MGT of Compensation Chapter 14

Which of the following is true of corporate directors?

They play a crucial role in deciding executive compensation.

The association between scientist/engineer compensation and years of experience in the labor market is determined by ____ ____

maturity curves

Which of the following is true about executive benefits? (ERISA - the Employee Retirement Income Security Act)

Many executives receive additional benefits such as life insurance and exemptions from deductibles for health-related costs.

Identify the types of sales compensation plans.

-Unit rate plans -Add-on plans

Who among the following form a company's compensation committee?

A board of directors

Which of the following is an important facet of executive compensation that is primarily meant to drive better short-term performance?

Annual bonuses

High barriers to entry (compensation for types of products)

Compensation for selling these products includes a large base-pay component.

Why do scientists and engineers experience lower salary increments in comparison to employees in other occupations after ten years in their career?

A slow obsolescence of their knowledge

In the context of controversial CEO pay practices, a "golden parachute" refers to _____.

the compensation given to a CEO when a merger or acquisition results in his or her termination

Identify the clauses under the Employee Retirement Income Security Act (ERISA) and the tax code that restrict an employer's ability to provide excessive benefits to executives.

-A benefit plan must cover a wide cross-section of employees. -A benefit plan must provide determinable benefits. -A benefit plan must satisfy certain vesting and nondiscrimination conditions.

According to the agency theory, which of the following is true of CEOs?

CEOs make decisions that fail to represent the economic well-being of the organization and its stockholders.

What is the consequence of companies providing liability insurance to safeguard directors from potential stockholder lawsuits?

Director compensation is reduced.

The CEOs of companies that are performing well relative to competitors are more likely to have pay linked to annual performance.

False (CEO salaries are strongly influenced by labor markets—competitor pay levels matter. CEOs who are in demand (their companies are performing well relative to competitors) are more likely to receive higher wages, or have pay tied less to annual performance (good long-term track records mean less reliance on yearly performance).)

The views of a compensation committee play an important role in determining executive ____ ____

base salary

According to social scientists, executive pay has a consistent corresponding relationship to _____.

compensation of lower-level employees

A ____-____ ____ offers a solution for firms dealing with the salary plateau effect and attempts to accommodate the career intentions of senior scientists and engineers.

dual-career ladder

The job of a supervisor is categorized as ____

exempt (from overtime pay)

A board of directors includes individuals from both inside and outside a firm who primarily _____.

give tactical advice on decision making

One of the economic perspectives to understanding executive compensation focuses on _____.

labor markets

Which of the following unit rate sales compensation plans recognizes that a sales person works as part of a team?

Pooled commissions

Who among the following covers the critical boundary between an organization and its consumers?

Sales staff

Which of the following is true of the compensation received by sales personnel?

The compensation received by sales staff is primarily based on incentives linked to individual performance.

Scientists and engineers are categorized as ____

professionals

In the context of the compensation of different groups in a company, an important characteristic of special groups is that _____.

the positions of the members of special groups are characterized by inherent conflicts

The major challenge in compensating supervisors centers on _____.

fairness in pay

According to the agency theory, executive compensation should be devised to ensure that executives keep in mind the interests of _____ when making decisions.

shareholders

Identify the concerns associated with using stock options as incentives.

-Stock options sometimes do not relate as closely as desired to executive performance. -Stock options as incentives have the ability to manipulate the system.

Why are directors well-compensated?

They assume the risks associated with lawsuits.

The managerial ladder (components of the dual ladder)

This offers promotions with more responsibility for managing people.

Compiling data on salaries as a function of years since a scientist/engineer last received a degree is meant to _____.

determine the half-life of technical obsolescence

Which of the following statements is true of the Dodd-Frank Wall Street Reform and Consumer Protection Act?

It gives shareholders the power to vote for or against their organization's proposed compensation plan for its five highest-paid executives.

Low barriers to entry (meanings for types of products)

The knowledge needed to make an effective sales presentation for these products is relatively easy to acquire.

Low barriers to entry (compensation for types of products)

Compensation for selling these products includes a large incentive component.

High barriers to entry (meanings for types of products)

Considerable training is required for sales personnel to become effective in this field.

Identify the purposes of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

-Protecting taxpayers by putting an end to bailouts -Safeguarding customers from abusive financial services practices

Which of the following is true of the stock options offered to executives?

They provide executives with an inherent incentive to aim for long-term achievements.

In the context of the compensation of different groups in companies, which of the following is true of special groups in companies?

They tend to be strategically critical to the company.

The professional track (components of the dual ladder)

This progresses with rising technical responsibility.

The great majority of CEO pay is in the form of _____.

short-term and long-term incentives

According to behavioral scientists, one explanation for executive compensation excesses involves ____ ____

social comparisons

According to the economic approach to understanding executive compensation, the worth of CEOs, or their subordinates, must relate closely to _____.

some measure of company growth and profitability

Identify the fundamental components of most executive compensation packages.

-Base salary -Short-term bonuses -Long-term incentives -Perquisites

A common trend in supervisory compensation focuses on an increased use of fixed pay.

False (increased use of variable pay. slightly more than half of all companies now have a variable pay component for supervisors, up from 16 percent in prior years)

Which of the following is a strategy meant to draw workers into supervisory roles?

Raising the base pay of supervisors to some amount that surpasses the base pay of the highest-paid subordinate in the team

Identify the reasons for the current trend of companies hiring contingent workers.

-Companies desire to protect themselves in a volatile economy. -The wages and benefits for contingent workers are lower than those for full-time workers. -The productivity of contingent workers is often higher than that of full-time workers.

What are the controversial executive compensation practices identified by Institutional Shareholder Services (ISS)?

-Providing extraordinary perks or tax gross-ups -Repricing of underwater stock options without the prior approval of shareholders

A potential reason why companies are paying less bonuses to executives is that they want executives to shift their focus from long-term consequences to short-term consequences.

True (A trend in executive compensation is that bonuses have become a smaller portion of executive compensation. One potential explanation may pertain to a shift in the time horizon that companies want executives to focus on. Bonuses are a short-term incentive and thus reward good short-term results. The concern was that this caused CEOs to approve decisions with great short-term payouts but not necessarily desirable long-term consequences for the firm.)

One way for companies to deal with equity problems that form a major compensation challenge for contingent workers is to promote the idea of boundaryless careers for them.

True (Contingent workers may work alongside permanent workers yet often receive lower wages and benefits for the same work. One way to look at contingent workers is to champion the idea of boundaryless careers. At least for high-skilled contingent workers, it is increasingly popular to view careers as a series of opportunities to acquire valuable increments in knowledge and skills.)