Chapter 12

Merit pay incentive system is usually used to attract employees who are more team-oriented

FALSE Organizations with team-based rewards will tend to attract employees who are more team-oriented, while rewards tied to individual performance make an organization more attractive to those who think and act independently, as individuals. Merit pay incentive system is used to reward individual performance.

An incentive system in which an organization links pay increases to ratings on performance appraisals is referred to as: A. commission. B. a Scanlon plan. C. merit pay. D. gain sharing. E. profit sharing.

C. merit pay. Merit pay is a system of linking pay increases to ratings on performance appraisals.

A piecework rate plan is best suited for: A. HR professionals. B. executives. C. production workers. D. managers. E. knowledge workers.

C. production workers. As an incentive to work efficiently, some organizations pay production workers a piecework rate, a wage based on the amount they produce. This pay plan may not be suited for the other categories of jobs given.

ESOP does not give employees the right to participate in votes by shareholders even if the stock is registered on a national exchange.

FALSE Employees have a right to participate in votes by shareholders if the stock is registered on a national exchange, such as the New York Stock Exchange.

Stock options are best suited to motivate day-to-day effort or to attract and retain top individual performers.

FALSE Relying heavily on profit sharing or stock ownership may increase cooperation but do little to motivate day-to-day effort or to attract and retain top individual performers.

A balanced scorecard is a combination of performance measures directed toward the company's long- and short-term goals.

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

An organization should always communicate with employees when changing an incentive plan.

TRUE Along with empowerment, communicating with employees is important. It demonstrates to employees that the pay plan is fair. It is particularly important to communicate with employees when changing the plan. Employees tend to feel concerned about changes.

The balanced-scorecard approach is not particularly useful in designing executive pay.

FALSE The balanced-scorecard approach is useful in designing executive pay.

Employees should exercise the stock options even if the stock price has decreased.

FALSE The employees would not bother to exercise the options if the stock price decreases.

Under profit sharing, payments are a percentage of the organization's profits and become part of the employees' base salary.

FALSE Under profit sharing, payments are a percentage of the organization's profits and do not become part of the employees' base salary.

As an incentive to work efficiently, some organizations pay production workers a ____, a wage based on the amount they produce. A. merit pay B. commission C. standard hour pay D. piecework rate E. special bonus

D. piecework rate As an incentive to work efficiently, some organizations pay production workers a piecework rate, a wage based on the amount they produce.

Incentive pay for executives lays the groundwork for significant ethical issues.

FALSE Incentive pay for executives lays the groundwork for significant ethical issues. When an organization links pay to its stock performance, executives need the ethical backbone to be honest about their company's performance even when dishonesty or clever shading of the truth offers the tempting potential for large earnings

Like merit pay, performance bonuses for individual performance are rolled into an employee's base pay.

FALSE Like merit pay, performance bonuses reward individual performance, but bonuses are not rolled into base pay.

Profit sharing costs more when the organization experiences financial difficulties.

FALSE Profit sharing has the practical advantage of costing less when the organization is experiencing financial difficulties.

Incentive pay is influential because the amount paid is linked to certain predefined behaviors or outcomes.

TRUE Along with wages and salaries, many organizations offer incentive pay—that is, pay specifically designed to energize, direct, or control employees' behavior. Incentive pay is influential because the amount paid is linked to certain predefined behaviors or outcomes.

Employee stock ownership plan is an arrangement in which the organization distributes shares of stock to all its employees by placing it in a trust.

TRUE Employee stock ownership plan refers to an arrangement in which the organization distributes shares of stock to all its employees by placing it in a trust.

Gainsharing addresses the challenge of identifying appropriate performance measures for complex jobs.

TRUE Gainsharing addresses the challenge of identifying appropriate performance measures for complex jobs.

Linking incentives to the organization's profits or stock price exposes employees to a high degree of risk.

TRUE Linking incentives to the organization's profits or stock price exposes employees to a high degree of risk.

Pay specifically designed to energize, direct, or control employees' behavior is known as: A. monthly salary. B. wage. C. incentive pay. D. annual salary. E. fixed pay.

C. incentive pay. Along with wages and salaries, many organizations offer incentive pay—that is, pay specifically designed to energize, direct, or control employees' behavior.

Generally, team awards do not use cost savings as a performance measure.

FALSE Team awards are similar to group bonuses, but they are more likely to use a broad range of performance measures, such as cost savings, successful completion of a project, or even meeting deadlines.

Piecework rate plans are most suited for _____. A. innovative tasks B. non-standard jobs C. managerial jobs D. jobs with difficult-to-measure output E. routine, standardized jobs

E. routine, standardized jobs Most jobs, including those of managers, have no physical output, so it is hard to develop an appropriate performance measure. So piecework rates are most suited for very routine, standardized jobs with output that is easy to measure.

An employee who produces 10 components in an hour earns $9 ($.90 X 10) per hour, while an employee who produces 15 components earns $13.50 ($.90 x 15). This is an example of a: A. commission plan. B. differential piece rate plan. C. direct commission plan. D. profit sharing plan. E. straight piecework plan.

E. straight piecework plan. Incentive pay in which the employer pays the same rate per piece, no matter how much the worker produces is referred to as straight piecework plan.

From employers' perspective, an advantage of merit pay is that it is cheap.

FALSE A drawback of merit pay, from the employer's standpoint, is that it can quickly become expensive.

Group bonuses typically reward the performance of all employees in an organization.

FALSE Bonuses for group performance tend to be for smaller work groups. These bonuses reward the members of a group for attaining a specific goal, usually measured in terms of physical

Successful gainsharing plans include employee stock ownership plans.

FALSE Employee stock ownership plan (ESOP) is an example organizational performance incentive plan.

Standard hour plans are quality-oriented incentives for professional employees.

FALSE Standard hour plans are quantity-oriented incentives for production workers.

Piecework rates are most suited for routine, standardized jobs with output that is easy to measure.

TRUE Most jobs, including those of managers, have no physical output, so it is hard to develop an appropriate performance measure. So piecework rates are most suited for very routine, standardized jobs with output that is easy to measure

The balanced scorecard helps employees understand the organization's goals and how they can contribute to these goals.

TRUE Not only does the balanced scorecard combine the advantages of different incentive-pay plans, it helps employees understand the organization's goals.

Which of the following is a disadvantage of using incentive plans? A. The goals of an incentive plan may interfere with other management goals. B. The goals of incentive plans cannot be linked to particular outcomes or behaviors. C. Incentive plans cannot be used to promote group and organizational performance. D. Incentive plans cause dissatisfaction among the non-performing employees in the organization. E. Incentive plans are not very effective for jobs other than sales and service.

A. The goals of an incentive plan may interfere with other management goals. An incentive pay designed support to a management goal may interfere with other management goals. The employees may provide more importance to those goals that are supported by the incentive plan.

What is the function of a merit increase grid? A. To make the merit increases consistent B. To further increase the pay for those whose pay is relatively higher for their job C. To increase the employees' compa-ratio D. To stabilize economic conditions E. To increase incentives on an year-by-year basis

A. To make the merit increases consistent To make the merit increases consistent, so they will be seen as fair, many merit pay programs use a merit increase grid.

The decisions about merit pay are based on two factors: the individual's performance rating and the individual's: A. compa-ratio. B. seniority. C. pay grade. D. longevity. E. emotional quotient.

A. compa-ratio. The decisions about merit pay are based on two factors: the individual's performance rating and the individual's compa-ratio.

An advantage of merit pay is that: A. it makes the reward more valuable by relating it to economic conditions. B. it promotes group performance instead of promoting individual behavior. C. it provides merit increases to employees only on the basis of performance. D. it would never become costly for the employers. E. it results in a bigger short-term reward for the best performers.

A. it makes the reward more valuable by relating it to economic conditions. An advantage of merit pay is that it makes the reward more valuable by relating it to economic conditions.

A company provides wages to its employees based on the amount workers produce. The more employees produce, the more they earn. This type of plan is called: A. piecework rate plan. B. merit pay plan. C. Scanlon plan. D. profit sharing plan. E. standard hour plan.

A. piecework rate plan. As an incentive to work efficiently, some organizations pay production workers a piecework rate, a wage based on the amount they produce.

Martin owns and manages a small auto-parts shop. He determines the time required to complete each task in his shop. When an employee completes the repair in less time, he/she receives an amount of pay equal to the rate determined by Martin for . Martin is using a: A. standard hour plan. B. differential piecework plan. C. merit pay plan. D. straight piecework plan. E. Scanlon plan.

A. standard hour plan. An incentive plan that pays workers extra for work done in less than a preset "standard time" is referred to as a standard hour plan.

35. _____ refers to an incentive pay in which the wage paid is higher when a greater amount is produced. A. Profit sharing B. Differential piece rate C. Gain sharing D. Scanlon pay E. Merit pay Differential piece rate refers to an incentive pay in which the piece rate is higher when a greater amount is produced.

B. Differential piece rate Differential piece rate refers to an incentive pay in which the piece rate is higher when a greater amount is produced.

Which of the following is true of a performance bonus? A. It is designed to reward group performance. B. It should be re-earned by employees during each performance period. C. It is rolled into base pay and provided yearly or monthly. D. It lacks flexibility and hence it is less popular. E. It is not a one time reward in most of the cases.

B. It should be re-earned by employees during each performance period. Like merit pay, performance bonuses reward individual performance, but bonuses are not rolled into base pay. The employee must re-earn them during each performance period.

Which of the following types of incentive pay plans are used to reward individual performance? A. Gainsharing B. Merit pay C. Scanlon plan D. Profit sharing E. Stock ownership

B. Merit pay Organizations may reward individual performance with a variety of incentives such as merit pay. All other options provided in the question are designed to promote group/organizational performance.

In order to control compensation costs, administrators of merit pay programs must closely monitor the compa-ratio and the: A. number of pay grades in the pay structure. B. an individual's performance ratings. C. number of new hires in the company. D. company's stock price in the financial year. E. average pay of the area where the organization is functioning.

B. an individual's performance ratings. The decisions about merit pay are based on two factors: the individual's performance rating and the individual's compa-ratio.

In merit pay programs, an individual's compa-ratio represents his/her: A. pay relative to performance of other workers in the industry. B. pay relative to average pay. C. comparable worth versus others. D. ratio of pay to benefits. E. the average worth of the skills possessed by the individual.

B. pay relative to average pay. Compa-ratio refers to the pay relative to average pay of the individual.

_____ provides a method for rewarding performance in all of the dimensions measured in the organization's performance management system. A. Differential piece rate B. Standard hour plan C. Merit pay D. Piece rate E. Commission

C. Merit pay An advantage of merit pay is that it provides a method for rewarding performance in all of the dimensions measured in the organization's performance management system. If that system is appropriately designed to measure all the important job behaviors, then the merit pay is linked to the behaviors the organization desires.

Differential piece rates system refers to: A. an incentive pay plan in which the employer pays the rate per piece based on the difference in performance of employees. B. a wage system designed for salespeople who earn a differential pay for every piece sold. C. an incentive pay in which the piece rate is higher when a greater amount is produced. D. a system of linking pay increases to ratings on performance appraisals. E. an incentive pay plan where every employee is paid different wages based on the skills they possess.

C. an incentive pay in which the piece rate is higher when a greater amount is produced. Differential piece rates refers to an incentive pay in which the piece rate is higher when a greater amount is produced.

Which of the following is true about a piece rate plan? A. It can be used for all types of jobs and in all types of industries. B. It is best suited for complex jobs and tasks. C. It can be used to encourage team work and collaboration. D. It has a direct link between the work and how much the employee earns. E. It encourages peers to perform as well as the co-workers and reduce conflicts.

D. It has a direct link between the work and how much the employee earns. An obvious advantage of piece rates is the direct link between how much work the employee does and the amount the employee earns.

When designing incentives, managers should make sure that: A. all the employees are paid equal amounts. B. even the lowest performing employees get some rewards. C. employees focus only completing the task quickly. D. employees think that the pay plan is fair. E. they focus on hiring employees for whom earning money is the only reason to do a good job.

D. employees think that the pay plan is fair. Attitudes that influence the success of incentive pay include whether employees value the rewards and think the pay plan is fair.

Standard hour plans are likely to succeed if: A. most or all of a salesperson's compensation is in the form of commissions. B. employers keep labor costs to a minimum. C. the pay increase is linked to ratings on performance appraisals. D. employees want the extra money more than they want to work at a pace that feels comfortable. E. the organization values employee satisfaction and motivation more than profits.

D. employees want the extra money more than they want to work at a pace that feels comfortable. A standard hour plan is an incentive plan that pays workers extra for work done in less than a preset "standard time." This plan can only succeed if employees want the extra money more than they want to work at a pace that feels comfortable.

Which of the following is a disadvantage of a merit pay system? A. It does not relate the rewards to economic conditions. B. It cannot be used effectively in performance appraisals. C. Comparative pay is not considered in its evaluation. D. It is not consistent with performance management's dimensions. E. It can quickly become expensive for the company.

E. It can quickly become expensive for the company. A drawback of merit pay, from the employer's standpoint, is that it can quickly become expensive. Managers at a majority of organizations rate most employees' performance in the top two categories (out of four or five). Therefore, the majority of employees are eligible for the biggest merit increases, and their pay rises rapidly.

Which of the following is true about standard hour plans? A. They always encourage employees to focus on customer service. B. They succeed only for employees who are not motivated by money. C. They encourage employees to focus mainly on quality. D. In terms of their pros and cons, they are very different from piecework plans. E. They encourage employees to work as fast as they can.

E. They encourage employees to work as fast as they can. Standard hour plans encourage employees to work as fast as they can, but not necessarily to care about quality or customer service.

An effective incentive pay plan should: A. have performance measures based on employees' requirements. B. not be provided as a direct percentage of employees' performance. C. encourage group performance and dispirit individual achievements. D. be the same for all types of employees in the organization. E. have performance measures linked to the organization's goals.

E. have performance measures linked to the organization's goals. An effective incentive pay plan should have performance measures that are linked to the organization's goals.

Merit increase grids display an organization's policies for linking the size and frequency of pay increases to an individual's performance rating and position within the pay range.

TRUE Almost all organizations have established some program of merit pay—a system of linking pay increases to ratings on performance appraisals. To make the merit increases consistent, so they will be seen as fair, many merit pay programs use a merit increase grid. Merit pay is dependent on compa-ratio, the pay relative to average pay in a pay range.

Retention bonuses are one-time incentives paid to top managers, engineers, top-performing salespeople, and information technology specialists in exchange for remaining with the company.

TRUE Retention bonuses are one-time incentives paid in exchange for remaining with the company to top managers, engineers, top-performing salespeople, and information technology specialists

In stock ownership plans, employees may not see a strong link between their actions and the company's stock price.

TRUE The drawback of stock ownership as a form of incentive pay is that employees may not see a strong link between their actions and the company's stock price, especially in larger organizations.