Pay specifically designed to energize, direct, or control employees’ behavior is known as:
An effective incentive pay plan should:
have performance measures linked to the organization’s goals.
Which of the following is a disadvantage of using incentive plans?
The goals of an incentive plan may interfere with other management goals.
When designing incentives, managers should make sure that:
employees think that the pay plan is fair.
Which of the following types of incentive pay plans are used to reward individual performance?
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
piecework rate plan.
A piecework rate plan is best suited for:
As an incentive to work efficiently, some organizations pay production workers a ____, a wage based on the amount they produce.
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:
straight piecework plan.
_____ refers to an incentive pay in which the wage paid is higher when a greater amount is produced.
Differential piece rate
Which of the following is true about a piece rate plan?
It has a direct link between the work and how much the employee earns.
Differential piece rates system refers to:
an incentive pay in which the piece rate is higher when a greater amount is produced.
Piecework rate plans are most suited for _____.
routine, standardized jobs
Standard hour plans are likely to succeed if:
employees want the extra money more than they want to work at a pace that feels comfortable.
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:
standard hour plan.
Which of the following is true about standard hour plans?
They encourage employees to work as fast as they can.
An incentive system in which an organization links pay increases to ratings on performance appraisals is referred to as:
In merit pay programs, an individual’s compa-ratio represents his/her:
pay relative to average pay.
The decisions about merit pay are based on two factors: the individual’s performance rating and the individual’s
What is the function of a merit increase grid?
To make the merit increases consistent
In order to control compensation costs, administrators of merit pay programs must closely monitor the compa-ratio and the:
an individual’s performance ratings.
An advantage of merit pay is that:
it makes the reward more valuable by relating it to economic conditions.
Which of the following is a disadvantage of a merit pay system?
It can quickly become expensive for the company.
_____ provides a method for rewarding performance in all of the dimensions measured in the organization’s performance management system.
Which of the following is true of a performance bonus?
It should be re-earned by employees during each performance period.
Retention bonuses refer to:
one-time incentives paid in exchange for remaining with the company.
When an employee’s pay is calculated as a percentage of sales, it is referred to as:
Paying most or all of a salesperson’s compensation in the form of commissions encourages the salesperson to focus on:
closing the sale.
Straight commission plans:
are common among insurance and real estate agents.
Which of the following types of incentive plans are specifically designed to promote group performance?
Which of the following incentive programs measures improvements in productivity and effectiveness and distributes a portion of each profit to employees?
Organizations that want employees to focus on efficiency and on group incentives are most likely to implement a _____ program.
An organization uses a gainsharing program in which employees receive a bonus if the ratio of labor costs to the sales value of production is below a set standard. This incentive plan is referred to as:
The Scanlon plan is a variation of:
What should employees do to earn bonuses under the Scanlon plan?
They should keep labor costs to a minimum and produce as much as possible with that amount of labor.
An organization uses Scanlon plan to provide incentives to employees. The workers produce parts worth $5 million. The target ratio set by the organization is 30%. The employees will be given a bonus if the actual labor costs are less than:
What is the difference between bonuses and team awards?
Bonuses reward attainment of goals measured in terms of physical output whereas team awards reward performance in terms of cost savings.
Team awards differ from group bonuses in that they:
are more likely to use a broad range of performance measures.
Which of the following is an advantage of group incentives?
Groups try to outdo one another in satisfying customers and therefore create healthy competition.
Which of the following is a disadvantage of using group bonuses?
It could result in competition among groups.
Which of the following is an incentive plan that is intended to improve the overall performance of an organization?
What is profit sharing?
An incentive pay in which payments are a percentage of the organization’s profits and do not become part of the employees’ base salary.
Why do organizations use profit sharing?
It costs less when the organization is experiencing financial difficulties.
Which of the following incentive plans would enable its employees to think like owners, taking a broad view of what they need to do in order to make the organization more effective?
Identify the disadvantage of using profit sharing plans.
Profit sharing is not directly linked to individual behavior.
What is the drawback of stock ownership as a form of incentive pay?
Financial benefits mostly come when the employee leaves the organization.
The link between employees’ performance and pay is harder to establish in:
stock ownership plans.
Stock options have their greatest motivational potential during periods of:
high economic growth.
In 2003, a company employee received an option to purchase the company’s stock at $45 per share. If the stock is trading at $40 a share in 2005, the employee will most likely:
would not bother to exercise the options.
Which of the following is an arrangement in which the organization distributes shares of stock to all its employees by placing it in a trust?
Employee stock ownership plan
What is meant by backdating a stock option?
Changing the price in the original option agreement so that the option holder can buy stock at a bargain price
What is the difference between stock options and employee stock ownership plan (ESOP)?
Stock options are usually used with top management whereas ESOPs are provided to all employees.
Which of the following is a reason for ESOPs’ popularity?
ESOPs provide very high risk-free retirement income.
By law, what is the minimum percentage of assets that an ESOP must invest in its company’s stock?
A major problem with ESOPs is that:
they carry a significant risk for employees.
Which of the following is a method where a combination of performance measures directed toward the company’s long- and short-term goals are used as the basis for awarding incentive pay?
What is a 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
Which of the following is an advantage of using balanced scorecard?
It helps employees understand the organization’s goals.
An organization wants to provide its employees information about what its goals are and what it expects employees to accomplish. It is planning to implement an incentive plan that helps employees understand the organization’s goals. Which of the following should be used by this organization?
Employee participation in pay-related decisions can be part of a general move toward:
If employee participation in making pay-related decisions is encouraged in an organization, then:
the incentive plan has more chances of being successful.
Which of the following is a short-term incentive?
Return on investment
Which of the following is a long-term incentive?
How does the balanced scorecard help organizations deal with unethical behaviors of executives?
Rewarding the achievement of a variety of goals reduces temptation on the executive’s part to gain bonuses by manipulating data.
The _____ has required companies to more clearly report executive compensation levels and the company’s performance relative to that of competitors.
The Securities and Exchange Commission
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