MGT of Compensation Chapter 10
Identify the findings of the study that involved 6 million employees across 275 firms conducted to analyze the impact of profit-sharing plans.
-Companies that used profit-sharing plans had 3.5-5.0 percent higher profits than companies that did not use these plans. -Productivity was higher in profit-sharing plans where payouts were made in the same year than in plans where the payment was deferred.
What are the disadvantages of group incentive plans?
-Compensation risk to employees increases due to lower income stability. -Line-of-sight may be reduced.
Instead of timing an entire task, _____ requires determination of the time required to complete each simple action of a task, and workers receive a wage incentive for completing a task in less than the standard time.
a Bedeaux plan
Which of the following offers a promise of pay for some predetermined, objective level of performance?
Individual incentive plans
Merrick plan (type of individual incentive plan)
This plan establishes three piecework rates: one that is high, for production in excess of 100 percent of a standard; a second that is medium, for production between 83 and 100 percent of the standard; and a third that is low, for production lower than 83 percent of the standard.
Cash profit sharing (objectives of variable pay plans)
To educate employees about the way in which a business operates
What are the two dimensions along which individual incentive plans vary?
-The method of rate determination -The specified relationship between production level and wages
A(n) ____ ____ system links increases in base pay, or merit increases, to how highly employees are rated on a performance evaluation.
merit pay
Capability-focused measures (factors of categories of performance measures)
Turnover rates, employee satisfaction, promotability index, total recruitment costs, distribution systems, rate of progress on developmental plans, and patents, copyrights, or regulations
Identify the alternatives in the dimensions along which individual incentive plans are categorized.
-Pay is a constant function of production level. -Pay varies as a function of production level. -A rate is based on the time period per unit of production. -A rate is based on units of production per time period.
Identify the primary types of gain-sharing plans.
-The Rucker plan -The Scanlon plan -Improshare
Identify the advantages of group incentive plans.
-They improve organization and individual performance. -They signal that cooperation is a desired behavior.
Financially focused, shareholder return measures (factors of that types of performance measures focus on)
Earnings per share, growth in profitability, return on invested capital, and return on sales or earnings
The Halsey 50-50 method (types of incentive plans)
In this plan, any savings from the completion of a task in less than an established standard time is equally divided between the worker and the employer.
What is the main issue with defining teams in a group incentive plan at a very broad level?
Incentives can lose much of their motivational impact.
Identify a disadvantage of individual incentive plans.
It is hard to find objective individual measures.
How does having a variety of teams within an organization affect group compensation plans?
It makes it difficult to use a single consistent type of compensation plan.
How should an organization with a variety of teams deal with group compensation plans?
It should offer different compensation approaches for different types of teams.
Identify a drawback of profit-sharing plans.
Most employees believe that their jobs do not directly impact profits.
High risk or reward (risk levels for long-term incentive plans)
Premium-priced stock options, indexed stock options, and performance-vested stock options
Identify a difference between success-sharing plans and risk-sharing plans.
Risk-sharing plans reduce base pay, while success-sharing plans do not.
Identify a characteristic of individual spot awards.
They are awarded immediately after an individual performs exceptionally.
Medium risk or reward (risk levels for long-term incentive plans)
Time-vested stock options, performance-vested restricted stock, and performance-accelerated stock options
Balanced scorecard (objectives of variable pay plans)
To recruit best-quality employees when the future of an organization is highly uncertain
Many critics of merit pay argue that it _____.
does not improve performance
An argument in favor of using merit pay states that merit pay _____.
has a significant impact on performance
A(n) ____ plan provides a variation on straight piecework and standard hour plans and requires division of a task into simple actions and determination of the time required by an average skilled worker to complete each action.
Bedeaux
Recent evidence indicates that the incentive effect of broad-based option plans (BBOPs) is relatively large, and strengthens as the number of employees included grows.
False (There is growing evidence that the incentive effect of broad-based option plans (BBOPs) is relatively small, and declines as the number of employees included grows. The smaller size of the effect in larger plans is due to the free rider effect.)
Variable-pay plans always have a positive impact on performance.
False (Too often variable-pay plans have unattainable or too easy goals, too small a payout for the work expected, too many metrics, or outdated or inaccurate metrics.)
Employers are using variable-pay plans to motivate employees to adapt to new technologies, work processes, and work relationships at an unparalleled speed so that the employers can _____.
prevent market share from going to competitors
What are the ways in which individualized incentive plans have an advantage over payment by time?
-They enable more accurate estimation of labor costs. -They require less direct supervision to maintain output.
Performance-accelerated stock option (long-term incentives)
An option with a vesting schedule that can be reduced if certain performance criteria are met
Productivity/gain sharing (objectives of variable pay plans)
To reward employees for betterments in activities that they control
Why should companies avoid defining very small teams in a group incentive plan?
-Teams hesitate to take on new employees for the fear of losing time in training them. -Equalizing for difficulty across teams when assigning rewards becomes difficult. -Teams refuse transfer of star performers.
Scanlon plan (types of gain-sharing plans)
A plan designed to reduce labor costs without lowering the level of a firm's activity
_____ are stock grants that a company gives employees over a designated time period.
Broad-based option plans
Balanced scorecard (disadvantages of variable-pay plans)
It can be complicated.
Communications (measures organizations need to take for problematic areas in team compensation)
Organizations need to ensure that any group incentive plan they implement is transparent in order to build employee trust.
Complexity (measures organizations need to take for problematic areas in team compensation)
Organizations need to ensure that their group incentive plans draw a clear connection between employees' effort and the rewards they receive.
Rucker plans (features of types of gain-sharing plans)
They link incentives to a wide variety of savings.
Scanlon plans (features of types of gain-sharing plans)
They link incentives to labor savings only.
Low risk or reward (risk levels for long-term incentive plans)
Time-based restricted stock, performance-accelerated restricted stock, and stock purchase plans
Which of the following are increased by individual incentive plans to the detriment of an organization?
-Mistrust between employees and management -Conflict between quantity-oriented workers and quality-concerned managers -Complaints about the poor maintenance of equipment that hinders workers' efforts -Turnover among new workers discouraged by the resistance of experienced workers to cooperate in on-the-job training
Which of the following incentive plans provide for variable incentives as a function of units of production per time period?
-The Taylor plan -The Merrick plan
What are the advantages of individualized incentive plans?
-They increase productivity. -They increase workers' earnings. -They decrease production costs.
Identify the true statements about the implementation of Rucker or Scanlon plans
-Worker committees are required to analyze employee and management suggestions for ways to increase productivity and/or cut costs. -Effective measurement of base-year data requires an organization to keep extensive records of past cost relationships.
Improshare (types of gain-sharing plans)
A plan in which any savings arising from production of agreed-upon output in fewer-than-expected hours is shared by a company and its employees
Rucker plan (types of gain-sharing plans)
A plan that uses a ratio that expresses the value of production required for each dollar of total wage bill to decide worker incentive bonuses
Time-based restricted stock (long-term incentives)
An award of shares that are received, in reality, only after the completion of a predetermined service period
Performance-vested stock option (long-term incentives)
An option that vests only when a predetermined performance objective is attained
Indexed stock option (long-term incentives)
An option whose exercise price depends on peer companies' experiences with stock prices
What are the three Cs that lead to major problems with team compensation?
Complexity, control, and communications
In which type of incentive plan might the standard of comparison for determining incentives be an expected level of operating income for a division in an organization?
Group incentive plans
What has driven American firms to use variable pay in order to increase productivity and cut costs?
High competition from foreign producers
The Rowan plan (types of incentive plans)
In this plan, an employee's bonus increases as the time needed to complete a task decreases.
The Gantt plan (types of incentive plans)
In this plan, the standard time for a task is deliberately set at a level that needs a lot of effort to achieve. For any task completed in standard time or less, earnings are set at 120 percent of the time saved.
Identify an outcome of employee stock ownership plans (ESOPs).
Increased employee willingness to take part in decision making
Productivity/gain sharing (disadvantages of variable-pay plans)
It can have unintended consequences, such as quality drop-off.
Cash profit sharing (disadvantages of variable-pay plans)
It has limited motivational impact.
Stock ownership or options (disadvantages of variable-pay plans)
It may require employees to put up money to exercise grants.
For merit pay to achieve its goals, what change does an organization need to make?
It needs to enhance the accuracy of performance ratings.
Performance-accelerated restricted stock (long-term incentives)
Restricted stock granted only after specified performance objectives have been attained
Internal process-focused measures (factors of categories of performance measures)
Safety rates, cost-allocation ratios, program implementation, budget-to-actual expenses, accuracy or error rates, teamwork effectiveness, reliability or rework, and service or quality index
Taylor plan (type of individual incentive plan)
This plan sets two piecework rates; one that is more than the regular wage and is for when production exceeds an established standard for a set time period, the second that is less than the regular wage and is for when production falls below standard.
Merit pay has been criticized for _____.
being too expensive
One of the major advantages of a standard piecework plan is that _____.
employees can easily comprehend it
____-____ ____ focus on performance beyond the one-year time line used as the cutoff for short-term incentive plans.
long-term incentives
One of the purposes of employee stock ownership plans (ESOPs) is to _____.
tie employees to the success or failure of an organization
In which individual incentive system is rate determination based on units of production per time period and wages vary directly as a function of production level?
A straight piecework plan
Which of the following is also known as lump-sum bonuses and are earned by employees every year?
Merit bonuses
Financially focused, value creation measures (factors of that types of performance measures focus on)
Resource yields, revenue growth, profit margins, and economic value added
Performance-vested restricted stock (long-term incentives)
Stock granted to employees upon attainment of specified performance objective(s)
Individual plan (situations that types of incentive plans should be used in)
This type of plan should be chosen when the labor mix and production methods are relatively constant.
Group plan (situations that types of incentive plans should be used in)
This type of plan should be chosen when the production methods and labor mix need to adapt to meet changing pressures.
For merit pay to live up to its potential, managers need to ensure that _____.
the size of the merit increase distinguishes across all performance levels
Stock purchase plan (long-term incentives)
The opportunity to purchase shares of company stock either at prices below market price or with favorable financing
Time-vested stock option (long-term incentives)
The right to buy stock at a specified price for a fixed time period
Pay-for-performance plans that introduce variability into the amount of pay employees receive can only be effective if _____.
they are designed well
_____ is a generic term for plans setting the incentive rate based on completion of a task in some expected time period.
A standard hour plan
Customer-focused, customer satisfaction measures (factors of that types of performance measures focus on)
Customer satisfaction, market share, customer growth and retention, and account penetration
Customer-focused, time-to-market measures (factors of that types of performance measures focus on)
New product introductions, on-time delivery, and cycle time
Control (measures organizations need to take for problematic areas in team compensation)
Organizations need to ensure that performance measures are fair and that a team has the ability to produce results.
In ____ ____ plans, a standard is established against which group performance is compared to determine the magnitude of incentive pay the group will receive.
group incentive
Payouts awarded to an individual for performance that greatly exceeds expectations or for exceptional performance on special projects are known as _____.
spot awards
A(n) ____ ____ plan is a generic term for plans setting the incentive rate based on completion of a task in some expected time period.
standard hour
The most commonly used individual incentive system is a _____.
straight piecework system
Unlike group plans, individual incentive plans should be chosen when _____.
supervisors are considered to be unbiased
Team/group incentives (objectives of variable pay plans)
To reiterate the need for employees to work together to obtain results
The _____ is defined as employee salary divided by salary range midpoint.
compa-ratio
Both Scanlon and Rucker plans primarily focus on _____.
organizational behavior variables
One of the arguments for merit pay is that it creates a sorting effect that _____.
creates a workforce that is more responsive to merit rewards
Identify the components that are essential for the implementation and success of a Rucker or Scanlon plan.
-A productivity norm -Effective worker committees
Identify the incentive plans that provide for variable incentives tied to a standard expressed as a time period per unit of production.
-The Gantt plan -The Halsey 50-50 method -The Rowan plan
A(n) ____ ____, or a lump-sum bonus, is an end-of-year bonus that is based on employee or company performance and does not build into base pay.
merit bonus
MobiRise Corp., an automobile company, reduced base pay by 10 percent in year one. This 10 percent was replaced with a 0.25 percent increase in base pay for every 1 percent rise in productivity beyond 80 percent of the prior year's productivity. MobiRise's incentive plan is an example of a _____.
risk-sharing plan
Stock ownership or options (objectives of variable pay plans)
To recruit best-quality employees when the future of an organization is highly uncertain
An alternative to combination plans that is often preferred by CEOs who do not like to make payouts when a company loses money is _____.
a self-funding plan
____-____ ____specify that payouts only occur after a company reaches a certain profit target, following which variable payouts for individual, team, and company performance are triggered.
self-funding plan
One of the disadvantages of individualized incentive plans is that employees _____.
tend to resist employers' attempts to introduce new technology
