
C)individual incentive plan.
D)profit-sharing plan.
E)gainsharing plan.

Answer 1

D

Question 2

A plan in which a production standard is set for a specific work group and its members are paid incentives if the group exceeds the production standard, is known as a(n)

A)team or group incentive plan.
B)standard hour plan.
C)gainsharing.
D)work group plan.
E)excess production plan.

Answer 2

A

Question 3

A term plan that refers to any plan that ties pay to productivity or to some other measure of the firm's profitability is called

A)a profit-sharing plan.
B)a quality circle.
C)a fringe benefit.
D)variable pay.
E)a supplemental pay benefit.

Answer 3

D

Question 4

Popularized by Frederick Taylor, financial rewards paid to workers whose production exceeds some predetermined standard came into use in the late 1800s.These financial rewards are commonly referred to as

A)financial incentives.
B)perquisites.
C)piecework plans.
D)group incentive plans.
E)Taylor bonuses.

Question 5

A type of incentive plan that is an organization-wide pay plan designed to reward employees for improvements in organizational productivity is

A)a group incentive program.
B)variable pay.
C)a profit-sharing plan.
D)a spot bonus.
E)a gainsharing program.

Question 6

When a worker is rewarded by a percent premium that equals the percent by which his or her performance is above standard, this is known as

A)the differential piece-rate plan.
B)gainsharing.
C)the percent incentive plan.
D)the premium plan.
E)the bonus hour plan.

Question 7

Amy received $2000 from her employer last week in order to recognize the extra hours, beyond normal work hours, that she had worked in the past month.Amy's payment was a(n)

A)informal incentive.
B)variable pay plan.
C)group incentive program.
D)retirement income plan.
E)profit-sharing plan.

Question 8

Today, any plan that ties pay to productivity or profitability is called

A)competency-based pay.
B)profit-sharing.
C)variable pay.
D)pay-for-performance.
E)job-based pay.

Question 9

Aziz is the human resources professional at a consulting engineering company.He has been asked by the executive team to suggest incentives that would most likely motivate the junior engineers who have recently graduated from university and are generally in their mid to late 20's.Which of the following should Aziz suggest?

A)high-end fitness equipment
B)on-site day care
C)on-site elder care
D)luxury cruises
E)paid time off to volunteer for charitable organizations

Question 10

The following are all disadvantages of a piecework incentive plan except that

A)in workers' minds, production standards become tied inseparably to the amount of money earned.
B)piece-rate plans appear equitable in principle.
C)new job evaluations produce a new wage rate and thus piece rates need to be revised.
D)employers arbitrarily increase the standard because of workers earning "excessive"wages.
E)workers resist attempts to raise production standards.

Question 11

The following are all types of incentive plans except

A)straight salary and commission.
B)profit-sharing plans.
C)individual incentive programs.
D)spot bonuses.
E)group incentive programs.

Question 12

Accurate ________ are a precondition for effective variable pay plans.

A)job evaluation
B)job specifications
C)performance appraisals
D)salary curves
E)job descriptions

Question 13

Amy is part of a team of 4 software developers.Upon completion of a major client project, she and each of her team members received a set amount in addition to their base salary.All received the same additional amount.Amy received this payment as part of a

A)group incentive program.
B)gain-sharing program.
C)individual incentive plan.
D)spot bonus plan.
E)profit-sharing plan.

Question 14

Under this pay system, each worker receives the minimum hourly wage plus an incentive for each piece produced above a set number of pieces per hour.This system is known as a

A)piecework plan.
B)minimum hourly wage plan.
C)guaranteed piecework plan.
D)gainsharing plan.
E)straight piecework plan.

Question 15

Aziz is the human resources professional at a consulting engineering company.He has been asked by the executive team to suggest incentives that would most likely motivate the senior engineers who have worked in their professional capacity for at least 20 years and are generally in their early 50's.Which of the following should Aziz suggest?

A)adventure travel
B)on-site day care
C)a recognition program and adventure travel
D)luxury cruises
E)paid time off to volunteer for charitable organizations

Question 16

The piecework plan is expressed in monetary terms, whereas the standard hour plan is expressed in

A)dollars per standard.
B)profits.
C)cents per unit of output.
D)a premium that equals the percent by which his or her performance exceeds a standard.
E)cents per hour.

Question 17

Under this pay system, each worker receives a set payment for each piece produced or processed in a factory or shop.This system is known as a

A)process plan.
B)straight piecework plan.
C)gainsharing plan.
D)guaranteed piecework plan.
E)piecework plan.

Question 18

A type of incentive plan that gives income over and above base salary to individual employees who meet a specific individual performance standard is a(n)

A)straight commission.
B)individual incentive program.
C)spot bonuses.
D)profit-sharing plan.
E)cash bonus system.

Question 19

Ira, the manager of a woodworking business, is considering implementing a piecework incentive plan for the woodworkers reporting to him.You are an HR consultant he has asked for advice as to the benefits of implementing such a plan.You advise him of all of the following except that

A)piecework plans are simple and easily understood.
B)the incentive value of piece-rate plans can be powerful since rewards are directly tied to performance.
C)piece-rate plans appear equitable in principle.
D)since the piece rate is quoted on a per-piece basis, in workers' minds, production standards become tied inseparably to the amount of money earned.
E)they are easily understood by employees.

Question 20

Which is the most commonly used and oldest type of incentive plan system of pay based on the number of items processed by each individual worker in a unit of time?

A)standard hour plan
B)item plan
C)piecework plan
D)process plan
E)gainsharing plan

Question 21

Long-term incentives most often reserved for senior executives are called

A)performance achievement plans.
B)book value plans.
C)capital accumulation programs.
D)stock option programs.
E)stock appreciation rights programs.

Question 22

All of the following are reasons to use team incentive plans except

A)facilitating on-the-job training.
B)reinforcing individual incentives.
C)reinforcing group planning.
D)reinforcing problem solving.
E)helping ensure collaboration.

Question 23

With a true individual incentive, it is the manager's individual effort and performance that are rewarded with a(n)

A)individual wage.
B)cost-of-living adjustment.
C)bonus.
D)salary.
E)perquisite.

Question 24

A plan that offers each person a bonus based on the company's results, regardless of the person's actual effort, is called

A)profit sharing.
B)a lump-sum bonus.
C)gainsharing.
D)financial incentives.
E)piece-rate production.

Question 25

The chief disadvantage of group plans is that

A)each worker's rewards are no longer based just on his/her own efforts.
B)a group incentive is problematic when conflict arises between group members.
C)a group incentive may not prove as effective as an individual incentive plan in improving performance.
D)each worker sees his or her effort leading to the desired reward.
E)a group incentive does not facilitate on-the-job training.

Question 26

When all employees earning over a threshold amount are automatically eligible for consideration for short-term incentives, this is called the criterion of

A)key position.
B)job evaluation.
C)job clusters.
D)salary grade.
E)salary-level cutoff point.

Question 27

All of the following are ways that employers use team or group incentive plans except

A)setting work standards for each member of the group and maintaining a count of the output of each member.
B)setting a standard that all members receive payment equal to the 75th percentile of the group as a whole.
C)broad criteria such as total labour-hours per final product.
D)setting a production standard based on the final output of the group as a whole.
E)choosing a measurable definition of group performance or productivity that the group can control.

Question 28

Aziz is the human resources professional at a consulting engineering company.He has been asked by the executive team to implement a short term incentive plan for senior managers.Which of the following is not a basic issues he should consider?

A)eligibility
B)how much to pay out
C)fund-size determination
D)individual awards
E)salary grade

Question 29

When a target bonus is set for each eligible position and adjustments are then made for greater- or less-than-targeted performance, this is called

A)a lump-sum bonus.
B)retirement income.
C)an annual bonus.
D)an individual award.
E)gainsharing.

Question 30

In a profit-sharing plan, each participant gets a bonus based on the company's results

A)factored together with the participant's actual effort.
B)regardless of the participant's actual effort.
C)combined with no other hard-and-fast rules.
D)adjusted for their department's results.
E)combined with the individual effort and performance of each manager.

Question 31

One drawback to the split-award approach is that it pays too much to the marginal performer, who, even if his or her own performance is mediocre, at least gets the second, company-based bonus.One way to get around this would be to use the

A)lump-sum bonus method.
B)individual award system.
C)group incentive plan.
D)individual bonus method.
E)multiplier method.

Question 32

Which of the following are criteria to become eligible for a short-term incentive program?

A)position level
B)length of service
C)key position and salary grade only
D)industry requirements for piece rate production
E)key position, salary level, and salary grade

Question 33

Revlex Inc.has implemented a refinement of the salary cutoff approach to short-term incentive eligibility, which assumes that all managers should be eligible for short-term incentives.This is known as

A)salary grade.
B)performance appraisals.
C)gainsharing.
D)key position.
E)profit-sharing plans.

Question 34

To determine eligibility in a short-term incentive program, a job-by-job review is conducted to identify the key jobs (typically only line jobs)that have measurable impact on profitability.This is called the criterion of

A)salary grade.
B)position level.
C)key position.
D)salary level.
E)industry requirements for piece rate production.

Question 35

A short-term incentive plan that is designed to motivate the short-term performance of managers and is tied to company profitability is called a(n)

A)gainsharing.
B)annual bonus.
C)eligibility plan.
D)capital accumulation program.
E)commission plan.

Question 36

In a true individual incentive bonus plan, each individual person gets a bonus based on

A)the same amount from year to year.
B)individual effort and performance.
C)group effort and performance.
D)department productivity.
E)no hard-and-fast rules.

Question 37

Because of the role managers play in determining divisional and corporate profitability, most employers pay their managers and executives some type of

A)hourly wage.
B)gainsharing.
C)salary.
D)bonus or incentive.
E)commission.

Question 38

A non-deductible formula is

A)when all employees are earning over the threshold amount.
B)a job-by-job review to identify the key formula.
C)a short-term incentive fund that begins to accumulate only after the firm has met a specified level of earnings.
D)a straight percentage used to create a short-term incentive fund.
E)a long-term incentive that pays out on a straight-line basis with no deductible.

Question 39

For short term incentives, the term fund size means

A)the amount each employee will receive.
B)the total amount of bonus money that will be available to be paid out.
C)the company's net income.
D)the incentive bonus formula.
E)average capital invested in the business.

Question 40

All of the following are long-term incentive plans extended to employees except

A)restricted stock plans.
B)phantom stock plans.
C)stock options.
D)retained earnings plans.
E)stock appreciation rights.

Question 41

Executive compensation is more likely to be effective if it is appropriately linked to

A)internal issues.
B)a cost-reduction strategy.
C)external issues.
D)corporate strategy.
E)job evaluation.

Question 42

Stock options, once granted, allow an executive to buy stock

A)in future years at a fixed discount rate depending on performance.
B)in future years with a guaranteed return.
C)at a price equivalent to the company's book value.
D)in future years at a price determined when the stock option was issued.
E)whenever they would like to do so at a price negotiated with the company board of directors.

Question 43

The term merit pay can apply to incentive raises given to any employees, but is most often used with respect to

A)salespeople.
B)white-collar employees.
C)executives.
D)blue-collar employees.
E)hourly workers.

Question 44

Employees whose work involves the application of learned knowledge to the solution of the employer's problems are referred to as

A)professional employees.
B)executives.
C)hourly employees.
D)managerial employees.
E)supervisory employees.

Question 45

Amy received a salary increase based on her individual performance over the past year.Amy received which of the following types of compensation?

A)individual increases
B)individual incentives
C)special awards
D)individual bonuses
E)merit pay

Question 46

Compensation plans for salespeople have typically relied heavily on incentives in the form of

A)profit sharing.
B)stock appreciation rights.
C)gainsharing.
D)sales commissions.
E)stock options.

Question 47

All of the following are reasons why merit pay plans can backfire except that

A)supervisors often tend to minimize differences in employee performance when computing merit raises, to ensure that everyone gets a raise of at least the cost of living.
B)supervisors often tend to minimize differences in employee performance when computing merit raises.
C)the usefulness of the merit pay plan depends on the validity of the performance appraisal system; if performance appraisals are viewed as unfair, so too will the merit pay that is based on them.
D)almost every employee thinks that he or she is an above-average performer, thus being paid a below-average merit increase can be demoralizing.
E)only pay (or other rewards) tied directly to performance can motivate improved performance.

Question 48

Compensation experts suggest defining the strategic context for the executive compensation plan before creating the package itself, by

A)checking for tax effectiveness.
B)defining external issues that face the company and its business objectives.
C)installing a process for review and evaluation whenever a major business change occurs.
D)checking for compliance with all legal requirements.
E)doing all of the above.

Question 49

One adaptation of merit pay plans is merit raises that are

A)linked to group performance.
B)paid in quarterly installments.
C)linked to annual performance appraisals.
D)paid in one lump sum once a year.
E)linked to profit sharing.

Question 50

Future Shop, an electronics retailer, is considering removing commission for its sales staff from their compensation plan and compensating them on a straight salary basis.The following are all advantage of this approach except

A)the employer has fixed, predictable sales force expenses.
B)straight salaries make it difficult to switch territories or quotas or to reassign salespeople.
C)a long-term perspective is encouraged.
D)straight salaries develop a high degree of loyalty among the sales staff.
E)salespeople know in advance what their income will be.

Question 51

Traditional merit pay plans have which of the following characteristics?

A)A merit raise is usually based on individual performance, although the overall level of company profits may affect the total sum for merit raises.
B)A merit raise is usually based on corporate performance.
C)A merit raise is usually based exclusively on group performance.
D)A merit raise is based on overall level of company profits.
E)A merit raise is usually based on individual performance only.

Question 52

Sales compensation plans have typically relied heavily on incentives (sales commissions), although this varies by

A)human resource plan.
B)domestic policy.
C)labour contract.
D)industry.
E)geographic location.

Question 53

Professional employees almost always reach their positions through prolonged periods of

A)formal study.
B)work experience.
C)reference groups.
D)political influence.
E)informal networking.

Question 54

The right to purchase a specific number of shares of company stock at a specific price during a specified period of time is called a

A)book value plan.
B)stock appreciation right.
C)phantom stock plan.
D)stock option.
E)restricted stock plan.

Question 55

The most prevalent approach to compensating salespeople is to use a combination of

A)salary and stock options.
B)commission and stock options.
C)salary and commissions.
D)commissions and profit sharing.
E)salary, commission, stock options, and profit sharing.

Question 56

Paying salespeople according to a plan that compensates them in direct proportion to their sales is called a

A)commission plan.
B)proportional compensation plan.
C)direct compensation plan.
D)straight salary plan.
E)combination plan.

Question 57

Non-salary items that professional employees need in order to do their best work include all of the following except

A)support for professional journal publications.
B)bonuses.
C)up-to-date facilities.
D)supportive management.
E)modern equipment.

Question 58

There has been a definite movement away from the extremes of straight commission or fixed salary for salespeople to

A)pay-for-performance.
B)combination plans.
C)variable pay.
D)incentive plans.
E)merit pay.

Question 59

Studies in industries like pharmaceuticals and aerospace consistently show that firms with the most productive research and development groups have incentive pay plans for their professionals, usually in the form of

A)piece-rate incentives.
B)bonuses.
C)retirement income.
D)hourly wages.
E)merit pay.

Question 60

In some long-term incentive plans, shares are awarded without cost to the executive, but with certain restrictions imposed by the employer.These plans are called

A)stock appreciation rights plans.
B)restricted share unit plans.
C)book value plans.
D)stock options.
E)phantom stock plans.

Question 61

A type of organization-wide incentive plan which usually involves having a corporation contribute shares of its own stock to a trust, and distributes the stock to employees on retirement or separation from service, is referred to as a(n)

A)employee stock ownership plan.
B)individual retirement plan.
C)gainsharing plan.
D)profit-sharing plan.
E)employee trusteeship plan.

Question 62

There are several specific common-sense considerations in establishing any incentive plan.Of primary importance is

A)pay-for-performance.
B)superior business results.
C)relationship building.
D)line of sight.
E)goal setting.

Question 63

Reasons why incentive plans do not work include all of the following except

A)firms do not get what they pay for.
B)pay is not a motivator.
C)performance pay cannot replace good management.
D)rewards may undermine responsiveness.
E)rewards rupture relationships.

Question 64

Sue, a compensation analyst, found recent research that indicates that there are seven principles that support effective implementation of incentive plans.They include

A)group incentives must be complex.
B)rewards may undermine responsiveness.
C)link incentives to measurable competencies.
D)firms get what they pay for.
E)none of the above.

Question 65

Recognition is important for ________, who are driven by internal motivation.

A)new employees
B)management
C)low performers
D)high performers
E)none of the above

Question 66

Frederick Taylor was concerned with the tendency of employees to work at the slowest pace possible and produce at the minimum acceptable level.

Question 67

Many employers have incentive plans in which virtually all employees can participate.They include all of the following except

A)employee stock ownership.
B)salary and fringe benefit programs.
C)gainsharing plans.
D)stock option plans.
E)profit-sharing plans.

Question 68

Amish is the human resources professional at a software development company that has experienced high employee turnover over the past year.The CEO has asked him to explain the most likely primary cause of the turnover.Amish reports that recent research indicates that the number-one reason that employees leave an organization is

A)conflict with supervisor.
B)low pay.
C)lack of recognition and praise.
D)poor leadership.
E)unattractive benefits.

Question 69

Under the differential piece-rate plan, a worker is rewarded by a percent premium that equals the percent by which his/her performance is above standard.

Question 70

The benefits of a gainsharing plan

A)usually take many years to fully realize.
B)accrue mostly to senior managers and executives.
C)are generally lower in terms of overall payout than those of an impro-share plan.
D)are generally realized in the early years.
E)are extremely difficult to calculate.

Question 71

A disadvantage to the piecework incentive plan is that the incentive value can be powerful, since rewards are directly tied to a percentage of performance that is above standard.

Question 72

Research suggests that employee stock ownership plans encourage employees to develop

A)concern about their retirement plan.
B)an interest in gainsharing.
C)a lack of interest in their job.
D)a sense of ownership in and commitment to the firm.
E)little interest in unions.

Question 73

Employees favour recognition from their ________ two-to-one over recognition from other sources.

A)supervisor or manager
B)subordinates
C)customers
D)peers
E)mentor

Question 74

A type of organization-wide incentive plan that engages many or all employees in a common effort to achieve a company's productivity objectives by sharing the resulting cost savings among employees and the company is referred to as a

A)gainsharing plan.
B)common incentive plan.
C)productivity plan.
D)profit-sharing plan.
E)cost savings plan.

Question 75

Employers have put increasing emphasis on variable pay plans in order to maximize their return on human capital.

Question 76

Piecework means basing compensation directly on the amount produced.

Question 77

Accurate performance appraisal is a precondition for effective variable pay plans.

Question 78

One approach to using the team incentive plan is to set work standards for each member of the group and maintain a count of the output of each member.

Question 79

The oldest and most commonly used type of incentive plan is the standard hour plan.

Question 80

Untac Inc., a consulting engineering firm, has recently implemented a type of organization-wide incentive plan whereby all full time employees share in the company's profits.Untac Inc.has implemented a

A)profit-sharing plan.
B)gainsharing plan.
C)salary and commission plan.
D)profit-loss plan.
E)piece-rate incentive plan.