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Chapter 11 - Rewarding Performance
Chapter 11 Rewarding Performance
True/False Questions
[QUESTION]
1. An important determinant of effective PFP is the incentive being valued relative to other
rewards.
2. One reason for the failure of PFP systems is that employees do not understand the
connection between their performance and changes in pay.
3. The lowest level recommended for a PFP system is four percent of the base salary in order
for the money to be considered significant and for the PFP system to be effective.
4. Reliability is defined as the extent to which the measure used to define performance is
correlated with some criterion of organizational performance.
5. Stock awards and stock options, identified as a means for rewarding performance, are well
suited for meeting short-run objectives.
6. The incentive stock option that gives an executive the right to purchase stock is priced
higher than the market price.
Chapter 11 - Rewarding Performance
[QUESTION]
7. Incentives that are not permanently tied to an individual’s base pay are easier to manage in
terms of budgets when performance declines.
8. Team-based PFP is a better approach when it is part of a comprehensive team-based model
of HRM and compensation.
9. Merit pay plans are also known as piece-rate systems.
10. The piece-rate system and the standard hourly rate, as the two types of individual
incentive systems, are based on rated output.
11. The standard hourly rate is calculated by dividing the base wage by the standard.
12. The piece-rate approach is recommended if individual performance can be accurately
measured and teamwork or worker collaboration is not important for the desired performance
outcomes.
Chapter 11 - Rewarding Performance
[QUESTION]
13. Considering the procedure to calculate the standard rate, if the standard time for a task is
two hours and the fair hourly wage is $10, the standard rate is $20.
14. Winsharing combines gain sharing with profit sharing.
15. A draw, in a sales incentive plan, is essentially an interest-free loan to the salesperson,
repayable when commissions are below the draw limit.
16. The three major types of group-based incentive plans, profit sharing, gain sharing, and
employee stock option plans, are all designed to establish a link between pay and
performance.
17. The flaw with a bonus incentive system is that due to the repetition of payments, it can be
difficult to manage from a budgetary perspective.
18. Profit sharing is a group incentive system that gives participating employees an incentive
allocation based on improvements in quality measurements.
Chapter 11 - Rewarding Performance
11-4
[QUESTION]
19. IMPROSHARE is similar to Scanlon except that the IMPROSHARE ratio uses labor costs
rather than standard hours.
20. Workforce interdependence is one of the factors to be considered in designing a gain
sharing program.
21. A pay for performance plan negates the need to manage an employee’s performance. The
manager need only focus on the distribution of rewards in order to generate appropriate
employee behaviors.
22. In general, pay for performance systems are more effective when specific worker
contributions can be clearly measured.
23. Pay for performance plans are most effective when managers set the goals and have
control over the pace of work.
24. Clawback provisions allow a company to grant an executive stock and then increase their
stock gains by manipulating the price of the stock through corporate buy back programs.
Chapter 11 - Rewarding Performance
[QUESTION]
25. When formulating a pay for performance system it is important to strike a balance
between individual, team and business based incentives.
Multiple Choice Questions
[QUESTION]
26. PFP is a High Performance Work Characteristic and is linked to a firm’s performance
particularly when the:
A) CEO pay is a lower base pay with the majority of compensation coming from incentive
plans.
B) PFP system is closely aligned with the company’s strategic objectives.
C) company has both profit sharing and employee stock option plans established.
D) performance is measurable.
E) size of the award is sufficient to stimulate increased effort.
[QUESTION]
27. Your company has jobs that are highly interrelated and strategic in focus. You want to
provide a pay for performance incentive with relatively long measures of performance. The
best option would be to design a:
A) Merit pay plan
B) Commission pay plan
C) Profit Sharing plan
D) Piece rate plan
E) Behavioral modification plan
28. Each of the following is a reason for the failure of PFP systems EXCEPT:
A) poor conceived connection between performance and pay.
B) the level of performance-based pay is too low relative to base pay.
C) lack of objective, countable results for most jobs, requiring the use of performance ratings.
D) faulty performance appraisal systems.
E) union support for PFP systems.
Chapter 11 - Rewarding Performance
[QUESTION]
29. When there is relatively little differential pay associated with using merit pay systems, one
of the major problems that arise is:
A) company has a problem tracking payroll costs.
B) best performers perceive it as inequitable.
C) middle performers complain.
D) poor performers become worse.
E) top management takes the opportunity to give itself raises.
30. Which of the following plans calls for a distribution of pay based on an appraisal of a
worker’s performance?
A) Merit pay plan
B) Incentive plan
C) Halsey plan
D) Commission plan
E) Profit sharing plan
31. When is a group pay for performance plan more effective than an individual plan?
A) When tasks are independent
B) When cooperation and teamwork are essential
C) When it is difficult to measure an employee’s specific contributions
D) Both “A” and “B”
E) Both “B” and “C”
32. In which of the following ways do incentive plans differ from merit pay plans?
A) They rely on countable results as basis for setting PFP rate.
B) They use performance appraisal data as the basis for the increase.
C) They use standard hours rather than labor costs to determine incentive pay.
D) They have less union support.
E) Are illegal under the Fair Labor Standards Act.
Chapter 11 - Rewarding Performance
11-7
[QUESTION]
33. Each of the following is true regarding individual PFP plans EXCEPT:
A) Individual PFP plans can be divided into merit pay systems and incentive systems tied to
production rates.
B) For a merit pay plan, performance is generally measured through performance appraisal.
C) Incentive plans rely on some countable result as a basis for setting the PFP rate.
D) The greatest strength of the merit pay plan is its ability to create a clear linkage between
employee performance and pay.
E) Incentive pay is based on units produced and provides the closest connection between
performance and pay.
34. When forced distribution is used to reduce leniency bias, this can cause __________ if a
PFP system is in place.
A) increased trust in the organization
B) increased trust between employees
C) increased theft in the organization
D) decreased trust between employees
E) decreased trust in the organization
35. The individual incentive plan in which the worker is paid solely per unit of production is
known as __________.
A) differential rate plan
B) straight piecework plan
C) standard hourly rate plan
D) Halsey plan
E) Rucker plan
36. Why do Deming and other quality experts think PFP is a bad idea?
A) Performance appraisal diverts attention away from the systems related to the quality of the
product or service.
B) PFP places too much emphasis on getting employees to do their jobs right the first time.
C) PFP links rewards valued by the employee to organizational outcomes valued by the
employer.
D) Performance appraisal decreases the intensity of competition among individual workers.
E) PFP only enhances organizational performance.
Chapter 11 - Rewarding Performance
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11-8
Answer: A
Page: 411
Level: Easy
[QUESTION]
37. Which of the following is associated with Taylor’s differential rates?
A) There are two outcomes related to pay: one for performing below standard and the other
for meeting or exceeding the standard.
B) They are used to pay a higher ranked worker more than one who is lower ranked.
C) The rate is based on a productivity index called labor contribution to value added.
D) They involve higher levels of employee involvement.
E) They are generally tied to company profits.
38. The Standard Hourly Rate:
A) pays the worker an incentive based on units of production.
B) relies on countable results as a basis for setting the PFP rate.
C) uses a formula to determine the employees share of cost savings.
D) uses a production standard that is expressed in time units.
E) is usually folded into the base pay of the recipient and is usually granted as a percentage of
a worker’s base pay.
39. Acme Shoe Company is expanding nation-wide, and they wish to develop an incentive
plan for their door-to-door salespeople. Which of the following plans is most appropriate?
A) Piece-rate plan
B) Commission plan
C) Profit sharing plan
D) Straight salary
E) Scanlon plan
