chapter 12

According to research findings, when an organization changes from a pay strategy that has below average variability to one with above average variability, on average they will experience a return on assets of approximately

2%

Which of the following statements are true about agents in large, modern corporations?

Agents are expected to act on behalf of principals. Owners (principals) and managers (agents) are usually different people.

Which of the following are potential advantages of profit sharing plans?

Labor costs automatically decline during difficult economic times. Employees feel and act like owners, helping to make the organization more effective.

Which of the following statements is true about employee productivity?

Pay incentives increase productivity.

Which of the following differentiate between gainsharing and profit sharing plans?

Payouts in gainsharing plans are not deferred and are paid out more frequently. Gainsharing plans use group or plant-level performance rather than organization-level performance.

In measuring a team's performance, what potential drawbacks might be encountered?

Plans that do not recognize individual performance differences may demotivate top performers. Competition between individual team members may be reduced.

Which of the following are potential reasons that employees may react negatively to profit sharing plans not paying out during business downturns?

The amount of at-risk pay may be a large portion of the overall compensation plan for an employee earning relatively low levels of pay. They may not feel it is their fault the company is not doing well as they have continued to perform well in their jobs.

Some scholars using cognitive evaluation theory believe which of the following regarding extrinsic and intrinsic motivation?

They argue that monetary rewards might increase extrinsic motivation but decrease intrinsic motivation.

Which of the following statements are true?

What is best for the agent may not be best for the principal. What is best for the manager may not be best for the principal.

Which of the following are among the factors used in determining what type of contract an organization should use?

ability to pay outcome uncertainty job programmability

Which of the following encourage self-monitoring and peer monitoring?

an environment that fosters trust and cooperation monetary incentives

Extrinsic motivation is dependent on rewards that are under the control of __

an external source

Which of the following factors determine the size and frequency of pay increases on the merit increase grid?

an individual's performance rating an individual's compa-ratio

In order to address multiple objectives and track both financial results and progress made in expanding capabilities and acquiring intangible assets, organizations can take an approach known as a(n) _

balanced scorecard

Which of the following characteristics concerning pay-for-performance programs may help increase the probability that the program has the intended effects and decrease the probability of unintended consequences and problems? (Select all that apply.)

balancing of objectives careful alignment with organizational strategy careful alignment with human resource strategy

Contracts that generally do not result in a transfer of risk to the agent and, as such, do not require a wage differential are known as _______-based contracts.

behavior

When choosing a contracting scheme that helps align the interests of the agent and principal, the principal must choose between ______-oriented (such as merit pay) and ______-oriented (such as commissions and stock options) contracts.

behavior; outcome

The main influence of compensation is on instrumentality, which can be described as the perceived link between

behaviors and pay

What methods are used for informing employees about changes in company compensation?

brochures or websites that include scenarios for typical employees individual discussions with supervisors video messages from the chief executive officer

When making changes to the company's compensation system, ______ is vital to combat rumors and assumptions.

communication

When measuring performance, team award plans consider which of the following?

cost savings successful completion of product design meeting deadlines

According to W. Edwards Deming, rating individual performance is an unfair practice because _____

differences between workers are almost entirely the result of the system they work in rather than the people

Pay plans are used in part to do which of the following?

direct employee behavior control employee behavior energize employee behavior

Which type of plan not only provides stock ownership in the company to its employees but also potential tax and financial advantages to employers

employee stock ownership

Which of the following system factors exist beyond workers' control but help determine whether they receive merit pay?

equipment customers co-workers

When considering employee compensation, ______ theory is focused on the effects of incentives.

expectancy

Employees notice how some employees get paid differently, and their perceptions of ______ will influence their behaviors.

fairness

True or false: Individual incentive plans generally contribute to the development of a cross-trained, flexible, proactive, and efficient problem-solving workforce

false

Which type of program considers group or plant performance to determine incentive payouts, unlike profit sharing plans that use organization-level indicators

gainsharing

Which of the following can be combined to contribute to improvement over an array of performance dimensions?

gainsharing profit sharing merit pay

According to research, intrinsic motivation is ______ when extrinsic incentives are available

higher

When designing either managerial or nonmanagerial compensation, the central issue is determining

how agency costs can be minimized

Which of the following are suitable considerations for using a balanced scorecard to structure employee compensation?

how financial results are achieved nonfinancial measures financial results

In an outcome-oriented contract, when profits are high, compensation ______

increases

Employee performance can be measure at the ______ level

individual unit organizational

Payments are not added into base pay and must be continuously earned in ______ plans.

individual incentive

When organizations link pay to an employee's performance, they are likely to attract candidates who are

individualistic

What happens when a principal has imperfect information concerning the degree to which the agent is pursuing and achieving the principal's goals?

information asymmetry

According to agency theory, the likely agent of a business owner would be a(n) __

manager

Ownership in the company via stock options might be less motivational to employees because they

may not realize any financial gain until they sell the stock

Outcome-oriented contracts are more likely when outcomes are more ____

measurable

A grid that combines an employee's performance rating with his or her position within a pay range so as to determine the size and frequency of pay increases is known as the ______ grid.

merit increase

In order to make high performance more likely in the future, employers are well advised to ____

offer a monetary reward for high employee performance

Pay programs that recognize employee contributions differ depending on whether payouts are ______.

part of base pay a fixed cost variable

Employees are positively motivated by which of the following factors related to their jobs?

pay participation in decision making desire for control

Which of the following may be factors that give rise to agency costs?

principals and agents who have information asymmetry principals and agents who have goal incongruence

The compensation plan known as ______ involves payments being based on some measure of organizational performance, and the payments do not become part of the base salary.

profit sharing

It is important to pay high performers an amount they believe is equitable in order to ______ them.

retain attract motivate

In what type of plan are monetary bonuses paid to employees if the ratio of labor costs to the sales value of production is kept below a certain standard?

scanlon

Studies show that in most companies, executive pay is significantly aligned with

shareholder return

One way that employees can achieve ownership in the company they work for is via

stock options

Outcome-oriented contracts make some portion of executive pay contingent on what factors?

stock performance profitability

Which of the following conditions help gainsharing succeed?

strong levels of cooperation commitment to continuous improvement management commitment

When a company uses a balanced scorecard, it takes a(n) _______ approach to balancing objectives

structured

Which of the following make ESOPs attractive to organizations?

the defense they offer against takeovers their financing advantages their tax advantages

Which of the following increase with increasing incentive intensity?

the possibility of undesirable outcomes the chance of unintended consequences motivation

The process that matches people, over time, to jobs that fit their preferences, including reward preferences, and helps ensure that extrinsic incentives do not adversely affect intrinsic motivation, is known as ____

the sorting process