47) Which statement is true of a performance bonus?
A) It is designed to reward group performance.
B) It should be re-earned by employees during each performance period.
C) It is rolled into base pay and provided yearly or monthly.
D) It lacks flexibility and hence it is less popular.
E) It is exclusively linked to subjective ratings, rather than objective performance measures.
48) Retention bonuses refer to
A) the special reward programs used to satisfy the lower- and middle-level managers.
B) the bonuses provided to union members to withhold a strike.
C) the bonuses provided to employees who take long leaves without pay.
D) annual incentives paid to daily wage workers to remain in the organization.
E) one-time incentives paid in exchange for remaining with the company.
49) When Airborne Aircraft acquired Bell Airplanes, the executives of the two companies
identified key employees they needed for the combined companies’ success. One of them was
Patrick, the vice president of engineering. The executives offered Patrick a one-time bonus of
$25,000 if he stayed with the company for 12 months following the acquisition. In this scenario,
Patrick’s $25,000 represents
A) a commission.
B) a retention bonus.
C) stock options.
D) merit pay.
E) a differential piece rate.
50) When an employee’s pay is calculated as a percentage of sales, it is referred to as
A) commissions.
B) gainsharing.
C) a merit plan.
D) a variable wage plan.
E) profit sharing.
51) Straight commission plans are plans that
A) provide a straight salary to employees.
B) are useful when the organization wants salespeople to concentrate on listening to customers.
C) are used to attract risk-averse employees.
D) are common among insurance and real estate agents.
E) are uncommon among car salespeople.
52) What is most likely a consequence of paying most or all of a salesperson’s compensation in
the form of commissions?
A) It encourages the salesperson to focus on closing the sale.
B) It frees the salesperson to focus on developing customer goodwill.
C) It encourages teamwork over individual performance.
D) It makes the employee appreciate the reward as the reward relates to economic conditions.
E) It will quickly become expensive for the employer.
53) Which incentive plans are specifically designed to promote group performance?
A) performance bonuses
B) gainsharing
C) standard hour plans
D) merit pay
E) commissions
54) QVT Financial, an auditing firm, distributes a portion of the profits resulting from
improvements in productivity and efficiency among its employees. If the company enjoys an
improvement of $45,000, 60 percent of the improvement is the company’s share. The other 40
percent is distributed among the employees in the company. What is being exemplified in this
scenario?
A) profit rate
B) gainsharing
C) commission sharing
D) merit gain
E) group bonus
55) Organizations that want employees to focus on efficiency and on group incentives are most
likely to implement a ________ program.
A) gainsharing
B) standard hour
C) bonus
D) commission
E) piece rate pay
56) ________ is a group incentive program that measures improvements in productivity and
effectiveness and distributes a portion of each gain to employees.
A) Profit rate
B) Gainsharing
C) Commission sharing
D) Merit rate
E) Group bonus
57) Paul, the HR manager at Carletta & Co., is trying to implement an effective group incentive
plan that measures increases in productivity and effectiveness and distributes a portion of its
earnings to all employees. In this case, Paul should apply the incentive scheme of
A) piecework rate.
B) gainsharing.
C) sales commission.
D) merit pay.
E) ESOPs.
58) West End Hospital was concerned about rising costs for patients who have surgery for joint
replacement. It tried rewarding staff in any quarter they met targets for lower use of supplies, but
costs continued to rise. An investigation showed that one source of costs was the readmission of
patients who experienced infections after surgery. The human resource department proposed
setting up a gainsharing program with an effectiveness measure related to reducing infections.
Which statement about gainsharing best supports this recommendation?
A) With gainsharing, employees are freed to collaborate on how to improve performance.
B) Gainsharing creates a competitive environment, so employees will try to outdo one another.
C) Gainsharing is appropriate because the jobs in this case are simple, and so are the
performance standards.
D) Gainsharing will narrow employees’ focus to the key aspects of their individual jobs and
rewards.
E) The success of gainsharing requires management acceptance of employee input.
59) For five years, Mainstream Production Systems offered $500 bonuses to individuals who
identified ways to reduce costs by at least $1,000 per year. In the first year of that incentive
program, 23 employees earned the bonus, but last year, only 7 submitted ideas, and only two of
the ideas would actually save more than a few dollars. The company’s HR director suggests that
the company is likely to see more improvement if it replaces individual incentives with a
gainsharing plan. Which statement best supports this argument?
A) Gainsharing succeeds regardless of whether employees understand how performance is
measured.
B) Gainsharing is likely to succeed under almost any organizational conditions.
C) Gainsharing broadens employees’ horizons beyond the range of activities they can influence.
D) Gainsharing measures oversimplify the complex responsibilities of production work.
E) Gainsharing expands employees’ thinking beyond their individual interests.
60) What common condition is necessary for gainsharing to be successful in an organization?
A) employees who value working in groups
B) employers who do not set short-term goals for employees
C) work environment with minimum management commitment
D) employees who prefer minimum interaction and cooperation
E) low levels of cooperation and interaction
61) The CEO of Workforce asked the human resource manager, May, to propose an approach to
incentive pay. May proposes that the company create a gainsharing plan. What action(s) by the
company will best increase the likelihood that gainsharing will succeed?
A) hiring employees who prefer to work alone and equipping them with cost data
B) sharing data about costs and setting up time for employees to interact
C) indicating that failure to achieve goals will lead to job cuts
D) using incentive pay as a substitute for goal setting and performance standards
E) promoting continuous improvement and limiting time spent on personal interactions
62) Developed in the 1930s, the Scanlon plan is a variation of a(n)
A) profit-sharing plan.
B) gainsharing plan.
C) merit pay plan.
D) individual bonus.
E) commission plan.
63) A multinational organization uses a gainsharing program in which employees receive a
bonus if the ratio of labor costs to the sales value of production is below a set standard. This
incentive plan is referred to as
A) a group bonus.
B) merit pay.
C) the Scanlon plan.
D) a piecework rate.
E) a team award.
64) What should employees typically do to earn bonuses under the Scanlon plan?
A) They should produce products at a rate much higher than the standard production time.
B) They should create goodwill with customers and close as many sales as possible.
C) They should follow a defined set of quality standards to produce the desired outcome.
D) They should keep labor costs to a minimum and produce as much as possible with that
amount of labor.
E) They should improve their performance year after year so that they re-earn the bonus during
each performance period.
65) The Henry-Bell organization uses the Scanlon plan to provide incentives to its employees.
The workers produce electrical components worth $5 million. The target ratio set by the
organization is 30 percent. The employees will be given a bonus if the actual labor costs are less
than
A) $0.5 million.
B) $1 million.
C) $1.5 million.
D) $2 million.
E) $2.5 million.
66) What is the difference between bonuses and team awards?
A) Bonuses are for bigger work groups, whereas team awards are for small teams.
B) Unlike bonuses, team awards encourage cooperation.
C) Bonuses are usually given to employees who meet deadlines, whereas team awards are given
only when the team as a whole meets the targets.
D) Unlike team awards, bonuses encourage competition among individuals.
E) Bonuses reward attainment of a specific goal, whereas team awards reward performance
measured more broadly.
67) Team awards differ from group bonuses in that they
A) are typically plant-wide group incentive programs.
B) make payments in company stock rather than in cash.
C) are more likely to use a broad range of performance measures.
D) encourage competition among individual employees to achieve higher bonuses.
E) give more importance to organizational performance than small groups’ performances.
68) What is a disadvantage of using group bonuses?
A) Physical outputs are not rewarded.
B) It reduces the level of cooperation between the members of the group.
C) The performance measures used are narrow.
D) It could result in competition among groups.
E) It cannot be used to promote specific goals.
69) In which condition is it an advantage when group incentives encourage competition between
groups of employees?
A) when concern for costs obscures customer service
B) when groups try to outdo one another in satisfying customers
C) when competition replaces cooperation to meet company goals
D) when competition for sales obscures the importance of ethical behavior
E) when performance goals consider only one objective, such as sales growth
70) ________ is a type of incentive pay in which payments are a percentage of an organization’s
profits and do not become part of its employees’ base salary.
A) Merit pay
B) Gainsharing
C) Group bonus
D) Profit sharing
E) Commission
71) What is an organization-level incentive plan that is intended to motivate employees to align
their activities with the organization’s goals?
A) profit sharing
B) gainsharing
C) merit pay
D) group bonus
E) Scanlon plan
72) Which of the following best describes profit sharing?
A) a gainsharing program in which employees receive a bonus if the ratio of labor costs to the
sales value of production is below a set standard
B) incentive pay in which payments are a percentage of the organization’s profits and do not
become part of the employees’ base salary
C) a group incentive program that measures improvements in productivity and effectiveness and
distributes a portion of profit to employees
D) a combination of performance measures directed toward the company’s profit and used as the
basis for awarding incentive pay
E) an incentive plan where a percentage of the previous year’s profits is provided to the
employees as a part of their salary
73) Which incentive plan would enable its employees to think like owners, taking a broad view
of what they need to do in order to make the organization more effective?
A) merit pay
B) gainsharing
C) the Scanlon plan
D) performance bonuses
E) profit sharing
74) Chris, the CEO of an automobile company, believes that profit sharing has increased the
productivity of his organization. He feels that an incentive plan motivates employees to be more
productive. Which statement strengthens Chris’ argument?
A) In a profit-sharing plan, employees are the owners of the organization.
B) Profit sharing helps employees to cooperate and focus on organizational interests.
C) Profit sharing makes employees workaholics.
D) In profit sharing, employees contribute their base salary for the development of the
organization.
E) Profit sharing benefits employees even if the organization makes less profit or no profit.
75) Leonard, the manager of a manufacturing firm, wants the organization to perform better. He
expects his employees to think more like owners, taking a broad view of what they need to do in
order to make the organization more effective. In this case, Leonard should
A) pay his employees per piece that is manufactured.
B) create a balanced scorecard.
C) reorganize the departments in the organization.
D) implement a profit-sharing incentive plan.
E) hire new employees and pay them above the market rate.
76) Identify the disadvantage of using profit-sharing plans.
A) They cannot be used to improve the organization’s performance as a whole.
B) The employees may develop a narrow view of their roles in the organization.
C) They cost more when the organization experiences financial difficulties.
D) Sharing profit with the employees ultimately reduces the organization’s profitability.
E) Profit sharing is not directly linked to individual behavior.
77) What is the drawback of stock ownership as a form of incentive pay?
A) Financial benefits mostly come when the employee leaves the organization.
B) Employees have the right to participate in votes by shareholders, hence reducing the
negotiating power of the employer.
C) It causes the employers to lose control over their employees.
D) The employees will not benefit even if the organization is performing well.
E) Stock options do not provide any ownership to employees, instead offering an equivalent sum.
78) The link between employees’ performance and pay is hardest to establish in
A) piece rate plans.
B) merit pay plans.
C) standard hour plans.
D) stock ownership plans.
E) Scanlon plans.
79) If a company distributes stock to employees by granting stock options, employees exercise
the option when they
A) purchase the stock.
B) sell the stock.
C) retain the stock.
D) distribute the stock.
E) liquidate the stock.
80) Which statement is true of using stock options as incentive pay?
A) The use of stock options ensures that managers add value in terms of efficiency and customer
satisfaction.
B) Stock options require an option holder to purchase the organization’s stocks at its present
market rate.
C) Stock options are rewarding for employees who exercise their option when the company’s
stock value has risen.
D) Low-level employees with stock options are more likely to think like owners than executives
who have stock options.
E) A company’s performance in the stock market tends to be significantly better if its low-level
employees are provided stock options.
81) Alyssa, the financial officer at Doone & Smithfield, encourages the human resource manager
to consider using stock options as incentive pay for all employees. The human resource manager
cautions that employees could become upset if the options don’t turn out to be as valuable as
cash. Which statement supports this concern?
A) Stock options are not profitable to employees.
B) Option owners must exercise the options, no matter what the market price.
C) Employees may not purchase their employer’s stock.
D) Offering stock options discourages employees from thinking like owners.
E) Stock prices in the market may fall below the exercise price of the options.
82) In 2018, a company employee received an option to purchase the company’s stock at $45 per
share. If the stock is trading at $40 a share in 2020, the employee will most likely
A) exercise the option, receiving a gain of $5.
B) exercise the option, receiving a gain of $40.
C) not bother to exercise the options.
D) buy the stock at $45 per share.
E) sell the shares to a third party slightly above the market price.
83) Which of the following is an arrangement in which the organization distributes shares of
stock to all its employees by placing it in a trust?
A) stock options
B) employee stock ownership plan
C) Scanlon plan
D) collective stock options
E) profit-sharing plan
84) Franklin Appliances Inc. is an electrical appliances manufacturing company. It distributes
shares of stock to its employees by placing the stock in a trust managed on the employees’
behalf. What is Franklin Appliances using in this scenario?
A) Scanlon plan
B) balanced scorecard
C) piecework stock plan
D) employee stock ownership plan
E) differential piece stock plan