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Chapter 10: Pay-for-Performance: Incentive Rewards
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1. Historically, incentive plans have not been a major element of strategic compensation management.
a.
True
b.
False
ANSWER:
False
2. The performance threshold in incentive plans is the name given to the amount awarded to an employer.
a.
True
b.
False
ANSWER:
False
3. Incentive plans can create an organizational environment of shared commitment since individuals contribute to
organizational success.
a.
True
b.
False
ANSWER:
True
4. Meshing compensation and organizational objectives help employees assume ownership of their jobs, which can, in
turn, improve their effort and overall job performance.
a.
True
b.
False
ANSWER:
True
5. More than 80 percent of companies globally are offering variable pay programs.
a.
True
b.
False
ANSWER:
True
6. For incentive plans to work effectively, employees must see a clear connection between the incentive payments they
receive and their performance.
a.
True
b.
False
ANSWER:
True
7. Management must be careful to ensure that incentive payments are viewed as both a reward and an entitlement.
a.
True
b.
False
ANSWER:
False
8. Incentive plans may fail because employees have little ability to affect performance standards.
a.
True
b.
False
ANSWER:
True
9. Incentive plans based on productivity can reduce labor costs.
a.
True
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Chapter 10: Pay-for-Performance: Incentive Rewards
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b.
False
ANSWER:
True
10. Robix wants to be known as a leader in first-to-market for new technology, so employees are rewarded for the speed
by which they develop new products. Their incentive plan is tied to an organizational goal.
a.
True
b.
False
ANSWER:
True
11. Employees on the production line at Robix are paid based on the number of units that roll off their line each day.
Because they receive a specified payment for each unit, they are paid under a straight piecework program.
a.
True
b.
False
ANSWER:
True
12. Under a differential piece rate, employees whose production performance exceeds the standard output receive a higher
rate for all of their work than the rate paid to those who do not exceed the standard.
a.
True
b.
False
ANSWER:
True
13. Under a straight piecework plan, if five minutes is the standard time to produce one unit and the employee’s hourly
rate is $7.50. The piece rate is $1.50 per unit.
a.
True
b.
False
ANSWER:
False
14. Major advantages of piecework systems are that the wage payment is simple to compute, and an organization can
predict labor costs with reasonable accuracy.
a.
True
b.
False
ANSWER:
True
15. Fixed pay is more flexible than variable pay.
a.
True
b.
False
ANSWER:
False
16. Piecework may be inappropriate where technology changes are frequent.
a.
True
b.
False
ANSWER:
True
17. Generally, a bonus plan does not become part of an employee’s base pay.
a.
True
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Chapter 10: Pay-for-Performance: Incentive Rewards
Page 3
b.
False
ANSWER:
True
18. The standard hour plan provides bonus payment for completing work in less than the specified time.
a.
True
b.
False
ANSWER:
False
19. Standard hour plans are based on specific production standards set for individual jobs.
a.
True
b.
False
ANSWER:
False
20. In order to make sure that the pay they give their executives is similar to that of similar companies, Robix can use
competitive benchmarking.
a.
True
b.
False
ANSWER:
True
21. Robix has established rewards based on group contributions. In order to do this effectively, they should measure
performance without considering the contributions of other teams and they should use this system when work is
organizationally interdependent.
a.
True
b.
False
ANSWER:
False
22. A spot bonus is usually given for some employee effort that is not directly tied to an established performance standard.
a.
True
b.
False
ANSWER:
True
23. Unlike a bonus, a merit raise may be perpetuated year after year even when performance declines.
a.
True
b.
False
ANSWER:
True
24. Merit pay plans have been criticized because the merit increase may not be sufficient to raise all employees’ base pay.
a.
True
b.
False
ANSWER:
True
25. A problem often encountered with merit raises is that employees may not believe that their compensation is tied to
effort and performance, and they may not be able to differentiate between merit pay and other types of pay increases.
a.
True
b.
False
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Chapter 10: Pay-for-Performance: Incentive Rewards
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ANSWER:
True
26. Noncash incentive awards are most effective as motivators when the award is tied to performance and supports the
firm’s goals
a.
True
b.
False
ANSWER:
True
27. The operation of a merit pay plan depends on the effectiveness of the performance appraisal system.
a.
True
b.
False
ANSWER:
True
28. Under the Scanlon plan or Improshare program, psychological ownership can play a stronger role than financial
ownership in employee performance.
a.
True
b.
False
ANSWER:
True
29. Robix has an employee stock ownership plan. In this plan, the employees own shares of stock, but they do not actually
buy them.
a.
True
b.
False
ANSWER:
True
30. Generally, an employee stock ownership plan is more likely to serve its intended purposes in privately held companies
than in publicly held ones.
a.
True
b.
False
ANSWER:
False
31. Twice a year, Robix pays all of its regular employees a bonus that is based on the firm’s profits in the previous six
months. This is an example of a profit sharing plan.
a.
True
b.
False
ANSWER:
True
32. An advantage of using a straight salary plan to compensate sales employees is that employees are paid for performing
only sales effort.
a.
True
b.
False
ANSWER:
False
33. The compensation of salespeople at Robix fluctuates each pay period, as the amount each person receives is
determined solely as a percentage of his or her sales. They are paid according to a straight commission plan.
a.
True
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Chapter 10: Pay-for-Performance: Incentive Rewards
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b.
False
ANSWER:
True
34. The percentage of cash compensation paid out in commissions is called a draw.
a.
True
b.
False
ANSWER:
False
35. The salespeople at Robix are compensated under a straight commission plan. Because their compensation rate is not
fixed, one way to help them avoid any personal cash flow problems is to allow them a salary draw.
a.
True
b.
False
ANSWER:
True
36. An analysis of executive salaries shows that the largest portion of executive pay is received in long-term incentive
rewards and bonuses.
a.
True
b.
False
ANSWER:
True
37. Executive base salaries represent between 10 and 20 percent of total annual compensation.
a.
True
b.
False
ANSWER:
False
38. One drawback to straight commission plans is that they may induce salespeople to grant price concessions.
a.
True
b.
False
ANSWER:
True
39. Annual bonuses represent the main element of executive short-term incentives.
a.
True
b.
False
ANSWER:
True
40. The principal reason behind executive stock options as an incentive is for senior managers to have a significant stake
in the success of a business.
a.
True
b.
False
ANSWER:
True
41. Stock options are rights attached to the achievement of specific organizational objectives.
a.
True
b.
False
ANSWER:
False
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Chapter 10: Pay-for-Performance: Incentive Rewards
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42. A major criticism of short-term incentives for executives is that they place too much emphasis on monthly or quarterly
performance, which may lead to negligence of long-term survival and growth objectives.
a.
True
b.
False
ANSWER:
True
43. Perquisites are special nonmonetary benefits given to executive employees.
a.
True
b.
False
ANSWER:
True
44. When the team developing the XLR at Robix brought it in under budget, team members received a bonus. The amount
each individual received varied based on salary level. In this situation, the team bonus was paid out in proportion to their
relative contribution to the team.
a.
True
b.
False
ANSWER:
False
45. When the team developing the XLR at Robix brought it in under budget, team members received a bonus. The amount
each individual received varied based on their role in cutting development costs. In this situation, the team bonus was paid
out in proportion to their relative contribution to the team.
a.
True
b.
False
ANSWER:
True
46. Robix wants to increase employee job satisfaction and improve customer awareness. One way they could accomplish
this is by instituting a gainsharing plan.
a.
True
b.
False
ANSWER:
False
47. The idea behind the Scanlon plan is that employees should offer ideas to improve productivity and, in turn, be
rewarded for those ideas.
a.
True
b.
False
ANSWER:
True
48. Robix uses an incentive payout that is based upon increases in sales volume. Robix is using a Scanlon plan.
a.
True
b.
False
ANSWER:
False
49. Robix senior management has as one of its goals to promote interaction and support between management and
employees, as they feel that this would improve productivity and, ultimately, company profitability. Robix should
consider an Improshare plan.
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Chapter 10: Pay-for-Performance: Incentive Rewards
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a.
True
b.
False
ANSWER:
True
50. Robix senior management wants to use an incentive plan that will allow all Robix employees to benefit from the plan’s
payout. This means they should be looking at enterprise incentive plans.
a.
True
b.
False
ANSWER:
True
51. In most profit-sharing plans, about 20 to 25 percent of net profits are shared with employees.
a.
True
b.
False
ANSWER:
True
52. A weakness of profit-sharing plans is that employees do not have total control over the profitability of an organization.
a.
True
b.
False
ANSWER:
True
53. Profit-sharing plans have limited motivational value as payments are only made once a year or deferred until
retirement.
a.
True
b.
False
ANSWER:
True
54. Robix has a stock option program, which means that it rewards employees’ performance by giving them shares of
stock.
a.
True
b.
False
ANSWER:
False
55. In an effort to increase employee productivity, Robix has initiated a stock option program. This means that for a
limited period of time, employees will be able to purchase some shares of stock in Robix as a set price.
a.
True
b.
False
ANSWER:
True
56. By using employee stock ownership plans, employers can provide retirement benefits for their employees at a
relatively low cost.
a.
True
b.
False
ANSWER:
True
57. Employers use stock ownership incentive plans to give employees a share in the company’s success.
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a.
True
b.
False
ANSWER:
True
58. ESOPs have been criticized because a pensioner can become dependent on the stock price.
a.
True
b.
False
ANSWER:
True
59. Employees are comfortable with the employee stock ownership plan because the federally established Pension Benefit
Guaranty Corporation guarantees them their contribution to the plan.
a.
True
b.
False
ANSWER:
False
60. The performance threshold in incentive pay programs is
a.
the minimum level an employee must reach in order to qualify for fixed pay.
b.
the minimum level an employee must reach in order to qualify for variable pay.
c.
an organizational objective that signifies profitability.
d.
a customized incentive plan which measures employee output and rewards exceptional employee performance.
ANSWER:
b
61. Contemporary reasons given by organizations for implementing incentive plans are
a.
improving or maintaining high levels of productivity.
b.
focusing employee efforts on specific performance targets.
c.
linking compensation rewards to the achievement of results.
d.
all of the above.
ANSWER:
d
62. Enterprise incentive plans include
a.
the Scanlon plan.
b.
improshare.
c.
stock options.
d.
sales incentives.
ANSWER:
c
63. Robix Industries has announced the rollout of a new incentive program for its production team. A baseline of
performance has been established based upon actual production numbers from the last six quarters. If productivity exceeds
that deadline in a quarter, 80 percent of the money that is saved will be given to the employees. What type of plan is this?
a.
Profit sharing
b.
Stock option
c.
Perquisite
d.
Gain sharing
ANSWER:
d
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Chapter 10: Pay-for-Performance: Incentive Rewards
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64. Group incentive plans include
a.
straight salary plan.
b.
improshare.
c.
straight commission plan.
d.
profit sharing.
ANSWER:
b
65. Which of the following is NOT an advantage of an incentive pay program?
a.
Incentives focus employee efforts on specific performance targets.
b.
Incentives are a way to increase equity and justice in an organization.
c.
Incentives are a way to distribute success among those not responsible for producing that success.
d.
Incentives are a means to reward or attract top performers when salary budgets are low.
ANSWER:
c
66. Which of the following is NOT one of the reasons why variable pay plans may not achieve their proposed objectives
or lead to organizational improvements?
a.
Failure of incentive plans to satisfy employee expectations for pay gains
b.
Employment of employee and management committees to gain cost-reduction improvements
c.
Failure of management in giving adequate attention to the design and implementation of a plan
d.
Limited ability of employees to affect performance standards
ANSWER:
b
67. When setting performance measures for incentive systems, we can say that the best measures are those that
a.
are quantitative, simple to understand, and show a clear relationship to improved performance.
b.
are qualitative, flexible, and create competition between employees.
c.
allow employers to “ratchet up” standards and base rewards on qualitative standards.
d.
reduce administrative costs, determine rewards based only on quantity, and reward only exceptional
employees.
ANSWER:
a
68. According to Sammer, which of the following is NOT a characteristic of a successful incentive plan?
a.
Identify important organizational metrics that encourage employee behavior.
b.
Involve employees and have incentive programs that seem fair to employees.
c.
Find technically detailed, quantitative, and extremely thorough payout formulas.
d.
Establish a clear link between performance and payout.
ANSWER:
c
69. __________ is the single word that best describes the design of individual incentive plans.
a.
Motivation
b.
Comprehensiveness
c.
Flexibility
d.
Consistency
ANSWER:
c
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Chapter 10: Pay-for-Performance: Incentive Rewards
Page 10
70. Employees on the T13 production line at Robix are paid a set rate for each unit produced. They are working under the
__________ incentive plan.
a.
differential piece rate
b.
standard piece rate
c.
straight piecework
d.
individual rate pay
ANSWER:
c
71. Employees on the XL27 production line at Robix whose work exceeds a standard level of output receive a higher rate
of pay than those whose work meets the standard. They are working under the __________ incentive plan.
a.
differential piece rate
b.
standard piece rate
c.
exception bonus rate
d.
individual rate pay
ANSWER:
a
72. A worker at Robix paid under a straight piecework rate made $12.75 an hour this week. If each unit took the employee
twelve minutes to produce, the piece rate is __________ per unit.
a.
$1.95
b.
$2.55
c.
$2.95
d.
$3.15
ANSWER:
b
73. A study on bonus versus actual pay raises showed that improving one’s pay through merit increases by 1 percent
would increase future performance by __________ percent.
a.
2
b.
5
c.
8
d.
10
ANSWER:
a
74. Research shows that a merit increase in the range of __________ is necessary to serve as a pay motivator.
a.
3 to 5 percent
b.
7 to 9 percent
c.
11 to 13 percent
d.
15 to 17 percent
ANSWER:
b
75. Rate busting refers to
a.
an increase in productivity due to external competition.
b.
an increase in output that results in the disapproval of fellow employees.
c.
setting incentive performance standards for employees.
d.
a decrease in productivity due to lack of motivation.
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Chapter 10: Pay-for-Performance: Incentive Rewards
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ANSWER:
b
76. Piecework is appropriate when
a.
technology changes are frequent.
b.
quality is more important than quantity.
c.
productivity standards are difficult to develop.
d.
a job is fairly standardized.
ANSWER:
d
77. Raj likes to give small rewards to employees “caught in the act” of doing something good, even if that effort is not
directly tied to a performance standard. When he does this, Raj is making use of a
a.
piece rate plan.
b.
differential piece rate.
c.
merit pay.
d.
spot bonus.
ANSWER:
d
78. The pay for employees on the KRX line at Robix is not based on the actual amount of time it takes them to complete a
job. Rather, they are paid based on a predetermined amount of time for completing the job. These employees are working
under the
a.
piece rate plan.
b.
standard hour plan.
c.
time division plan.
d.
completion pay system.
ANSWER:
b
79. A reward given to a consumer service representative who put in extra effort to fill a new customer’s large order, even
though this was not specifically tied to the employee’s performance standards, is a
a.
piece rate.
b.
differential piece rate.
c.
merit pay.
d.
spot bonus.
ANSWER:
d
80. In 2011, a study by the American Psychological Association found that __________ of employees feel they receive
inadequate nonmonetary awards and recognition for their contributions at work.
a.
16 percent
b.
25 percent
c.
34 percent
d.
43 percent
ANSWER:
d
81. Steph works in a company that uses a piecework system. She is an extremely efficient and is capable of producing
more units per hour. However, she monitors the productivity rate of her colleagues and is careful to never work at a faster
pace than them. Steph is limiting her own productivity to avoid