HR CH 12

is the perceived link between behavior and pay.

Instrumentality According to expectancy theory, motivation is hypothesized to be a function of expectancy, instrumentality, and valence perceptions. Generally speaking, the main influence of compensation is on instrumentality: the perceived link between behaviors and pay.

Which of the following is a difference between profit-sharing plans and employee ownership plans?

The link between pay and performance is less obvious under ownership than under profit sharing. Under ownership programs, employees will not realize any financial gain until they actually sell their stock (typically upon leaving the organization). The link between pay and performance may be less obvious under ownership than under profit sharing. Thus, from a reinforcement theory standpoint (with its emphasis on actually experiencing rewards), the effect on performance motivation may be limited.

Which of the following must a principal do to reduce agency costs?

align the agent's interests with the principal's interests Agency theory says that the principal must choose a contracting scheme that helps align the interests of the agent with the principal's own interests (that is, it reduces agency costs). These contracts can be classified as either behavior-oriented (such as merit pay) or outcome-oriented (stock options, profit sharing, commissions, and so on).

As jobs become less programmable,

behavior-oriented contracts become less likely. As jobs become less programmable (less routine), outcome-oriented contracts become more likely because monitoring becomes more difficult.

The Scanlon plan is an example of a(n) ________blank plan.

gainsharing One type of gainsharing, the Scanlon plan provides a monetary bonus to employees (and the organization) if the ratio of labor costs to the sales value of production is kept below a certain standard. Gainsharing plans such as the Scanlon plan and pay-for-performance plans in general often encompass more than just a monetary component.

A(n) _________blank program is based on group or plant performance that does not become part of the employee's base salary.

gainsharing Gainsharing is a form of compensation based on group or plant performance (rather than organization-wide profits) that does not become part of the employee's base salary.

In incentive pay, performance measures are primarily based on

individual productivity. In incentive pay, performance measures are primarily based on individual output, productivity, and sales. Payment is made in the form of bonuses. Refer To: Table 12.1

A(n) _________blank is suitable for an organization with a culture that promotes individual competition.

merit pay plan Better performers receive higher pay.

Agents prefer a behavior-based contract when

outcome uncertainty is high Agents are less willing to have their pay linked to profits to the extent that there is a risk of low profits and the outcome is uncertain. They would therefore prefer a behavior-oriented contract.

Group incentives tend to measure performance in terms of

physical output Group incentives (like individual incentives) tend to measure performance in terms of physical output, whereas team award plans may use a broader range of performance measures (such as cost savings, successful completion of product design, or meeting deadlines).

In the _________blank dimension, employees base their fairness assessments on the processes that were used to decide the amount of compensation.

procedural In any situation where rewards are distributed, employees appear to assess fairness along two dimensions: distributive and procedural. Procedural fairness is based on the processes that were used to decide the amount of compensation.

Which of the following is a drawback of using profit sharing?

It runs the risk of contributing to employee dissatisfaction. Although profit sharing may be useful as one component of a compensation system, it runs the risk of contributing to employee dissatisfaction or higher labor costs, depending on how it is designed. Not only may profit sharing fail to increase performance motivation, but employees may also react very negatively when they learn that such plans do not pay out during business downturns.

Why does E. L. Thorndike's Law of Effect work?

It states a response followed by a reward is more likely to recur in the future. E. L. Thorndike's Law of Effect states that a response followed by a reward is more likely to recur in the future. The implication for compensation management is that high employee performance followed by a monetary reward will make future high performance more likely.

Which of the following is a tool that allows companies to track financial results while monitoring progress in building the capabilities and acquiring the intangible assets they would need for future growth?

balanced scorecard. Some companies find it useful to design a mix of pay programs. It is possible to balance multiple objectives by using the balanced scorecard, which allows companies to track financial results while monitoring progress in building the capabilities and acquiring the intangible assets they would need for future growth.

In merit pay programs, an individual's _________blank represents his or her position in the pay range.

compa-ratio In merit pay programs, an individual's compa-ratio represents his or her position in the pay range. It is one of the factors that determine the size and frequency of pay.

Which of the following is a compensation program that would best support an organizational culture of cooperation and problem solving?

gainsharing The compensation program that would best reinforce the culture of cooperation and problem solving within an organization is gainsharing. The motivation is stronger in smaller units.

Gainsharing plans differ from profit-sharing plans in that

gainsharing plans distribute payouts more frequently. Gainsharing programs offer a means of sharing productivity gains with employees. Although sometimes confused with profit-sharing plans, gainsharing differs in two key respects. First, instead of using an organization-level performance measure (profits), the programs measure group or plant performance, which is likely to be seen as more controllable by employees. Second, payouts are distributed more frequently and not deferred.

According to a merit increase grid, one of the factors that determine the size and frequency of pay increases is the

individual's performance rating. In merit pay programs, the size and frequency of pay increases are determined by two factors. The first factor is the individual's performance rating (better performers receive higher pay). The second factor is position in range (that is, an individual's compa-ratio).

According to expectancy theory, which of the following is the main influence of compensation?

instrumentality According to expectancy theory, motivation is hypothesized to be a function of expectancy, instrumentality, and valence perceptions. Compensation systems differ according to their impact on these motivational components. Generally speaking, the main influence of compensation is on instrumentality: the perceived link between behaviors and pay.

Which of the following compensation programs uses a management style that gives importance to control?

inventive pay Under incentive pay programs, especially for lower-paid employees, the risk of a variable pay plan like incentive pay not paying off, perhaps because of factors beyond the employee's control, is difficult to manage and/or may undermine motivation or cause unintended consequences such as gaming the system to protect income.

Organizations may not need to rely on layoffs to reduce costs using which compensation program?

profit sharing Because payments do not become part of base pay, but instead are variable pay, labor costs are automatically reduced during difficult economic times, and wealth is shared during good times. Consequently, organizations may not need to rely on layoffs as much to reduce costs during tough times.

A _________blank plan gives employees the opportunity to buy the company's shares at a previously fixed price.

stock option One way of achieving employee ownership is through stock options, which give employees the opportunity to buy stock at a fixed price. For many years, stock options had typically been reserved for executives in larger, established companies; more recently, there was a trend toward pushing eligibility farther down in the organization.