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a.
differentiation.
b.
free-riding.
c.
favoritism.
d.
rate busting.
ANSWER:
d
82. To minimize the problems of merit raises, organizations should use
a.
labor market comparisons.
b.
employee input.
c.
merit guidelines.
d.
the opinions of several managers.
ANSWER:
c
83. Robix is launching a new incentive plan for individual pay. To increase its chances for success, the plan should
measure
a.
work that is independent of others’ contribution.
b.
work that is organizationally interdependent.
c.
without considering effects of the environment.
d.
based on personalities and political preferences.
ANSWER:
a
84. The straight commission plan is limited by all of the following disadvantages EXCEPT that
a.
salespeople will stress low-priced products.
b.
customer service after the sale is likely to be neglected.
c.
earnings tend to fluctuate widely between good and poor periods of business.
d.
salespeople are tempted to grant price concessions.
ANSWER:
a
85. A grant of units equal in value to fair market value or book value of a share of stock is known as
a.
stock appreciation rights.
b.
a stock purchase.
c.
restricted stock.
d.
phantom stock.
ANSWER:
d
86. A cash or stock award determined by increase in stock price during any time chosen by the executive in the option
period, which does not require executive financing is known as
a.
phantom stock.
b.
stock appreciation rights.
c.
restricted stock.
d.
performance shares.
ANSWER:
b
87. In most profit-sharing plans, about __________ of the net profit is shared.
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a.
5 to 10 percent
b.
10 to 15 percent
c.
15 to 20 percent
d.
20 to 25 percent
ANSWER:
d
88. Robix is launching a set of new incentive plans, based on individual, group, and enterprise pay. While each plan will
have unique features, one thing that all plans should have in common is to measure
a.
work that is independent of others’ contribution.
b.
work that is organizationally interdependent.
c.
in a way that shows a relationship between work and performance.
d.
without considering contributions of other teams.
ANSWER:
c
89. A sales incentive plan that permits salespeople to be paid for performing various duties not reflected immediately in
their sales volume is known as a
a.
merit plan.
b.
straight salary plan.
c.
lump-sum merit pay.
d.
standard hour plan.
ANSWER:
b
90. According to the National Center for Employee Ownership, in 2016 approximately __________ organizations have
employee stock ownership plans (ESOP) for their employees.
a.
3,500
b.
7,000
c.
11,500
d.
17,500
ANSWER:
b
91. Salespeople at Julee’s are compensated based on a percentage of sales. This is known as a
a.
straight ratio plan.
b.
straight salary plan.
c.
straight commission plan.
d.
straight bonus plan.
ANSWER:
c
92. Robix is investigating ways to incentivize professional employees who engage in more complex tasks. The most
effective incentives will include all of the following EXCEPT
a.
autonomy to the employee.
b.
the opportunity to master a new skill.
c.
purpose.
d.
reward for completing a task.
ANSWER:
d
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93. Executive compensation consists of all of the following EXCEPT
a.
base salary.
b.
proficiency adjustments.
c.
perquisites.
d.
short-term incentives.
ANSWER:
b
94. Executive base salaries represent between __________ percent of the total annual compensation.
a.
10 and 20
b.
20 and 30
c.
30 and 40
d.
40 and 50
ANSWER:
c
95. The greatest influence on executive base salary is most likely
a.
the amount of short-term incentives received.
b.
the amount of long-term incentives received.
c.
the levels of competitive salaries in the job market.
d.
the time spent in the occupation.
ANSWER:
c
96. When computing executive pay, many organizations are tying __________ to traditional financial gauges.
a.
performance markers
b.
global standards
c.
application rewards
d.
balanced scorecards
ANSWER:
d
97. Management should guard against incentive payments being seen as
a.
too competitive.
b.
equitable.
c.
variable.
d.
an entitlement.
ANSWER:
d
98. Long-term incentive plans in which rights are granted to executives to purchase shares of their company’s stock at a
fixed price for a fixed period of time are known as
a.
stock options.
b.
stock grants.
c.
restricted stocks.
d.
performance shares.
ANSWER:
a
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99. Which plan provides opportunities for executives to purchase shares of their organization’s stock valued at full market
or a discounted price?
a.
Stock options
b.
Stock appreciation rights
c.
Stock purchase
d.
Phantom stock
ANSWER:
c
100. Which of the following is an individual type of incentive plan?
a.
Improshare
b.
Lump sum merit pay
c.
Stock options
d.
Employee stock ownership plans
ANSWER:
b
101. Some of the benefits that Robix gives to its CEO and other top executives as a way to attract and retain talented
individuals include chauffeurs, country club memberships, and special vacation policies. These are known as
a.
executive rewards.
b.
perquisites.
c.
golden parachutes.
d.
assigned benefits.
ANSWER:
b
102. The compensation committee at Robix needs to justify its large executive compensation packages. They might use all
of the following arguments EXCEPT
a.
effective executives create shareholder value.
b.
good executive talent is in great demand.
c.
the pay gap between the CEO and employees builds credibility.
d.
large incentives reward superior performance.
ANSWER:
c
103. A major concern of executive compensation involves
a.
timing of the bonus.
b.
the amount of compensation.
c.
lack of perquisites.
d.
lack of objective market data.
ANSWER:
b
104. Group incentive plans do all of the following EXCEPT
a.
enable employees to share the benefits of improved efficiency.
b.
encourage cooperation.
c.
reduce free-ride effect.
d.
reward employees for total contribution to organizational performance.
ANSWER:
c
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105. A problem with creating team incentive plans is that
a.
they encourage negativity rather than cooperative behavior.
b.
not all teams that are created are alike.
c.
they don’t enable employees to share efficiency gains.
d.
they pay only when agreed-upon standards are met or exceeded.
ANSWER:
b
106. Team incentive bonuses may be paid out in all of the following ways EXCEPT by distributing it
a.
equally among team members.
b.
proportion to each member’s base pay.
c.
proportion to each member’s relative contribution to the team.
d.
on the basis of individual performance appraisal.
ANSWER:
d
107. Robix has a robust incentive program that rewards employees generously for completing tasks ahead of schedule
and/or under budget. They have found, however, that this plan does not motivate certain employees. Of the following
groups, the employees not motivated by this plan are most likely
a.
engineers.
b.
order-fulfillment specialists.
c.
clerical workers.
d.
assembly-line workers.
ANSWER:
a
108. __________ is a bonus incentive plan which uses employee and management committees to gain cost-reduction
improvements.
a.
Piecework
b.
The Rucker plan
c.
The Scanlon plan
d.
Improshare
ANSWER:
c
109. The philosophy behind the Scanlon plan is that
a.
employees should make suggestions to improve performance and be rewarded for their contributions.
b.
organizational profits should improve through sales efforts.
c.
managers and employees should establish quality and quantity goals for optimum organizational performance.
d.
rewards should be shared with employees based on improved profits.
ANSWER:
a
110. Robix uses a bonus plan that is based on overall group productivity. The determination of a bonus includes both
production employees and nonproduction. Which type of gainsharing program is being used?
a.
Profit sharing
b.
The Rucker plan
c.
Improshare
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d.
The Scanlon plan
ANSWER:
c
111. Profit sharing refers to any procedure by which an employer pays employees
a.
an incentive based on their merit.
b.
an incentive based on labor cost savings.
c.
a bonus based on the overall productivity of their particular work group.
d.
current or deferred sums based on the organization’s financial performance.
ANSWER:
d
112. The purpose of a profit-sharing plan is to
a.
allow workers to contribute specific knowledge to improving the organization.
b.
give employees the opportunity to increase their earnings.
c.
enable workers to share in labor cost savings.
d.
instill commitment to the employee’s immediate work group.
ANSWER:
b
113. The success of the Lincoln Electric Company profit-sharing plan rests largely on
a.
contributions by employees.
b.
objective standards.
c.
comparison data between departments.
d.
economics of the review period.
ANSWER:
a
114. The disadvantages of profit sharing include all of the following EXCEPT that
a.
payments may lose their motivational value as they are made only once a year.
b.
plans may not pay off for several years in a row.
c.
effective profit sharing plans require a second HR program.
d.
employee morale could drop during time periods after no bonus has been given.
ANSWER:
c
115. Robix notified all employees that for the next 60 days, employees can purchase up to 200 shares of stock in the
company at the price at which it closed at the end of yesterday’s trading day, which was $38, regardless of any price
fluctuations in the market. Robix is using __________ to incentivize its employees.
a.
bonuses
b.
stock options
c.
benefits
d.
perquisites
ANSWER:
b
116. ESOPs can qualify as tax-exempt employee trusts under section __________ of the Internal Revenue Code.
a.
402(a)
b.
457(k)
c.
401(a)
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d.
407(k)
ANSWER:
c
117. The advantages of employee stock ownership plans include all of the following EXCEPT that
a.
employers are able to provide retirement benefits to employees at a relatively low cost.
b.
employees’ pensions are less vulnerable due to diversification.
c.
employee stock ownership plans can increase employees’ pride of ownership.
d.
employee stock ownership plans can provide an incentive for employees to increase productivity.
ANSWER:
b
118. A major problem of employee stock ownership plans is that
a.
motivation of employees is rarely achieved.
b.
employees view it as a form of management control.
c.
it places employees’ pensions at risk.
d.
it can be damaging to the financial well-being of an organization.
ANSWER:
c
119. The CFO at Robix has been incentivized with a stock option that can only be exercised after a three-year vesting
period. This is known as
a.
competitive benchmarking.
b.
a golden handcuff.
c.
the free-rider effect.
d.
rate busting.
ANSWER:
b
120. Noncash incentive rewards are most effective as motivators when the award is
a.
a complete surprise to the recipient.
b.
combined with a meaningful employee recognition program.
c.
increased every year it is given.
d.
tailored to individual employees.
ANSWER:
b
121. Robix just developed a complex incentive system in which the rewards provide purpose, as well as give autonomy to
the workers and offer them the opportunity to master a skill. This new system was most likely designed to
a.
be an enterprise system.
b.
incentivize groups.
c.
attract manufacturing workers.
d.
reward professionals.
ANSWER:
d
122. The most widely used sales incentive program is the __________ plan.
a.
straight salary
b.
straight commission
c.
combined salary and commission
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d.
commission plus bonus
ANSWER:
c
123. Briefly explain three individual incentive plans.
ANSWER:
(Students should discuss three of the following four plans.)
Piecework is one of the oldest incentive plans. When piecework is used, employees receive a certain rate for
each unit they produce. Their compensation is then determined by the total number of units they produce
during a given pay period. The piecework system is easier to implement and is more likely to succeed when
output can be easily measured, the quality of the product is less critical, the job is fairly standardized, and a
constant flow of work can be maintained. Piecework has the advantage of motivating employees who want to
increase their earnings. Although piecework has advantages, it is limited in that it cannot be used for certain
types of jobs, such as where individual contributions are difficult to distinguish or where employees have little
control over output as a result of mechanization. In addition to this limitation, piecework may not be an
effective motivator at all times. For example, employees may not exert maximum effort if they feel it will lead
to disapproval from co-workers.
The standard hour plan is an incentive technique that sets incentive rates based on a predetermined “standard
time” for completing a job. If employees finish the work in less time than expected, they are still paid based on
the standard time for the job multiplied by their hourly rate. Standard hour plans are easily suited to operations
with a long cycle or to jobs that are nonrepetitive and require a variety of skills. While standard hour plans
motivate employees to produce more, quality may suffer if employees become careless and do their work too
fast.
A bonus is an incentive that is given to an employee beyond one’s normal base wage. Bonuses do not become
part of case payments. They can be paid out on the basis of cost reduction, quality improvements, or other
performance criteria.
Merit pay is normally given on the basis of an employee having achieved some objective performance
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Chapter 10: Pay-for-Performance: Incentive Rewards
from being rated outstanding or above average, managers may be required to distribute the performance rating
according to some preestablished formula (such as only 10 percent can be rated outstanding). Additionally,
when setting merit percentage guidelines, organizations should consider individual performance along with
such factors as training, experience, and current earnings.
125. Identify the principal methods for compensating salespersons and the advantages of each method.
ANSWER:
Compensation plans for sales personnel may consist of a straight salary plan, a straight commission plan, or a
combination salary and commission plan. The straight salary plan allows salespeople to be paid for performing
duties not reflected immediately in their sales volume. It enables them to devote time to providing services and
building customer goodwill without jeopardizing their income. A limitation of this plan is that employees may
not be motivated to maximize their sales volume.
The straight commission plan bases compensation on a percentage of sales. This plan provides maximum
incentive and is relatively easy to compute and understand. However, disadvantages of this type of plan
include an emphasis on sales volume instead of profits. In addition, customer service after the sale is likely to
be a lower priority.
When a combination salary and commission plan is used, the percentage of cash compensation paid out in
commissions is called leverage. Leverage is a ratio of base salary to commission. The amount of leverage is
determined after considering the constraining factors affecting performance. The combination plan has the
advantages of both the straight salary and the straight commission plans, with few disadvantages.
126. Briefly describe the Scanlon plan.
ANSWER:
The Scanlon plan enables employees who offer ideas and suggestions that improve productivity to be
rewarded for these suggestions. The plan allows employee participation primarily through shop committees
established in each department. These committees consider production problems and make suggestions for
improvement within their respective departments to an organization-wide screening committee. Both of these
committees are composed of an equal number of employees and managers. The screening committee reviews
the data that serve as the basis for monthly bonuses, in addition to acting on suggestions received from the
shop committees and advising top management. An established formula, based on increases in employee
productivity as determined by a norm that has been established for labor costs, serves as the basis for financial
incentives. The plan may also establish a reserve fund to be distributed at the end of the year to employees
according to the same formula.
127. What are the pros and cons of high executive pay?
ANSWER:
Pros: Large financial incentives reward superior performance.
Business competition is pressure filled and demanding.
Good executive talent is in great demand.
Effective executives create value for shareholders and organization’s.
Cons: High executive salaries and benefits look bad in an era of massive downsizing, low
wage increases, and increased workloads for layoff survivors. Cries for performance
accountability and openness abound.
128. Discuss the advantages of incentive pay programs.
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(quantity and/or quality) are met, incentives are paid. If objectives are not achieved, incentives are
withheld.
• Incentives foster teamwork and unit cohesiveness when payments to individuals are based on team
results.
• Incentives are a way to distribute success among those responsible for producing that success.
• Incentives are a way to increase equity and justice in an organization.
• Incentives are a means to reward or attract top performers when salary budgets are low.