Comp & Benefits Chapter 10

An argument in favor of using merit pay states that merit pay: a. has a significant impact on performance b. does not need to involve base pay c. is easily given as it is a spot reward d. is the least expensive of all variable-pay plans

a

Cash profit sharing disadvantage

It may be considered an entitlement and has limited motivational impact

Communications

Organizations need to ensure that any group incentive plan they implement is transparent in order to build employee trust

Identify a characteristic of individual spot awards: a. they are awarded once a year at the end of an organization's financial year b. they are awarded to all employees in an organization on the basis of corporate performance c. they are awarded immediately after an individual performs exceptionally d. they are awarded for every year that an employee stays with the employer

c

The most commonly used performance measure for large team incentive plans has historically been: a. financially focused measures b. capability-focused measures c. time-to-market measures d. internal process-focused measures

a

A ________ ________ system links increases in base pay, or merit increases, to how highly employees are rated on a performance evaluation.

merit pay

Identify the advantages of group incentive programs. (Select all that apply) a. they reduce turnover of individual top performers b. they improve organization and individual performance by about 5 to 10 percent per year c. they may make it easier for employees to see how their individual performance affects their incentive payouts d. they may motivate employees to increasingly participate in decision-making processes

b, d

What are the ways in which individualized incentive plans have an advantage over payment by time? (Select all that apply) a. they eliminate the prioritizing of quantity over quality b. they allow labor costs to be estimated more accurately c. they elevate levels of trust between workers and management d. they require less direct supervision to maintain output

b, d

For merit pay to live up to its potential, managers need to ensure that: a. the sorting effect leaves behind people who do not want their pay tied to performance b. merit increases are equal across all performance levels to promote employee satisfaction c. the amount of merit increase distinguishes between performance levels d. they allocate as little merit money as possible to their merit pay programs

c

What are the advantages of individualized incentive plans? (Select all that apply) a. they increase workers' trust of management b. they decrease quality concerns c. they increase workers' earning d. they decrease production costs e. they increase productivity

c, d, e

Performance-vested restricted stock

Stock granted to employees upon attainment of specified performance objectives

Cash profit sharing objective

To educate employees about the way in which a business operates

Balanced scorecard objective

To focus employees on the need to raise shareholder value

Productivity/gain sharing objective

To reward employees for betterments in activities that they control

Control

Organizations need to ensure that performance measures are fair and that a team has the ability to influence them

Internal process-focused 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

Time-vested stock option

The right to buy stock at a specified price for a fixed time period

Which of the following helps an organization when there are no profits? a. a high base pay plan b. recruiting more employees c. promoting more employees d. a variable pay plan

d

A ________ _________ plan is a generic term for plans setting the incentive rate based on completion of a task n some expected time period.

standard hour

________-________ _________ focus on performance beyond the one-year time line used as the cutoff for short-term incentive plans.

Long-term incentives

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

Capability-focused measures

Turnover rates, employee satisfaction, promotionability index, total recruitment costs, distribution systems, rate of progress on developmental plans, and patents, copyrights, or regulations

Stock purchase plan

The opportunity to purchase shares of a company stock either at prices below market price or with favorable financing

Productivity/gain sharing disadvantage

It can have unintended consequences, such as a quality drop-off

Customer-focused, customer satisfaction measures

Customer satisfaction, market share, customer growth and retention, and account penetration

Straight piecework plan

Individual incentive system whose rate determination is based on units of production per time period and wages vary directly as a function of production level

Identify a disadvantage of individual incentive plans: a. it is hard to find objective individual measures b. it is unreasonable to expect employees to meet measurable standards c. it is difficult to monitor individuals' performance d. it is impossible to establish a standard for employee performance

a

__________ are stock grants that a company gives employees over a designated time period. a. broad-based option plans b. merit bonuses c. gain-sharing plans d. spot awards

a

Performance-accelerated restricted stock

Restricted stock granted only after specified performance objectives have been attained

What is the main issue with defining teams in a group incentive plan at the very broad level? a. teams refuse to take on and train new employees b. incentives can lose much of their motivational impact c. teams refuse to allow the transfer of star performers d. incentives can become too individualized to be of any good

b

Individual plan

This type of plan should be chosen when the labor mix and production methods are relatively constant

Performance-vested stock option

An option that vests only when a predetermined performance objective is attained

Indexed stock option

An option whose exercise price depends on peer companies experience with stock prices

Performance accelerated stock option

An option with a vesting schedule that can be reduced if certain performance criteria are met

Balanced scorecard disadvantage

It can be complicated

Stock ownership or options disadvantage

It may require employees to put money up to exercise grants

Complexity

Organizations need to ensure that their group incentive plans draw a clear connection between employees' effort and the rewards they receive

_______-________ __________ 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

Stock ownership or options objective

To recruit best-quality employees when the future of an organization is highly uncertain

One of the purposes of employee stock ownership plans (ESOPs) is to: a. tie employees to the success or failure of an organization b. reduce employee involvement in an organization c. emphasize short-term gain d. control labor costs

a

What are the disadvantages of group incentive plans? (Select all that apply) a. compensation risk to employees increases due to lower income stability b. line-of-sight may be reduced c. decision-making may become restricted to the top management d. individual performance suffers at the hand of team performance

a, b

How does having a variety of teams within an organization affect group incentive plans? a. it makes it impossible to use group incentive plans in the organization b. it makes it difficult to use a single consistent kind of incentive plan c. it makes it hard to look at different compensation approaches for different teams d. it makes it impractical to set different standards of performance for different teams

b

Which of the following offers a promise of pay for some predetermined, objective level of performance? a. merit bonuses b. individual incentive plans c. lump-sum bonuses d. merit pay plans

b

Why should companies avoid defining very small teams in a group incentive plan? (Select all that apply) a. facilitating communication between all team members becomes impossible b. teams hesitate to spend time training new employees c. team members will not be convinced that their effort can affect the team's overall performance d. equalizing for difficulty across teams when assigning rewards becomes difficult e. teams refuse to allow the transfer of star performers

b, d, e

Merit pay has been criticized for: a. lacking standards b. being too arbitrary c. neglecting base pay d. being too expensive

d

MobiRise Corp., an automobile company, reduced base pay by 10% in year 1. The 10% was replaced with a 0.25% increase in base pay for every 1% rise in productivity beyond 80% of the prior year's productivity. MobiRise's incentive plan is an example of: a. standard hour plan b. reverse incentive plan c. success-sharing plan d. risk-sharing plan

d

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

Team/group incentives objective

To reiterate the need for employees to work together to obtain results

Time based restricted stock

An award of shares that are received, in reality, only after the completion of a predetermined service period

T/F: 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

T/F: Variable-pay plans always have a positive impact on performance.

False

________-_________ _________ are a type of group incentive plan in which employees share in a company's gains.

Gain-sharing plans

Group plan

This type of plan should be chosen when the production methods and labor mix need to adapt to meet changing pressures

Financially focused, shareholder return measures

Earnings per share, growth in profitability, return on invested capital, and return on sales or earnings

Customer-focused, time-to-market measures

New product introductions, on-time delivery, and cycle time

Financially focused, value creation measures

Resource yields, revenue growth, profit margins, and economic value added

Identify the alternatives in the dimensions along which individual incentive plans are categorized. (Select all that apply) a. base pay remains the same but other wage components are increased b. pay varies as a function of production level c. pay is a constant function of production level d. a rate is based on units of production per time period e. a rate is based on the time period per unit of production f. base pay is increased but other wage components remain the same

b, c, d, e

Which of the following are increased by individual incentive plans to the detriment of an organization? (Select all that apply) a. mistrust between employees and management b. inability to accurately estimate labor costs c. complaints about the poor maintenance of equipment that hinders workers' efforts d. conflict between quantity-oriented workers and quality-oriented managers e. turnover among new workers discouraged by experienced workers' resistance to on-the-job training f. supervision required to maintain reasonable levels of output

a, c, d, e

What are the two dimensions along which individual incentive plans vary? (Select all that apply) a. the method of rate determination b. the complexity of tasks performed c. the component of salary that is considered variable in the plan d. the specified relationship between production level and wages

a, d

Identify a drawback of profit-sharing plans: a. they lead to administrative complications b. most employees believe that their jobs do not directly impact profits c. most employee believe that they should be awarded based on their effort, irrespective of profits d. they do not directly link performance to payouts

b

One of the major advantages of a standard piecework plan is that: a. it is easy to set standards based on time per unit produced b. employees never sort themselves out c. employees can easily comprehend it d. it only needs to be implemented once a year

c