Chapter 13 Recognizing Employee Contributions with Pay

Pay for Individual Performance

-piecework rates -standard hour plans -merit pay -individual bonuses -sales commissions

A gainsharing plan is more likely to succeed when an organization features which of the following components? (Select all that apply)

-specific goals employees who -enjoy working as a team -committed managers

Incentive Pay

Forms of pay linked to an employee's performance as an individual, group member, or organization member.

Employee participation in pay-related decisions can contribute to the success of an incentive pay plan under what conditions? (Select all that apply.)

-When the incentives encourage employees to monitor their performance. -When the organization fosters trust and cooperation.

Incentive pay based on a percentage of sales is called _____.

a commission

Janine works as a seamstress at a tailor shop and sews buttons on clothing. She earns $2 for each item she completes. Her pay is an example of ____.

a piecework rate

Some companies adopt a set of performance measures that focus on the company's long and short term goals. This system of awarding incentive pay is called a _____.

balanced scorecard

Which of the following is a useful approach in designing executive pay?

balanced scorecard

A standard hour plan is a ______-oriented plan.

quantity

Compared to gainsharing plans, group bonuses are typically designed for _____.

smaller work groups

Which of the following conditions are important for success in gainsharing? Choose all that apply.

-employment security -goal setting -management encouragement of employee input

Stock ownership plans usually take the form of ______. (Select all that apply)

-stock options -employee stock ownership plans (ESOP)

What are two examples of a long-term incentive used for executives?

-stock purchase plan -stock options

Balanced Scorecard

A combination of performance measures directed toward the company's long-and-short-term goals & used as the basis for awarding incentive pay.

Merit Pay

A system of linking pay increases to ratings on performance appraisals.

Employee Stock Ownership Plan (ESOP)

An arrangement in which the organization distributes shares of stock to all its employees by placing it in a trust.

Standard Hour Plan

An incentive plan that pays workers extra for work done in less than a preset "standard time".

Gainsharing

Group incentive program that measures improvements in productivity & effectiveness objectives & distributes a portion of each gain to employees.

Forms of pay that are linked to an employee's performance as an individual, group member or organization member are called _____ pay.

Incentive

Jake's sales team earned a 5% bonus for meeting its goals last quarter. This bonus is an example of _____.

Incentive

Commissions

Incentive pay calculated as a percentage of sales.

Profit Sharing

Incentive pay in which payments are a percentage of the organization's profits & to not become part of the employees' base salary.

Straight Piecework Plan

Incentive pay in which the employer pays the same rate per piece, no matter how much the worker produces.

Differential Piece Rates

Incentive pay in which the piece rate is higher when a greater amount is produced.

Why is it important to communicate with employees about their pay plan? (Select all that apply.)

It increases the chances that incentives will influence employee behavior as desired. It demonstrates that the pay plan is fair.

An incentive system that gives a raise to employees who rank high on performance appraisals is called _____ pay.

Merit

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

What is the difference between performance bonuses and merit pay?

Performance bonuses are not built into base pay.

Piecework Rate

Rate of pay for each unit produced.

Which of the following are examples of short-term incentives used for executives?

Return on investment Bonus based on profits

Stock Options

Rights to buy a certain number of shares of stock at a specified price.

Which type of incentive plan would involve the employer paying the same amount per piece regardless of how much the worker produces?

Straight piecework plan

Which statement is accurate regarding performance bonuses?

They must be re-earned by employees during each performance period.

What is using a standard hour plan as incentive for production workers?

Workers may not worry about quality or customer service.

What is the most common form of employee ownership?

an ESOP plan

Incentive pay is typically based on _____.

an employee's performance

What is a stock option?

an incentive in which the employee is granted the right to buy shares of the company at a specified price

Organizations establish and revise merit increase grids based on ______.

changing economic conditions

Lori is a realtor and earns 5% on the sale of each house. Her pay is an example of a _____.

commission

Caroline works in a candy production plant. If she fills at least 10 boxes of candy in an hour, she earns $1 for each box, but if she fills more than 10 boxes, she earns $1.50 per box. This demonstrates the idea of a _____ piece rate.

differential

Incentive pay in which a piece rate is higher when a greater amount is produced is called a _____.

differential piece rate

Giuseppa works for a company that distributes shares of stock to all the employees by placing the stock in a trust. Her company has a(n) ______ ownership plan.

employee stock

Incentive plans often work best when ______.

employees are involved in crafting the plan itself.

For which type of job is a gainsharing plan most useful?

for a complex job

A group incentive program that measures improvements in productivity and distributes a portion of the profits to each employee is called _____.

gainsharing

When executive pay includes stock or stock options, companies need to be aware of the possibility of _____.

insider trading

What is the disadvantage of offering bonuses for group performance?

may prevent cooperation among groups within the organization

At her last performance review, Marlo received a 4% pay increase because she had met all of the goals her manager had set for her the previous year. Her pay increase is an example of _____ pay.

merit

Under a profit sharing system, payments are ______.

not part of base salary

Stock ownership plans make employees ______.

part owner's of the organization

Under a ______ plan, an employer pays an employee a specific amount of money for every unit produced by the employee.

piece rate plan

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

Stock options are given to ______.

provide incentives for employees to work harder

Tyrone is the chief financial officer for a bank holding company and received a bonus last year based on the company's profits. He is not sure if he will get a bonus this year as the company is not doing as well financially. His bonus is an example of _____ incentive pay.

short-term

Samira makes necklaces. Her buyer pays her $50 per necklace. This is an example of a(n) ______.

straight piecework plan

In one study, employees said that in addition to being paid more money, the most important factor that prompted them to participate in the company's incentive plan was ______.

the ability to affect the way their work was done

Since there are advantages and disadvantages for all types of incentive pay, organizations offset the disadvantages by ______.

using a balanced scorecard approach

When is it most important to communicate with employees about a pay plan?

when the plan changes

It is important that incentive pay plan meet which of the following requirements? (Select all that apply.)

-Employees value the reward offered. -The organization can provide resources employees need to achieve their goals. -The performance measures will help achieve the company's goals.

Incentive pay sometimes presents executives with significant ethical issues. Incentives linked to stock performance can lead to which of the following ethical issues? (Select all that apply.)

-Executives dishonestly raising the price of stock and thereby obtaining a bonus and stock option -Scandal that damages the company's reputation

What are some risks associated with involving employees in pay-related decisions? (Select all that apply.)

-The process of creating and administering incentive plans can become more complex. -Employees may make decisions that benefit them but not the organization.