ch. 13

What are some risks associated with involving employees in pay-related decisions?

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

Incentive Pay

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

Gainsharing

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

Commissions

Incentive pay calculated as a percentage of sales.

Profit Sharing

Incentive pay in which payments are a percentage of the organization's profits and do 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?

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

Which are characteristics of a balanced scorecard?

It helps employees understand the organization's goals. It allows for combining the advantages of different incentive plans.

What is the disadvantage of offering bonuses for group performance?

May prevent cooperation among groups within the organization

What is the difference between performance bonuses and merit pay?

Performance bonuses are not built into base pay.

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

differential piece rate

An advantage of ______ is the direct link between how much work the employee does and the amount the employee earns.

a piece rate system

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 ____. Multiple choice question.

a piecework rate

Under a profit-sharing system, payments are Blank______.

not part of base salary

A balanced _____ approach is useful in designing executive pay.

scorecard

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

What should an organization consider when offering incentive pay?

the strengths and weaknesses of each type of incentive what kind of employee will be attracted to the organization because of the incentives being offered how the incentive will help achieve the organization's goals

By law, an ESOP must invest at least _____ of its assets in the company's own stock.

51%

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

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

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.

gainsharing plan is more likely to succeed when an organization features which of the following components?

committed managers specific goals employees who enjoy working as a team

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

Stock ownership plans usually take the form of ______.

employee stock ownership plans stock options

One negative aspect of an ESOP is that it carries significant risk for _____.

employees

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

Which of the following conditions are important for success in gainsharing?

goal setting management encouragement of employee input employment security

In which of the following occupations would a straight commission plan NOT likely be used?

human resource professional

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

incentive

Because the amount paid is linked to certain predefined behaviors or outcomes, ______ is specifically designed to energize, direct, or maintain employees' behavior.

incentive pay

What are the three broad categories of incentive pay?

incentives linked to organizational performance incentives linked to groups incentives linked to individuals

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

using a balanced scorecard approach

Balanced Scorecard

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

Merit Pay

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

What is the most common form of employee ownership?

An ESOP plan

In one type of gainsharing plan, employees get a bonus if the ratio of labor costs to the sales value of production falls below a specified standard. This is called a _____ plan.

Scanlon

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

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

smaller work groups

What are the disadvantages of merit pay?

Employees sometimes perceive that it is unfair. It can quickly increase payroll expenses. It encourages individual achievement instead of teamwork.

Piecework Rate

Rate of pay per unit produced.

Which federal agency requires companies to reveal how much their executives are paid and how well the company has performed in comparison to its business rivals?

The Securities and Exchange Commission (SEC)

What is one advantage of a profit-sharing program?

When the company generates little or no profit, there is no need to spend much on this type of incentive.

Under what conditions, employee participation in pay-related decisions can contribute to the success of an incentive pay plan?

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

Which of the following is the downside of using a standard hour plan as an incentive for production workers?

Workers may not worry about quality or customer service.

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

Stock options are given to ______.

provide incentives for employees to work harder

An incentive plan that pays workers more if they finish their work in less than the normal amount of time is called a(n) _____.

standard hour plan

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

piecework rate

Stock Options

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

What are some disadvantages of a profit-sharing program?

Workers might not be motivated, because they feel they have little effect on the amount of profit the business generates. Waiting months to receive a check causes workers to lose their motivation. Workers expect their profit-sharing check to be about the same as what competing companies are offering.

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

merit

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

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 Blank______ grid.

merit increase

What three elements are used to customize a balanced scorecard?

objectives products markets

Stock ownership plans make employees ______.

part owner's of the organization

Which type of pay rewards individual performance and is not rolled into base pay?

performance bonuses

The compensation plan known as Blank______ involves payments being based on some measure of organizational performance, and the payments do not become part of the base salary.

profit sharing

An incentive paid once to an employee for agreeing to stay with an organization is called a(n) _____.

retention bonus

When one organization acquires another, it commonly uses ______ to keep certain valuable employees in the organization it is buying.

retention bonuses

Incentive pay sometimes presents executives with significant ethical issues. Incentives linked to stock performance can lead to which of the following ethical issues?

scandal that damages the company's reputation executives dishonestly raising the price of stock and thereby obtaining a bonus and stock option

Employee Stock Ownership Plan (ESOP)

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

Standard Hour Plan

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

It is important that incentive pay plan meet which of the following requirements?

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 based on a percentage of sales is called _____.

a commission

The Dodd-Frank Wall Street Reform and Consumer Protection Act gives shareholders of public companies _____.

a vote of approval or disapproval on the companies' executive pay plans

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

insider trading

Piece rate plans are best suited for which type of jobs?

jobs that are routine and standardized

The Scanlon plan pegs rewards to which of the following metrics?

labor efficiency

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

stock purchase plan stock options

Now that he and his wife have a child, Carlos wished he earned a salary along with his commission but his job as a realtor only pays commission. His pay is an example of a _____ commission plan.

straight

Some managers dislike merit pay because they believe it discourages _____.

teamwork

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

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

when the plan changes