Fundamentals of HR Management, 8e (Noe)
Chapter 13 Recognizing Employee Contributions with Pay
1) Incentive pay is specifically designed to energize, direct, or control employees’ behavior and is
influential because the amount paid is linked to certain predefined behaviors or outcomes.
2) Under incentive pay, piecework rates are most suited for routine, standardized jobs with
output that is easy to measure.
3) Standard hour plans are quality-oriented incentives for professional employees.
4) Merit pay is a system of linking pay increases to ratings on performance appraisals.
5) A merit pay incentive system is used to attract employees who are more team-oriented.
6) From employers’ perspective, an advantage of merit pay is that it is cheap.
7) Retention bonuses are one-time incentives paid to top managers, engineers, top-performing
salespeople, and information technology specialists in exchange for remaining with the
company.
8) The Scanlon plan of gainsharing gives employees a bonus if the ratio of labor costs to the
sales value of production is below a set standard.
9) Group bonuses typically reward the performance of all employees in an organization.
10) Under the team awards type of group incentive, cost savings is excluded as a performance
measure.
11) Linking incentives to the organization’s profits or stock price exposes employees to a high
degree of risk.
12) Under profit sharing, payments are a percentage of the organization’s profits and become part
of the employees’ base salary.
13) In larger organizations that have stock ownership plans, the employees may not see a strong
link between their actions and the company’s stock price.
14) Employees who receive stock options as incentive pay must exercise the stock options even
if the stock price decreases.
15) An employee stock ownership plan is an arrangement in which the organization distributes
shares of stock to all its employees by placing it in a trust.
16) An employee stock ownership plan denies employees the right to participate in votes by
shareholders even if the stock is registered on a national exchange.
17) Stock options are best suited to motivate day-to-day effort or to attract and retain top
individual performers.
18) A balanced scorecard is a combination of performance measures directed toward the
company’s long- and short-term goals.
19) An organization should keep information, such as changes made to its incentive plan,
confidential from its employees.
20) Incentive pay for executives lays the groundwork for significant ethical issues.
21) A pay structure specifically designed to energize, direct, or control employees’ behavior is
known as
A) monthly salary.
B) wage.
C) incentive pay.
D) annual salary.
E) fixed pay.
22) Vroom Motors, an automobile company, ties individual performance, profits, and other
measures of employees’ success to a particular form of pay. This form of pay is influential
because the amount paid is linked to certain predefined behaviors or outcomes. What pay
structure is exemplified in this scenario?
A) minimum wage
B) overtime pay
C) incentive pay
D) piecework rates
E) salary
23) A feature of an effective incentive pay plan is that it should
A) have performance measures based on employees’ requirements.
B) not be provided as a direct percentage of employees’ performance.
C) encourage group performance and sideline individual achievements.
D) be the same for all employees in the organization.
E) have performance measures linked to the organization’s goals.
24) For incentive pay to motivate employees to contribute to the organization’s success, the pay
plans must be well designed. Which statement describes a characteristic of a well-designed plan?
A) Performance measures are to be linked to the individual’s goals.
B) Employees are given unattainable performance standards.
C) Employees value the rewards or incentives that are being offered.
D) Employees are given limited resources to meet their goals.
E) The pay plan takes into account that employees will accept all goals irrespective of their
rewards.
25) In the process of designing incentives, managers should make sure that
A) all the employees are paid the same amount.
B) even the lowest performing employees are rewarded.
C) employees focus only on completing the task quickly.
D) employees believe that the pay plan is fair.
E) they hire employees who consider earning money as the sole reason to perform well.
26) Which type of incentive plans are used to reward individual performance?
A) gainsharing
B) merit pay
C) Scanlon plan
D) profit sharing
E) stock ownership
27) Jewels & Co., a watch manufacturing company, provides wages to its employees based on
the number of watches the workers assemble. The more the employees assemble, the more they
earn. This type of plan is called a
A) piecework rate plan.
B) merit pay plan.
C) Scanlon plan.
D) profit-sharing plan.
E) rapid hour plan.
28) As an incentive to work efficiently, some organizations pay production workers ________, a
wage based on the amount they produce.
A) merit pay
B) a sales commission
C) standard hour pay
D) a piecework rate
E) a special bonus
29) Wayne Inc., a health insurance company, pays clerks an incentive based on the average
amount of work completed per hour. Wayne pays $10 for processing 20 invoices per hour. An
employee who processes 30 invoices would earn $15 per hour. Hence, Wayne pays the same rate
per invoice no matter how many invoices an employee processes per hour. Which type of
incentive pay does this scenario illustrate?
A) straight piecework plan
B) falling differential
C) rising differential
D) standard hour plan
E) straight commission plan
30) An employee at CellWorld who produces 10 phone components in an hour earns $9 ($0.90
×10) per hour, while another employee who produces 15 components earns $13.50 ($0.90 ×15).
This is an example of a
A) commission plan.
B) differential piece rate plan.
C) direct commission plan.
D) profit-sharing plan.
E) straight piecework plan.
31) ________ refers to incentive pay in which the wage paid is higher when a greater amount is
produced.
A) Profit sharing
B) Differential piece rate
C) Gainsharing
D) Scanlon pay
E) Merit pay
32) The differential piece rate system refers to
A) an incentive pay plan in which the employer pays the rate per piece based on the difference in
performance of employees.
B) a system that gives employees a bonus if the ratio of labor costs to the sales value of
production is below a set standard.
C) an incentive pay in which the piece rate is higher when a greater amount is produced.
D) a system of linking pay increases to ratings on performance appraisals.
E) an incentive pay plan where employees are paid different wages based on the skills they
possess.
33) Tucked Inc. is an envelope manufacturer based in Fort Worth. The employees of the
organization receive pay based on the amount of work produced. If the output of an employee is
more than the average production volume, then the organization pays more for the work
performed. In this case, which incentive is offered by Tucked Inc.?
A) differential piecework rate
B) minimum wage
C) merit pay
D) retention bonus
E) group bonus
34) Piecework rate plans are most suited for
A) innovative tasks.
B) non-standard jobs.
C) managerial jobs.
D) jobs with difficult-to-measure output.
E) routine jobs.
35) A piecework rate plan is best suited for
A) HR professionals.
B) executives.
C) production workers.
D) managers.
E) knowledge workers.
36) Trent owns and manages a small electronics repair store. He determines the time required by
his employees to complete each task assigned by him. When employees complete the repairs in
less time, they receive an amount of pay equal to that time determined by him. In this scenario,
Trent is using a
A) standard hour plan.
B) differential piecework plan.
C) merit pay plan.
D) straight piecework plan.
E) Scanlon plan.
37) Saturn Systems, an information technology company, determines that most problems
handled by employees at its help desk can be resolved within 20 minutes. The company sets 20
minutes as the standard time for resolving a customer problem. If an employee solves a
customer’s problem in less than 20 minutes, the employee still earns 20 minutes’ worth of wages.
Which payment method does this scenario illustrate?
A) piecework plan
B) differential plan
C) standard hour plan
D) merit pay
E) performance bonus
38) Which statement is true about standard hour plans?
A) They encourage employees to focus exclusively on customer service.
B) They succeed only for employees who are not motivated by money.
C) They encourage employees to focus mainly on quality.
D) In terms of their pros and cons, they are very different from piecework plans.
E) They encourage employees to work as fast as they can.
39) A standard hour incentive plan is likely to be successful if
A) most or all of a salesperson’s compensation is in the form of commissions.
B) employers keep labor costs to a minimum.
C) the pay increase is linked to ratings on performance appraisals.
D) employees want the extra money more than they want to work at a pace that feels
comfortable.
E) the organization values employee satisfaction, product quality, and customer service more
than profits.
40) An incentive system in which an organization links pay increases to ratings on performance
appraisals is referred to as
A) commissions.
B) the Scanlon plan.
C) merit pay.
D) gainsharing.
E) profit sharing.
41) Julie, the HR manager at Forge Corp., wants to ensure that incentive pay rewards the
individuals who contribute the most to the organization and whose contributions have grown
since their pay rates were originally set. She determines that she can best accomplish these goals
by paying an incentive amount based on individuals’ performance ratings and compa-ratios. In
this scenario, Julie would be applying the system of
A) merit pay.
B) piecework pay.
C) standard hour pay.
D) commissions.
E) attendance bonus.
42) To make merit increases consistent, administrators of merit pay programs must closely
monitor the compa-ratio and the
A) number of grades in the pay structure.
B) individual’s performance ratings.
C) number of new hires in the company.
D) company’s stock price in the current financial year.
E) average pay of the area where the organization is based.
43) In a company’s merit pay program, an individual’s compa-ratio represents
A) the individual’s pay relative to the individual’s performance rating.
B) the individual’s pay relative to company’s average pay for that position.
C) the individual’s worth versus that of others in the organization.
D) the ratio of the individual’s pay to benefits.
E) the average worth of the skills possessed by the individual.
44) Souped Inc., a firm that manufactures ready-to-eat soups, offers incentives based on an
employee’s performance rating and the employee’s compa-ratio. Which payment plan is
exemplified in this scenario?
A) piecework plan
B) merit pay
C) standard hour plan
D) differential plan
E) skill-based plan
45) ________ provides a method for rewarding performance in all of the dimensions measured in
the organization’s performance management system.
A) Differential piece rate
B) Standard hour plan
C) Merit pay
D) Piece rate
E) Commission
46) What is a disadvantage of a merit pay system?
A) It does not relate the rewards to economic conditions.
B) It cannot be used effectively with performance appraisals.
C) Comparative pay is not considered in its evaluation.
D) It does not provide rewards for performance in all the dimensions measured in the
organization’s performance management system.
E) It can quickly become expensive for the company.