Chapter 12

Under a profit sharing system, payments are ______.

not part of base salary

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

Which of the following focuses on how employee compensation can be used to align the divergent interests and goals of an organizations' various stakeholders?

agency theory

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

expectancy

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

higher

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

individualistic

Which of the following are design features that potentially help differentiate pay-for-performance programs? (Select all that apply.)

payment method ways of measuring performance frequency of payout

Which of the following may be factors that give rise to agency costs? (Select all that apply.)

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

The effect pay has on workforce composition is known as a(n) ______.

sorting effect

Merit pay, or merit bonuses, is a form of ______ pay.

variable

Which of the following are potential advantages of profit sharing plans? (Select all that apply.)

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 are potential reasons individual incentives are relatively rare? (Select all that apply.)

They may result in employees doing only what they are getting paid for and little or nothing else. Many jobs have no physical output to measure.

True or false: Merit pay exists in most organizations.

True

True or false: Organizations that use profit sharing plans may not have to rely on layoffs as much to reduce costs during economic downturns.

True

Which of the following statements are true? (Select all that apply.)

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.

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

an external source

When used well, pay plans have ______.

an incentive effect

It is important to pay high performers an amount they believe is equitable in order to ______ them. (Select all that apply.)

attract motivate retain

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

Organizations should choose a pay strategy in the context of how effectively it will further the organization's ______.

business strategy

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.)

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

Which of the following system factors exist beyond workers' control but help determine whether they receive merit pay? (Select all that apply.)

co-workers equipment customers

Which of the following conditions help gainsharing succeed? (Select all that apply.)

commitment to continuous improvement strong levels of cooperation management commitment

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

communication

According to agency theory, monitoring would be cheaper and more effective if ______.

conducted by employees

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

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

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

fairness

The strength of the relationship between pay and performance is known as ______.

incentive intensity

A key drawback to outcome-oriented contracts is that they tend to ______ the agent's risk.

increase

For the modern corporation, ownership is nearly always separate from ______.

management

Outcome-oriented contracts are more likely when outcomes are more ______.

measurable

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

offer a monetary reward for high employee performance

Which of the following are among the factors used in determining what type of contract an organization should use? (Select all that apply.)

outcome uncertainty job programability ability to pay

In agency theory, a business's principal is typically a(n) ______.

owner

Employees are positively motivated by which of the following factors related to their jobs? (Select all that apply.)

pay participation in decision making desire for control

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

Outcome-oriented contracts make some portion of executive pay contingent on what factors? (Select all that apply.)

profitability stock performance

According to the law of effect, rewards make responses ______.

recur in the future

The fact that most profit sharing plans are deferred tends to ______.

reduce their motivational impact

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

Unlike merit pay, individual incentives are rarely based on ______.

subjective ratings

Which of the following make ESOPs attractive to organizations? (Select all that apply.)

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

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

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 can a principal do to overcome the information asymmetry issue that exists with behavior-based contracts? (Select all that apply.)

Add more supervisors Link pay partly to outcomes Invest in monitoring

Which of the following statements are true about agents in large, modern corporations? (Select all that apply.)

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

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

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

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

False

Which of the following differentiate between gainsharing and profit sharing plans? (Select all that apply.)

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

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 is true about employee productivity?

Pay incentives increase productivity.

Which of the following are potential reasons that employees may react negatively to profit sharing plans not paying out during business downturns? (Select all that apply.)

They may not feel it is their fault the company is not doing well as they have continued to perform well in their jobs. 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.

Which of the following encourage self-monitoring and peer monitoring? (Select all that apply.)

an environment that fosters trust and cooperation monetary incentives

Which of the following factors determine the size and frequency of pay increases on the merit increase grid? (Select all that apply.)

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

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

Pay plans are used in part to do which of the following? (Select all that apply.)

direct employee behavior control employee behavior energize employee behavior

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

gainsharing

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? (Select all that apply.)

how financial results are achieved nonfinancial measures financial results

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

increases

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

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

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

individual incentive

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

When measuring performance, team award plans consider which of the following? (Select all that apply.)

meeting deadlines cost savings successful completion of product design

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

Which of the following can be combined to contribute to improvement over an array of performance dimensions? (Select all that apply.)

merit pay profit sharing gainsharing

Which of the following increase with increasing incentive intensity?

motivation the possibility of undesirable outcomes the chance of unintended consequences

Employee performance can be measure at the ______ level. (Select all that apply.)

organizational individual unit

Pay programs that recognize employee contributions differ depending on whether payouts are ______. (Select all that apply.)

part of base pay a fixed cost variable

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

structured