Deck 13: Recognizing Employee Contributions With Pay

Question 1

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

Answer 1

False

Question 2

An 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.

Answer 2

True

Question 3

An organization should keep information, such as changes made to its incentive plan, confidential from its employees.

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

Under the team awards type of group incentive, cost savings is excluded as a performance measure.

Question 8

An employee stock ownership plan denies employees the right to participate in votes by shareholders even if the stock is registered on a national exchange.

Question 9

Employees who receive stock options as incentive pay must exercise the stock options even if the stock price decreases.

Question 10

Under incentive pay, piecework rates are most suited for routine, standardized jobs with output that is easy to measure.

Question 11

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.

Question 12

A merit pay incentive system is used to attract employees who are more team-oriented.

Question 13

Incentive pay is specifically designed to energize, direct, or control employees' behavior and is influential because the amount paid is linked to certain predefined behaviors or outcomes.

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

The Scanlon plan of gainsharing gives employees a bonus if the ratio of labor costs to the sales value of production is below a set standard.

Question 21

Vroom Motors, an automobile company, ties individual performance, profits, and other measures of employees' success to a particular form of pay. This form of pay is influential because the amount paid is linked to certain predefined behaviors or outcomes. What pay structure is exemplified in this scenario?

A) minimum wage
B) overtime pay
C) incentive pay
D) piecework rates
E) salary

Question 22

Trent owns and manages a small electronics repair store. He determines the time required by his employees to complete each task assigned by him. When employees complete the repairs in less time, they receive an amount of pay equal to that time determined by him. In this scenario, Trent is using a

A) standard hour plan.
B) differential piecework plan.
C) merit pay plan.
D) straight piecework plan.
E) Scanlon plan.

Question 23

Which type of incentive plans are used to reward individual performance?

A) gainsharing
B) merit pay
C) Scanlon plan
D) profit sharing
E) stock ownership

Question 24

Tucked Inc. is an envelope manufacturer based in Fort Worth. The employees of the organization receive pay based on the amount of work produced. If the output of an employee is more than the average production volume, then the organization pays more for the work performed. In this case, which incentive is offered by Tucked Inc.?

A) differential piecework rate
B) minimum wage
C) merit pay
D) retention bonus
E) group bonus

Question 25

A standard hour incentive plan is likely to be successful 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, product quality, and customer service more than profits.

Question 26

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

A) merit pay
B) a sales commission
C) standard hour pay
D) a piecework rate
E) a special bonus

Question 27

Wayne Inc., a health insurance company, pays clerks an incentive based on the average amount of work completed per hour. Wayne pays $10 for processing 20 invoices per hour. An employee who processes 30 invoices would earn $15 per hour. Hence, Wayne pays the same rate per invoice no matter how many invoices an employee processes per hour. Which type of incentive pay does this scenario illustrate?

A) straight piecework plan
B) falling differential
C) rising differential
D) standard hour plan
E) straight commission plan

Question 28

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 jobs.

Question 29

Jewels & Co., a watch manufacturing company, provides wages to its employees based on the number of watches the workers assemble. The more the employees assemble, the more they earn. This type of plan is called a

A) piecework rate plan.
B) merit pay plan.
C) Scanlon plan.
D) profit-sharing plan.
E) rapid hour plan.

Question 30

The differential piece rate 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 system that gives employees a bonus if the ratio of labor costs to the sales value of production is below a set standard.
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 employees are paid different wages based on the skills they possess.

Question 31

In the process of designing incentives, managers should make sure that

A) all the employees are paid the same amount.
B) even the lowest performing employees are rewarded.
C) employees focus only on completing the task quickly.
D) employees believe that the pay plan is fair.
E) they hire employees who consider earning money as the sole reason to perform well.

Question 32

________ refers to incentive pay in which the wage paid is higher when a greater amount is produced.

A) Profit sharing
B) Differential piece rate
C) Gainsharing
D) Scanlon pay
E) Merit pay

Question 33

Which statement is true about standard hour plans?

A) They encourage employees to focus exclusively 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.

Question 34

A pay structure 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.

Question 35

For incentive pay to motivate employees to contribute to the organization's success, the pay plans must be well designed. Which statement describes a characteristic of a well-designed plan?

A) Performance measures are to be linked to the individual's goals.
B) Employees are given unattainable performance standards.
C) Employees value the rewards or incentives that are being offered.
D) Employees are given limited resources to meet their goals.
E) The pay plan takes into account that employees will accept all goals irrespective of their rewards.

Question 36

An incentive system in which an organization links pay increases to ratings on performance appraisals is referred to as

A) commissions.
B) the Scanlon plan.
C) merit pay.
D) gainsharing.
E) profit sharing.

Question 37

A piecework rate plan is best suited for

A) HR professionals.
B) executives.
C) production workers.
D) managers.
E) knowledge workers.

Question 38

An employee at CellWorld who produces 10 phone components in an hour earns $9 ($0.90 ×10) per hour, while another employee who produces 15 components earns $13.50 ($0.90 ×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.

Question 39

Saturn Systems, an information technology company, determines that most problems handled by employees at its help desk can be resolved within 20 minutes. The company sets 20 minutes as the standard time for resolving a customer problem. If an employee solves a customer's problem in less than 20 minutes, the employee still earns 20 minutes' worth of wages. Which payment method does this scenario illustrate?

A) piecework plan
B) differential plan
C) standard hour plan
D) merit pay
E) performance bonus

Question 40

A feature of an effective incentive pay plan is that it 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 sideline individual achievements.
D) be the same for all employees in the organization.
E) have performance measures linked to the organization's goals.

Question 41

Organizations that want employees to focus on efficiency and on group incentives are most likely to implement a ________ program.

A) gainsharing
B) standard hour
C) bonus
D) commission
E) piece rate pay

Question 42

Paul, the HR manager at Carletta & Co., is trying to implement an effective group incentive plan that measures increases in productivity and effectiveness and distributes a portion of its earnings to all employees. In this case, Paul should apply the incentive scheme of

A) piecework rate.
B) gainsharing.
C) sales commission.
D) merit pay.
E) ESOPs.

Question 43

When Airborne Aircraft acquired Bell Airplanes, the executives of the two companies identified key employees they needed for the combined companies' success. One of them was Patrick, the vice president of engineering. The executives offered Patrick a one-time bonus of $25,000 if he stayed with the company for 12 months following the acquisition. In this scenario, Patrick's $25,000 represents

A) a commission.
B) a retention bonus.
C) stock options.
D) merit pay.
E) a differential piece rate.

Question 44

Retention bonuses refer to

A) the special reward programs used to satisfy the lower- and middle-level managers.
B) the bonuses provided to union members to withhold a strike.
C) the bonuses provided to employees who take long leaves without pay.
D) annual incentives paid to daily wage workers to remain in the organization.
E) one-time incentives paid in exchange for remaining with the company.

Question 45

West End Hospital was concerned about rising costs for patients who have surgery for joint replacement. It tried rewarding staff in any quarter they met targets for lower use of supplies, but costs continued to rise. An investigation showed that one source of costs was the readmission of patients who experienced infections after surgery. The human resource department proposed setting up a gainsharing program with an effectiveness measure related to reducing infections. Which statement about gainsharing best supports this recommendation?

A) With gainsharing, employees are freed to collaborate on how to improve performance.
B) Gainsharing creates a competitive environment, so employees will try to outdo one another.
C) Gainsharing is appropriate because the jobs in this case are simple, and so are the performance standards.
D) Gainsharing will narrow employees' focus to the key aspects of their individual jobs and rewards.
E) The success of gainsharing requires management acceptance of employee input.

Question 46

________ 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

Question 47

Which statement 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 exclusively linked to subjective ratings, rather than objective performance measures.

Question 48

________ is a group incentive program that measures improvements in productivity and effectiveness and distributes a portion of each gain to employees.

A) Profit rate
B) Gainsharing
C) Commission sharing
D) Merit rate
E) Group bonus

Question 49

For five years, Mainstream Production Systems offered $500 bonuses to individuals who identified ways to reduce costs by at least $1,000 per year. In the first year of that incentive program, 23 employees earned the bonus, but last year, only 7 submitted ideas, and only two of the ideas would actually save more than a few dollars. The company's HR director suggests that the company is likely to see more improvement if it replaces individual incentives with a gainsharing plan. Which statement best supports this argument?

A) Gainsharing succeeds regardless of whether employees understand how performance is measured.
B) Gainsharing is likely to succeed under almost any organizational conditions.
C) Gainsharing broadens employees' horizons beyond the range of activities they can influence.
D) Gainsharing measures oversimplify the complex responsibilities of production work.
E) Gainsharing expands employees' thinking beyond their individual interests.

Question 50

What common condition is necessary for gainsharing to be successful in an organization?

A) employees who value working in groups
B) employers who do not set short-term goals for employees
C) work environment with minimum management commitment
D) employees who prefer minimum interaction and cooperation
E) low levels of cooperation and interaction

Question 51

To make merit increases consistent, administrators of merit pay programs must closely monitor the compa-ratio and the

A) number of grades in the pay structure.
B) individual's performance ratings.
C) number of new hires in the company.
D) company's stock price in the current financial year.
E) average pay of the area where the organization is based.

Question 52

Straight commission plans are plans that

A) provide a straight salary to employees.
B) are useful when the organization wants salespeople to concentrate on listening to customers.
C) are used to attract risk-averse employees.
D) are common among insurance and real estate agents.
E) are uncommon among car salespeople.

Question 53

What is most likely a consequence of paying most or all of a salesperson's compensation in the form of commissions?

A) It encourages the salesperson to focus on closing the sale.
B) It frees the salesperson to focus on developing customer goodwill.
C) It encourages teamwork over individual performance.
D) It makes the employee appreciate the reward as the reward relates to economic conditions.
E) It will quickly become expensive for the employer.

Question 54

Julie, the HR manager at Forge Corp., wants to ensure that incentive pay rewards the individuals who contribute the most to the organization and whose contributions have grown since their pay rates were originally set. She determines that she can best accomplish these goals by paying an incentive amount based on individuals' performance ratings and compa-ratios. In this scenario, Julie would be applying the system of

A) merit pay.
B) piecework pay.
C) standard hour pay.
D) commissions.
E) attendance bonus.

Question 55

In a company's merit pay program, an individual's compa-ratio represents

A) the individual's pay relative to the individual's performance rating.
B) the individual's pay relative to company's average pay for that position.
C) the individual's worth versus that of others in the organization.
D) the ratio of the individual's pay to benefits.
E) the average worth of the skills possessed by the individual.

Question 56

When an employee's pay is calculated as a percentage of sales, it is referred to as

A) commissions.
B) gainsharing.
C) a merit plan.
D) a variable wage plan.
E) profit sharing.

Question 57

Souped Inc., a firm that manufactures ready-to-eat soups, offers incentives based on an employee's performance rating and the employee's compa-ratio. Which payment plan is exemplified in this scenario?

A) piecework plan
B) merit pay
C) standard hour plan
D) differential plan
E) skill-based plan

Question 58

QVT Financial, an auditing firm, distributes a portion of the profits resulting from improvements in productivity and efficiency among its employees. If the company enjoys an improvement of $45,000, 60 percent of the improvement is the company's share. The other 40 percent is distributed among the employees in the company. What is being exemplified in this scenario?

A) profit rate
B) gainsharing
C) commission sharing
D) merit gain
E) group bonus

Question 59

What is a disadvantage of a merit pay system?

A) It does not relate the rewards to economic conditions.
B) It cannot be used effectively with performance appraisals.
C) Comparative pay is not considered in its evaluation.
D) It does not provide rewards for performance in all the dimensions measured in the organization's performance management system.
E) It can quickly become expensive for the company.

Question 60

Which incentive plans are specifically designed to promote group performance?

A) performance bonuses
B) gainsharing
C) standard hour plans
D) merit pay
E) commissions

Question 61

What is an organization-level incentive plan that is intended to motivate employees to align their activities with the organization's goals?

A) profit sharing
B) gainsharing
C) merit pay
D) group bonus
E) Scanlon plan

Question 62

In which condition is it an advantage when group incentives encourage competition between groups of employees?

A) when concern for costs obscures customer service
B) when groups try to outdo one another in satisfying customers
C) when competition replaces cooperation to meet company goals
D) when competition for sales obscures the importance of ethical behavior
E) when performance goals consider only one objective, such as sales growth

Question 63

Chris, the CEO of an automobile company, believes that profit sharing has increased the productivity of his organization. He feels that an incentive plan motivates employees to be more productive. Which statement strengthens Chris' argument?

A) In a profit-sharing plan, employees are the owners of the organization.
B) Profit sharing helps employees to cooperate and focus on organizational interests.
C) Profit sharing makes employees workaholics.
D) In profit sharing, employees contribute their base salary for the development of the organization.
E) Profit sharing benefits employees even if the organization makes less profit or no profit.

Question 64

What is the drawback of stock ownership as a form of incentive pay?

A) Financial benefits mostly come when the employee leaves the organization.
B) Employees have the right to participate in votes by shareholders, hence reducing the negotiating power of the employer.
C) It causes the employers to lose control over their employees.
D) The employees will not benefit even if the organization is performing well.
E) Stock options do not provide any ownership to employees, instead offering an equivalent sum.

Question 65

What is the difference between bonuses and team awards?

A) Bonuses are for bigger work groups, whereas team awards are for small teams.
B) Unlike bonuses, team awards encourage cooperation.
C) Bonuses are usually given to employees who meet deadlines, whereas team awards are given only when the team as a whole meets the targets.
D) Unlike team awards, bonuses encourage competition among individuals.
E) Bonuses reward attainment of a specific goal, whereas team awards reward performance measured more broadly.

Question 66

Which incentive plan 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?

A) merit pay
B) gainsharing
C) the Scanlon plan
D) performance bonuses
E) profit sharing

Question 67

Team awards differ from group bonuses in that they

A) are typically plant-wide group incentive programs.
B) make payments in company stock rather than in cash.
C) are more likely to use a broad range of performance measures.
D) encourage competition among individual employees to achieve higher bonuses.
E) give more importance to organizational performance than small groups' performances.

Question 68

________ is a type of incentive pay in which payments are a percentage of an organization's profits and do not become part of its employees' base salary.

A) Merit pay
B) Gainsharing
C) Group bonus
D) Profit sharing
E) Commission

Question 69

Identify the disadvantage of using profit-sharing plans.

A) They cannot be used to improve the organization's performance as a whole.
B) The employees may develop a narrow view of their roles in the organization.
C) They cost more when the organization experiences financial difficulties.
D) Sharing profit with the employees ultimately reduces the organization's profitability.
E) Profit sharing is not directly linked to individual behavior.

Question 70

If a company distributes stock to employees by granting stock options, employees exercise the option when they

A) purchase the stock.
B) sell the stock.
C) retain the stock.
D) distribute the stock.
E) liquidate the stock.

Question 71

The Henry-Bell organization uses the Scanlon plan to provide incentives to its employees. The workers produce electrical components worth $5 million. The target ratio set by the organization is 30 percent. The employees will be given a bonus if the actual labor costs are less than

A) $0.5 million.
B) $1 million.
C) $1.5 million.
D) $2 million.
E) $2.5 million.

Question 72

A multinational 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

A) a group bonus.
B) merit pay.
C) the Scanlon plan.
D) a piecework rate.
E) a team award.

Question 73

Leonard, the manager of a manufacturing firm, wants the organization to perform better. He expects his employees to think more like owners, taking a broad view of what they need to do in order to make the organization more effective. In this case, Leonard should

A) pay his employees per piece that is manufactured.
B) create a balanced scorecard.
C) reorganize the departments in the organization.
D) implement a profit-sharing incentive plan.
E) hire new employees and pay them above the market rate.

Question 74

Which of the following best describes profit sharing?

A) 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
B) incentive pay in which payments are a percentage of the organization's profits and do not become part of the employees' base salary
C) a group incentive program that measures improvements in productivity and effectiveness and distributes a portion of profit to employees
D) a combination of performance measures directed toward the company's profit and used as the basis for awarding incentive pay
E) an incentive plan where a percentage of the previous year's profits is provided to the employees as a part of their salary

Question 75

The CEO of Workforce asked the human resource manager, May, to propose an approach to incentive pay. May proposes that the company create a gainsharing plan. What action(s) by the company will best increase the likelihood that gainsharing will succeed?

A) hiring employees who prefer to work alone and equipping them with cost data
B) sharing data about costs and setting up time for employees to interact
C) indicating that failure to achieve goals will lead to job cuts
D) using incentive pay as a substitute for goal setting and performance standards
E) promoting continuous improvement and limiting time spent on personal interactions

Question 76

Developed in the 1930s, the Scanlon plan is a variation of a(n)

A) profit-sharing plan.
B) gainsharing plan.
C) merit pay plan.
D) individual bonus.
E) commission plan.

Question 77

Which statement is true of using stock options as incentive pay?

A) The use of stock options ensures that managers add value in terms of efficiency and customer satisfaction.
B) Stock options require an option holder to purchase the organization's stocks at its present market rate.
C) Stock options are rewarding for employees who exercise their option when the company's stock value has risen.
D) Low-level employees with stock options are more likely to think like owners than executives who have stock options.
E) A company's performance in the stock market tends to be significantly better if its low-level employees are provided stock options.

Question 78

What should employees typically do to earn bonuses under the Scanlon plan?

A) They should produce products at a rate much higher than the standard production time.
B) They should create goodwill with customers and close as many sales as possible.
C) They should follow a defined set of quality standards to produce the desired outcome.
D) They should keep labor costs to a minimum and produce as much as possible with that amount of labor.
E) They should improve their performance year after year so that they re-earn the bonus during each performance period.

Question 79

The link between employees' performance and pay is hardest to establish in

A) piece rate plans.
B) merit pay plans.
C) standard hour plans.
D) stock ownership plans.
E) Scanlon plans.

Question 80

What is a disadvantage of using group bonuses?

A) Physical outputs are not rewarded.
B) It reduces the level of cooperation between the members of the group.
C) The performance measures used are narrow.
D) It could result in competition among groups.
E) It cannot be used to promote specific goals.