HR MGMT Ch 13

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

True

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

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.

True

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

True

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.

True

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.

True

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

True.

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

True

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

True

A pay structure specifically designed to energize, direct, or control employees’ behavior is known
as:

Incentive pay

Vactin 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. Which of the following is exemplified in this scenario?

Incentive Pay

A feature of an effective incentive pay plan is that it should:

Have performance measures linked to the organization’s goals.

The many kinds of incentive pay fall into three broad categories: _____

Incentives linked to individual, group, or organizational performance.

Which of the following is a disadvantage of using incentive plans?

The goals of an inventive plan may interfere with other management goals. In the process of designing incentives, managers should make sure that:

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

All the employees are paid the same amount.

For incentive pay to motivate employees to contribute to the organization’s success, the pay plans
must be well designed. Which of the following statements would strengthen this argument?

Employees will value the rewards for incentives that are being offered.

Which of the following types of incentive plans are used to reward individual performance?

Merit Pay

Token Inc. is an envelope manufacturer based in Dallas. The employees of the organization receive incentive 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 an incentive in addition to wages and salaries. In this case, which of the following incentives is offered by Token Inc.?

Piecework Pay

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

Piecework Rate Plan

A piecework rate plan is best suited for:

Production Workers

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

Piecework Rate

Wayan Inc., a health care insurance company, pays an incentive based on the average work per hour. Wayan pays $10 for billing 20 medical charts per hour. An employee who bills 30 charts would earn
$15 per hour. Hence, Wayan pays the same rate per chart no matter how many charts an employee produces per hour. Which of the following is being exemplified in this scenario?

Straight Piecework Plan

An employee at CellWorks who produces 10 components in an hour earns $9 ($.90 × 10) per hour, while another employee who produces 15 components earns $13.50 ($.90 × 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 statements is true about a piecework rate plan?

It has a direct link between the work done by the employee and the amount earned,

The differential piece rates system refers to:

An incentive pay in which the piece rate is higher when a greater amount it produced.

Piecework rate plans are most suited for _____.

Routine jobs

Johan, a manager of a construction company, believes that a piecework plan benefits all types of
work areas. However, his colleague, George, argues that a piecework plan is not suitable for a few complex jobs and that it might have a negative impact on the work production. Which of the following statements, if true, strengthens George’s argument?

Complex ops involve the coordination of many team members to complete tasks.

A standard hour incentive plan is likely to be successful if:

Employees want the extra money more than they want to work at a pace that feels comfortable.

upiter Systems, an information technology company, determines a particular time to complete a particular task. Even if an employee completes the allotted task before the time of completion, the employee receives an amount of pay equal to the wage for the designated time. Which of the following payment methods is exemplified in this scenario?

Standard hour plan

Jeff 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, Jeff is using the:

Standard hour plan

Which of the following statements is true about standard hour plans?

They encourage employees to work as fast as they can.

Which of the following is a drawback of a standard hour plan?

It does not focus on quality or customer service

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

Merit Pay

_____ gives the biggest pay increases to the best performers and to those whose pay is relatively low
for their job.

Merit Pay System

In a company’s merit pay program, individuals’ compa-ratio represents their:

Pay relative to average pay

Merit pay system decisions are based on two factors: an individual’s performance rating and their:

Compa-ratio.

Michael, formerly a model employee at his organization, has recently begun losing interest in his
work due to personal and financial issues. He has spoken to his manager about leaving the company, complaining that he hasn’t been receiving enough recognition for his work of the last 12 years. In
an effort to change Michael’s mind, his manager decides to give him a large amount of money as an incentive. In this scenario, Michael’s manager is giving him ___.

Retention Bonus

Songreen 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 of the following payment plans is exemplified in this scenario?

Merit Pay

Julianna, the HR manager at Hudson Corp., is facing criticism from the company’s high-performing
employees for the lack of an effective incentive scheme that rewards them with the necessary pay. The company has avoided paying out incentives in addition to employees’ monthly salary in an attempt to minimize costs. But, after the last annual meeting, it has been decided to pay employees an incentive amount based on their performance ratings and their compa-ratio. In this scenario, Julianna would be applying the system of:

Merit Pay

The primary function of a merit increase grid is to:

Make the increases consistent

Alex, a researcher, claims that an exceptional employee with low pay will benefit more than his or her co-workers, who receive significantly better pay but perform below expectations, in a merit pay system. Which of the following statements strengthens Alex’s claim?

A higher pay range results in a lower comps-ratios causing bigger merit raise.

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

Individuals performance ratings

Which of the following is an advantage of the merit pay incentive system?

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.

Merit pay

Which of the following statements 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.

Gerald, the CEO of Logiworks, decides to scrap the current individual incentive pay scheme for a
group incentive structure in an effort to increase the overall benefit to the organization. Which of the following statements, if true, would weaken his decision?

The employees were unaware of the impact of their actions on the company’s finances.

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

Commission

Which of the following is most likely a consequence of paying most or all of a salesperson’s compensation in the form of commissions?

It encourages the salesperson to focus on closing the sale

Straight commission plans are plans which:

Are common among insurance and real estate agents.

Which of the following incentive plans are specifically designed to promote group performance?

Gainsharing

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

Gainsharing

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

Gainsharing

Which of the following incentive programs measures improvements in productivity and effectiveness
and distributes a portion of the earnings to all employees?

Gainsharing

The distribution of a portion of a company’s earnings to its employees will motivate them to focus more on efficiency and productivity. Which of the following would strengthen this argument?

Employees consider the organization’s goal along with their personal interests.

QVO 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% of the improvement might be the company’s share. The other 40% would be distributed among the employees in the company. Which of the following is being exemplified in this scenario?

Gainsharing

Jennifer believes that the challenge of identifying appropriate performance measures for complex jobs can be resolved by implementing a gainsharing plan. Natalie argues that it is a poor incentive program
in an organization that wants to encourage teamwork. Which of the following statements weakens Natalie’s argument?

It oversimplifies the responsibilities involved in teamwork and motivates employees to work hard.

Which of the following is a common condition for gainsharing to be a success in an organization?

Employees who value working in groups.

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

Gainsharing

A multi-national 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

Developed in the 1930s, the Scanlon plan is a variation of the:

Gainsharing plans

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

They should keep labor costs to a minimum and produce as much as possible with the amount of labor.

The Rudd-Mitchell 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%. The employees will be given a bonus if the actual labor costs are less than:

$1.5 million

What is the difference between bonuses and team awards?

Bonuses reward attainment of goals measured in terms of physical output, whereas teams 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?

They result in groups trying to outdo one another in satisfying customers and thus create healthy competition.

Which of the following is a disadvantage of using group bonuses?

It could result in competition among groups.

_____ 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.

Profit Sharing

Which of the following is an organization-level incentive plan that is intended to motivate employees
to align their activities with the organization’s goals?

Profit sharing

Which of the following best describes 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

Which of the following would be a reason for organizations to implement profit sharing?

It cots 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?

Profit Sharing

Mike, 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 of the following statements strengthens Mike’s argument?

Profit sharing helps employees to cooperate and to focus on organizational interests.

Identify the disadvantage of using profit sharing plans.

Profit sharing is not directly linked to individual behavior.

Sheldon, 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, Sheldon should:

Implement a profit-sharing incentive plan.

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

Financial benefit mostly come when the employee leaves the organization.

The link between employees’ performance and pay is harder to establish in:

Stock ownership plans.

In the context of stock options, _____ is called exercising the option.

Purchasing stock

Which of the following statements is true of using stock options as incentive pay?

Stock options are rewarding for employees who exercise their option when the company’s stock value has risen.

Maria, an employee of a finance company, believes that purchasing the company’s stock will
always be profitable regardless of the stock’s market value. She feels that stock options are long- term incentive plans that make employees part owners of the organization. Which of the following statements contradicts Maria’s belief?

Stock prices in the market may fall below their purchased level.

In 2014, 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 2016, the employee will most likely:

Not bother to exercise the options.

Alan, a manager at Conephase, decides to sell his shares at the current market value. He had purchased the stock at $20 per share a few years ago. However, the current market rate per share is $15. In this case, Alan should:

Avoid selling the stock and wait for the market value to be higher than $20.

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.

Electrix Inc. is an electrical appliances manufacturing company. It distributes shares of stock to its
employees by placing the stock in a trust managed on the employees’ behalf. Which of the following has been implemented by Electrix in this scenario?

Employee stock owernship plan.

In the context of stock ownership, 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 an employee stock ownership plan (ESOP)?

Stock options are usually granted to company executives whereas ESOP’s are provided to all employees.

Which of the following is a reason for ESOPs’ popularity

ESOPs provide bak advantages to employers.

By law, what is the minimum percentage of assets that an ESOP must invest in its company’s stock?

51.

Employee stock ownership plans (ESOPs) are attractive to employers. Along with tax and financing
advantages, ESOPs give employers a way to build pride in and commitment to the organization. Which of the following statements weakens this argument?

Risks involved will directly affect employees’ retirement income.

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?

Balanced scorecard.

Which of the following best describes 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.

Kelltech Inc. is a sales and marketing company based in Baltimore. It wants to combine the advantages of different incentive-pay plans and help employees understand the organization’s goals. Which of the following will help the company accomplish this goal?

A balanced scorecard

Which of the following statements is true about a balanced scorecard?

It combines the advantages of different incentive pay plans and 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?

A balanced scorecard

Employee participation in pay-related decisions can be part of a general move toward:

Employee empowerment

If employee participation in making pay-related decisions is encouraged in an organization, then:

The incentive plan has more chances of being successful.

Keytechi and Sons, a marketing company, has implemented a few incentive plans to motivate its
employees. The organization encourages employees to learn new skills and cooperate with others. Which of the following will contribute to employees’ feeling that the organization’s incentive pay plans are fair?

Employees must able to understand the requirements of the incentive pay plan.

Employees should participate in pay-related decisions. This will most likely help in the success of incentive plans, and the plans are more likely to influence employee behavior as desired. Which of the following statements weakens this argument?

Employees will make decisions that are in their best interests at the expense of the organization’s interests.

Harry, the HR manager at Kopi Co., has been asked to reward good performance. However, the
budget allocated for rewards is limited. He therefore decides to offer raises to a few employees
and spot bonuses to the remaining employees. Which of the following would further strengthen his decision?

The organization bellies that merit pay is for exceptional and not regular work.

Ashance Inc., a manufacturing company, includes bonuses based on the year’s profits or other measures related to the organization’s goals as an incentive method. Sometimes, to gain tax advantages, the actual payment of the bonus is deferred. Which of the following is being exemplified in this scenario?

Short-term incentive

Which of the following is a short-term incentive?

Return on investment

Kolese Inc., a manufacturing company, includes stock options and stock purchase plans. Executives at
the company will want to do what is best for Kolese because that will cause the value of the stock to grow. Which of the following is being exemplified in this scenario?

Long-term incentive.

Which of the following is a long-term incentive?

Stock option

How does the balanced scorecard help organizations deal with unethical behaviors of executives?

It ensures that by rewarding the achievement of a variety of goals, temptation on the executive’s part to gain bonuses by manipulating date are reduced.

The _____ has required companies to more clearly report executive compensation levels and the
company’s performance relative to that of competitors.

Securities and Exchange Commission

How does linking executive pay to stock performance lead to unethical behavior?

Executives can use the advantage of knowing the company’s inside information to buy or sell stock and create huge personal gains.