Deck 12: Recognizing Employee Contributions With Pay

Question 1

One solution to profit-sharing during a downturn is to design plans that have upside but not downside risk.

Answer 1

True
Explanation: One solution to profit-sharing during a downturn is to design plans that have upside but not downside risk. In such cases, when a profit sharing plan is introduced, base pay is not reduced.

Question 2

Deferred profit-sharing plans increase employee motivation.

Answer 2

False
Explanation: One of the factors that reduces motivational impact of profit sharing plans is that most plans are of the deferred type. 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.

Question 3

In incentive pay programs, annual pay increases are usually linked to performance appraisal ratings.

Answer 3

False
Explanation: In merit pay programs, annual pay increases are usually linked to performance appraisal ratings. In incentive pay programs, pay increases are paid as bonuses.

Question 4

Merit pay has the ability to define and reward a broad range of performance dimensions.

Question 5

Gainsharing programs offer a means of sharing productivity gains with employees based on organization-level performances.

Question 6

Pay plans are typically used to energize, direct, or control employee behavior.

Question 7

Gainsharing plans encompass more than just a monetary component.

Question 8

Valence of pay outcomes should change according to different pay systems.

Question 9

Performing interesting work is an example of an extrinsic reward.

Question 10

Merit pay systems rely on 360-degree performance feedback.

Question 11

According to
E. L. Thorndike's Law of Effect states that a response followed by a reward is more likely to recur in the future. High performance not followed by a reward will make it less likely in the future.
E. L. Thorndike's Law of Effect, high performance followed by a reward will motivate employees to repeat the performance and make it recur more often in the future.

Question 12

The performance motivation of stock option plans is particularly high from a reinforcement theory standpoint.

Question 13

Individual incentives are rolled into base pay of employees.

Question 14

In merit pay systems, performance is measured based on supervisor's rating.

Question 15

The flow of feedback tends to be multi-directional in merit pay programs.

Question 16

Employee stock ownership plans (ESOPs)carry significant investment risks for employees.

Question 17

Employee stock ownership plans (ESOPs)give employees the right to vote their securities if registered on a national exchange.

Question 18

Perceptions of inequity may cause employees to take actions that may not help the organization.

Question 19

One way of achieving employee ownership is through stock options, which give employees the opportunity to buy stock at a fixed price.

Question 20

An employee's assessment of the fairness of his or her compensation based on how much pay they receive is referred to as procedural fairness.

Question 21

According to expectancy theory, motivation is hypothesized to be a function of _____.

A)cognitive capacity
B)social structure
C)genes
D)instrumentality
E)self-esteem

Question 22

With respect to employee participation in decision making, the more agents there are, the lesser the monitoring cost.

Question 23

The Securities and Exchange Commission (SEC)requires companies to report compensation levels for the five highest paid executives.

Question 24

Agency costs are likely to arise when _____.

A)principals and agents have different goals
B)owners and managers are the same
C)stockholders are involved in day-to-day operations of the company
D)the stockholders are aware of the degree to which the agents are pursuing the principal's goals
E)there is information symmetry between the agent and the principal

Question 25

Separating the functions of principals and agents is likely to result in:

A)immobility of financial capital.
B)diversification of investment risk.
C)reduction in agency costs.
D)better goal congruence.
E)information symmetry.

Question 26

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires shareholders to have a "say on pay," meaning that they have the right to a (nonbinding)vote on executive pay plans.

Question 27

According to the expectancy theory, compensation systems differ according to their impact on the components of motivation; the main influence of compensation is on _____.

A)expectancy
B)instrumentality
C)reinforcement
D)valence
E)equity

Question 28

_____ focuses on the link between rewards and behaviors and emphasizes anticipated rewards.

A)Equity Theory
B)Agency theory
C)Expectancy theory
D)Theory Z
E)McGregor's Theory X

Question 29

Expectancy theory implies that linking an increased amount of rewards to performance will increase motivation and performance. Followers of cognitive evaluation theory are likely to question this assumption, arguing that:

A)monetary rewards may decrease extrinsic motivation.
B)intrinsic rewards do not affect job satisfaction.
C)monetary rewards may decrease intrinsic motivation.
D)extrinsic rewards are not effective for managers.
E)behaviors are determined by genes rather than reinforcement.

Question 30

When an organization has a growth strategy, the short-run pay level and benefit level tend to be below market level.

Question 31

_____ can be described as a function of ability and motivation.

A)Attitudes
B)Behaviors
C)Values
D)Rewards
E)Goals

Question 32

Relying exclusively on merit pay or individual incentives may result in high levels of work motivation but unacceptable levels of individualistic and competitive behavior.

Question 33

_____ perception is the perceived link between effort and performance.

A)Reinforcement
B)Actual
C)Expectancy
D)Agency
E)Equity

Question 34

Which of the following is true of how agents may differ from principals?

A)Agents can diversify the risks more easily.
B)Agents are more likely to pursue projects with high potential payoffs.
C)Agents can diversify investments better.
D)Agents are more averse to risk.
E)Agents are likely to prefer more emphasis on uncertain incentives than base pay.

Question 35

E. L. Thorndike's Law of Effect states that _____.

A) a response followed by a reward is more likely to recur in the future
B) behavior is a function of ability and knowledge
C) valence of pay outcomes should vary under different pay systems
D) monetary incentives increase intrinsic motivation
E) principals have perfect information on the degree to which an agent is pursuing goals

Question 36

Which of the following is most likely to provide extrinsic motivation to employees?

A)Autonomy
B)Challenging tasks
C)Variety of work
D)Recognition
E)Responsibility

Question 37

Which of the following components is a perceived link between behavior and pay?

A)Expectancy
B)Instrumentality
C)Reinforcement
D)Valence
E)Equity

Question 38

Which of the following theories suggests that high employee performance not followed by a monetary reward will make future high performance less likely?

A)Herzberg's Two-factor theory
B)Reinforcement theory
C)Freud's Psychoanalytical theory
D)McGregor's Theory X
E)Theory Z

Question 39

According to the agency theory, the principals are the _____.

A)managers
B)customers
C)owners
D)vendors
E)employees

Question 40

Which of the following is most likely to provide intrinsic motivation?

A)A sponsored vacation to Europe
B)A monthly salary of $10,000
C)Medical insurance
D)Paid leave for three months
E)An interesting work assignment

Question 41

Which of the following is a compensation program that relates costs to the ability to pay?

A)Skill-based program
B)Incentive pay
C)Fixed pay
D)Merit pay
E)Profit sharing

Question 42

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

A)Gainsharing plan
B)Incentive pay
C)Ownership
D)Merit pay
E)Profit sharing

Question 43

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

A)Fixed pay
B)Merit pay
C)Gainsharing
D)Incentive pay
E)Skill-based pay

Question 44

As jobs become less programmable:

A)outcome-oriented contracts become less likely.
B)monitoring becomes less difficult.
C)behavior-oriented contracts become less likely.
D)the agent's risk decreases.
E)the requirement for compensating wage deferential increases.

Question 45

Which of the following statements about outcome-oriented or behavior-oriented contracts is true?

A)Merit-pay is an example of an outcome-based contract.
B)Behavior-oriented contracts do not transfer risk to the agent.
C)Outcome-oriented contracts do not require a compensating wage differential.
D)Outcome-oriented contracts decrease the agent's risks.
E)In behavior-based contracts, information asymmetry is not an important issue.

Question 46

Which of the following is likely to occur when pay for performance with stronger incentive intensity is replaced with one having a weaker incentive pay?

A)Greater motivation for employees in sales, executives, and stock brokers
B)Motivation for high performers to stay with the organization and improve their efficiency
C)Greater chance for unintended, undesirable behavior driven by pay-linked incentives
D)Excessive risk-taking for greater premium and compensation
E)Competitors possibly winning over high performers with stronger incentive intensity

Question 47

Which type of compensation program is most likely to attract learning-oriented employees?

A)Skill-based pay
B)Merit pay
C)Incentive pay
D)Gainsharing
E)Profit sharing

Question 48

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

A)gainsharing plan
B)profit sharing plan
C)merit pay plan
D)ownership plan
E)skill-based plan

Question 49

Agency theory is of particular value in compensation management because of its emphasis on the _____ trade-off.

A)performance-reward
B)risk-reward
C)motivation-reward
D)ability-reward
E)behavior-reward

Question 50

Which of the following makes outcome-oriented contracts less likely to occur?

A)Risk aversion among agents
B)High outcome uncertainty
C)More programmable jobs
D)Less measurability of outcomes
E)Low risk premium in compensations

Question 51

Culture based on _____ is most likely to prevail in companies that use a profit-sharing compensation program.

A)individual competition
B)knowledge of business
C)sense of ownership
D)problem solving orientation
E)learning and flexibility

Question 52

Overtime pays better performers more in _____ programs.

A)merit pay
B)profit sharing
C)gainsharing
D)skill-based
E)ownership

Question 53

Which of the following is an example of a behavior-oriented contract?

A)Stock option
B)Profit sharing
C)Commission
D)Merit pay
E)Revenue sharing

Question 54

In skill-based pay systems, performance measures are primarily based on _____.

A)supervisor's appraisal
B)individual productivity
C)company profits
D)company stock returns
E)employees' competency acquisition

Question 55

Agents prefer a behavior-based contract when _____.

A)they are inclined to take more risks
B)job outcomes are more measurable
C)they desire higher compensation
D)outcome uncertainty is high
E)jobs become less programmable

Question 56

In incentive pay, performance measures are primarily based on _____.

A)supervisor's appraisal
B)individual productivity
C)company profits
D)company stock returns
E)production costs

Question 57

______ refer to decisions about whether to join or remain with an organization.

A)Membership behaviors
B)Organizational behaviors
C)Group dynamics
D)Organizational structure
E)Organizational norms

Question 58

Which of the following is true about outcome-oriented contracts?

A)They require more supervision than behavior-oriented contracts.
B)When profits drop, agent's compensation goes up in outcome-oriented contracts.
C)Agents do not demand compensating wage differentials in such contracts.
D)Agents face minimal risks in such contracts.
E)They are typically a major component of executive compensation.

Question 59

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

A)Encourage the agent to maximize his/her benefits.
B)Provide complete autonomy to the agent.
C)Discourage the agent from pursuing projects with high potential payoffs.
D)Increase information asymmetry and goal congruence.
E)Align the agent's interests with the principal's interests.

Question 60

Which of the following is true of how managers may differ from shareholders?

A)Managers can diversify the risks more easily.
B)Managers are more likely to pursue projects with high potential payoffs.
C)Managers diversify investments more easily.
D)Managers are less averse to risk.
E)Managers are likely to prefer more emphasis on uncertain incentives than base pay.

Question 61

Which of the following is true of individual incentives?

A)They contribute to a more disintegrated workforce.
B)They are helpful in the pursuit of total quality management objectives.
C)They encourage employees to go beyond the call of duty.
D)They reduce the motivation of acquiring multiple skills and proactive problem solving.
E)They must be continuously earned and re-earned.

Question 62

By law, what percent of assets must an employee stock ownership plan (ESOP)invest in its company's stock?

A)26 percent
B)51 percent
C)80 percent
D)75 percent
E)76 percent

Question 63

Which of the following makes employee stock ownership plans (ESOPs)less attractive?

A)Less diversification of investment risk
B)Lack of tax and financial advantages
C)High levels of liquidity
D)Inability to serve as a takeover defense
E)Giving employees the right to vote their securities

Question 64

Which of the following is a criticism of traditional merit pay programs?

A)Peer and subordinate ratings are frequent and they tend to receive more weight than supervisory ratings.
B)The feedback under this system tends to occur too frequently, which may cause average employees to feel more discouraged than appreciated.
C)The program lacks emphasis on individual performance and focuses too much on teamwork.
D)The program often involves gathering inappropriate feedback from external sources.
E)Employees are encouraged to focus on personal gains than what is good for the organization.

Question 65

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

A)Unlike ownership plans, base pay is not reduced when profit-sharing plans are introduced.
B)Ownership plans focus on the success of the organization as a whole unlike profit-sharing plans.
C)Profit sharing plans promote individual competition whereas ownership plans promote group competition.
D)The link between pay and performance is less obvious under ownership than under profit sharing.
E)Ownership plans promote individual competition whereas profit-sharing plans promote group competition.

Question 66

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

A)distributive
B)procedural
C)quantitative
D)ownership
E)outcome

Question 67

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

A)company's annual output
B)attrition rate in the company
C)company's stock price
D)recruitment ratio
E)individual's performance rating

Question 68

Which of the following pay programs has the highest frequency of payout?

A)Merit pay
B)Profit sharing
C)Skill-based
D)Incentive pay
E)Gainsharing

Question 69

Which of the following is an example of an ownership plan used in compensation systems?

A)Gainsharing plans
B)Profit sharing programs
C)Group incentives
D)Stock options
E)Individual incentive plans

Question 70

In _____ programs, annual compensation increases are usually linked to performance appraisal ratings.

A)skill-based pay
B)gainsharing
C)merit pay
D)incentive pay
E)cost-based pay

Question 71

Which of the following is a design feature according to which employee contribution programs differ?

A)Employees' skills
B)Type of work
C)Frequency of payout
D)Number of employee groups
E)Company's annual output

Question 72

In merit pay programs, an individual's compa-ratio represents his or her _____.

A)ability to multitask
B)performance rating
C)position in the pay range
D)knowledge of business
E)ratio of pay to benefits

Question 73

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

A)merit pay
B)profit-sharing
C)stock option
D)gainsharing
E)individual incentive

Question 74

From a(n)_____ standpoint, the effect on performance motivation may be limited in ownership program because of the less obvious link between pay and performance.

A)agency theory
B)equity theory
C)efficiency wage theory
D)reinforcement theory
E)contract theory

Question 75

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

A)It promotes individual goals rather than organizational goals.
B)It promotes competition between work groups.
C)It increases the probability of individual competition.
D)It fails to make labor costs more variable.
E)It runs the risk of contributing to employee dissatisfaction.

Question 76

In a merit increase grid, the _____ determines the size and frequency of pay increases.

A)time spent in the current pay grade
B)overall profitability of the company
C)employees' seniority
D)compa-ratio of employees
E)the skills developed by the employee

Question 77

A(n)_____ plan gives employees the opportunity to buy the company's shares at a previously fixed price.

A)mutual fund
B)gainsharing
C)group incentive
D)profit sharing
E)stock option

Question 78

In a(n)_____ plan, performance is usually measured as physical output and the payment is not rolled into the base pay.

A)skill-based
B)profit sharing
C)individual incentive
D)merit pay
E)gainsharing

Question 79

Allan works as a typesetter in a publishing company. If the organization uses merit pay programs, Allan's salary would be based primarily on information collected from _____.

A)his colleagues
B)the human resource manager
C)his immediate supervisor
D)Allan himself
E)performance indicators

Question 80

Employees assess fairness along the distributive dimension when their assessment is based on _____.

A)organizational procedures
B)the systems used to assess performance
C)how much they receive
D)the supervisors' feedback
E)their judgment of the management