Strategic Compensation in Canada 4Th edition By Richard Long – Test Bank

Complete Test Bank With Answers

 

 

Sample Questions Posted Below

 

Chapter 5: Performance Pay Choices

TRUE/FALSE

1. Merit bonuses represent a permanent increase to base pay.

ANS: F PTS: 1 REF: 163 OBJ: 2

2. If an organization has a “promote from within” policy, it doesn’t really need any other rewards to

motivate behaviour.

ANS: F PTS: 1 REF: 164 OBJ: 1

3. Attendance programs are less risky for organizations in which intrinsic motivation is low in the first

place.

ANS: T PTS: 1 REF: 172 OBJ: 1

4. All things being equal, goal sharing programs are thought to be less motivational than gain sharing

programs.

ANS: F PTS: 1 REF: 177 OBJ: 2

5. To qualify as having an employee profit sharing plan a firm must have a formal program in which

payments based on profits are made to a wide cross section of employees.

ANS: T PTS: 1 REF: 179 OBJ: 2

6. The three types of profit sharing plans are the current distribution plan, the deferred payout plan, and

the amortization plan.

ANS: F PTS: 1 REF: 181 OBJ: 3

7. The three main types of employee stock plans are: stock bonus plans, stock purchase plans and stock

option plans.

ANS: T PTS: 1 REF: 184 OBJ: 3

8. Employee stock plans are simpler to implement in privately-held rather than publicly-traded

corporations.

ANS: F PTS: 1 REF: 187 OBJ: 3

9. Profit sharing plans can reduce the need for employee supervision.

ANS: T PTS: 1 REF: 189 OBJ: 3

10. The use of long-term incentive plans is of little value to most firms.

ANS: T PTS: 1 REF: 189 OBJ: 3

MULTIPLE CHOICE1. 2. 3. 4. 5. 6. Which of the following pay plans is geared to individual performance?

a. Profit sharing

b. Competency-based

c. Gain-sharing

d. Piece rates

ANS: D PTS: 1 REF: 151 OBJ: 1

BLM: Remember

What is the most common form of performance pay used by medium to large Canadian firms?

a. Merit raises

b. Profit sharing

c. Merit bonuses

d. Commissions

ANS: A PTS: 1 REF: 152 OBJ: 1

BLM: Understand

A typical tree planter should be able to plant thirty trees in an hour. You have determined the average

amount of money a worker with the skills and abilities to plant trees should earn hourly is $18. What is

the straight piece rate paid to your employees?

a. $30

b. $1.66

c. $0.60

d. $18

ANS: C PTS: 1 REF: 153 OBJ: 1

BLM: Apply

Individual performance pay plans generally focus on promoting which type of behaviour?

a. Organizational citizenship

b. Membership

c. Task

d. Citizenship and membership

ANS: C PTS: 1 REF: 153 OBJ: 1

KEY: Understand BLM: Understand

Which of the following best explains why, despite their motivational potential, piece rate systems often

do not motivate maximum effort?

a. b. c. d. Work group norms define acceptable rates of production.

Piece rates are used in conjunction with base pay.

Workers may be tempted to cut corners on quality.

Workers are more concerned with production than safety.

ANS: A PTS: 1 REF: 154 OBJ: 1

BLM: Understand

What can you offer your employees to balance out the self-centered perspective, caused by your piece

rate system, and encourage citizenship behaviour?

a. Perks

b. Employee stock ownership

c. Merit bonuses

d. Suggestion system7. 8. 9. 10. 11. 12. ANS: B PTS: 1 REF: 156 OBJ: 1

BLM: Understand

Which of the following terms is used to describe pay that is geared only to the volume of sales or

transactions, with no base pay component?

a. Sales commission

b. Leverage selling

c. New market selling

d. Straight commission

ANS: D PTS: 1 REF: 157 OBJ: 1

BLM: Remember

In what way is piece rates and commissions similar to each other?

a. b. c. d. Employees don’t have to worry about working themselves out of a job.

They reduce the need for external control of employees through supervision.

Both types are commonly used in conjunction with base pay.

Both are popular systems widely used in the service sector.

ANS: B PTS: 1 REF: 157 OBJ: 1

BLM: Analyze

Which of the following terms is used to describe a pay system in which an employee receives regular

advances against future commissions to smooth out income fluctuations?

a. Sale stipend system

b. Draw system

c. Pay advance system

d. Security income

ANS: B PTS: 1 REF: 160 OBJ: 1

BLM: Remember

When should the proportion of base pay relative to commission be higher?

a. b. c. d. The more that each salesperson works independently of others.

The shorter the length of the sales cycle.

The greater the concern for high turnover.

The higher the degree of persuasive skills required.

ANS: C PTS: 1 REF: 160 OBJ: 1

BLM: Understand

What differentiates merit pay from other types of performance pay, such as piece rates, sales

commissions, and target incentives?

a. b. c. d. Merit pay can be used as a substitute for time-based pay.

Merit pay is based on specific aspects of performance.

Merit pay is rarely used in combination with base pay.

Merit pay is generally based on appraised performance.

ANS: D PTS: 1 REF: 161 OBJ: 1

BLM: Understand

Which of the following statements best describes a merit raise?

a. b. c. A promise of future payments

A permanent pay raise that recognizes past performance

An increase that is tax exempt13. 14. 15. 16. 17. 18. d. A lump sum reward for past performance that does not increase base pay

ANS: B PTS: 1 REF: 161 OBJ: 1

BLM: Remember

From an employee’s perspective, why are merit bonuses seen as less valuable than merit raises?

a. b. c. d. Employees have little confidence in the results of performance appraisal.

Bonuses can cause poor relations with supervisors and coworkers.

Bonuses are given in lump sum payments and apply only for one year.

Bonuses are not suited for work that depends on collaboration and cooperation.

ANS: C PTS: 1 REF: 163 OBJ: 1

BLM: Understand

Your employer is considering tying the bonus pool to the firm’s profitability and then allocating this

amount to employees based on individual merit. With reference to expectancy theory, which

component of the merit system will be weakened and thus make it less motivational for you as an

employee?

a. Valence

b. Expectancy

c. Instrumentality

d. Effort

ANS: C PTS: 1 REF: 163 OBJ: 1

BLM: Analyze

According to the Peter Principle when will employees stop being promoted?

a. b. c. d. When they reach their level of incompetence.

When promotions are limited to family members.

When technical tracks are not available.

When fewer upper-level vacancies exist.

ANS: A PTS: 1 REF: 165 OBJ: 1

BLM: Remember

Which of the following is not a suitable condition for merit pay?

a. Individual performance that varies

b. c. d. Performance that is not controllable by the individual

Individual performance can be separated out

Undesirable side effects are readily manageable

ANS: B PTS: 1 REF: 166 OBJ: 1

BLM: Understand

Which of the following statements refers to a targeted incentive?

a. b. c. d. A payment to work teams if they achieve a certain goal

Aimed at a specific individual

Intended to reduce compensation costs

Focused on a specific behaviour

ANS: D PTS: 1 REF: 168 OBJ: 1

BLM: Remember

Your instructor has offered class members bonus marks for volunteering as campus tour guides. is referred to as which type of performance pay plan?

a. Goal sharing

This19. 20. 21. 22. 23. 24. b. Merit

c. Special-purpose incentive

d. Commission

ANS: C PTS: 1 REF: 168 OBJ: 1

BLM: Apply

In what circumstance are special-purpose incentives least appropriate?

a. b. c. d. Intrinsic motivation does not already exist.

Both intended and unintended behaviours are easy to observe.

No other alternatives for inducing desired behaviour are feasible.

The company is using a high-involvement managerial strategy.

ANS: D PTS: 1 REF: 172 OBJ: 2

BLM: Understand

From an employer’s point of view, what is the most attractive feature of gain-sharing plans?

a. The plans are self-funding.

b. c. d. Positive work group norms develop.

The need for supervisory control is reduced.

Employees monitor each other’s performance.

ANS: A PTS: 1 REF: 174 OBJ: 2

BLM: Understand

Which of the following is an advantage of goal-sharing plans?

a. b. c. d. Each employee establishes his/her own goals.

Cost savings are quantified and shared.

Management establishes outcomes for each employee.

They are less complex to develop than gain sharing.

ANS: D PTS: 1 REF: 177 OBJ: 2

BLM: Understand

As the owner of a real estate firm with multi-office operations, you provide a bonus to all sales

personnel in the highest-producing office each month. What type of performance pay plan are you

using?

a. Goal-sharing

b. Competitive bonus

c. Pooled performance

d. Group commissions

ANS: B PTS: 1 REF: 179 OBJ: 2

BLM: Apply

Which of the following are main types of profit sharing plans?

a. b. c. d. Current assessment plan, delayered plan, and blended plan

Deferred plan, cash plan, and group plan

Combination plan, deferred plan, and current distribution plan

Current distribution plan, combination plan, and delayered plan

ANS: C PTS: 1 REF: 180 OBJ: 3

BLM: Remember

Which of the following plans allows you to defer a portion of your annual profit sharing bonus to help

build your retirement income?25. 26. 27. 28. 29. 30. a. Deferred profit sharing

b. Combination profit sharing

c. Current distribution

d. Cash plan

ANS: B PTS: 1 REF: 181 OBJ: 3

BLM: Understand

When is profit sharing most important to a company?

a. b. c. d. When the company’s share value is very high.

When the employees are unionized.

When the company is privately owned.

When the firm has a high need for cooperation.

ANS: D PTS: 1 REF: 181 OBJ: 3

BLM: Understand

What do employees receive under an employee stock bonus plan?

a. b. c. d. Shares at no cost to themselves

The cash value of phantom shares

A bonus equivalent to the increase in their share value

Free financial advice on stocks

ANS: A PTS: 1 REF: 184 OBJ: 3

BLM: Understand

For employees, what is the main concern with a stock plan?

a. b. c. Stock plans are difficult to understand.

There are too many variations on their execution.

They pose too much of a tax burden.

d. Share value is unpredictable.

ANS: D PTS: 1 REF: 186 OBJ: 3

BLM: Understand

Which of the following managerial practices, combined with an employee stock plan, will increase the

performance effects of employee ownership?

a. Sharing financial information about the company

b. The use of work teams

c. Training and development

d. Employee participation in decision making

ANS: D PTS: 1 REF: 187 OBJ: 3

BLM: Understand

These plans are set up so that a payout is contingent on the achievement of three- to five-year

performance goals.

a. Pension plans

b. Long-term incentives

c. Deferred profit-sharing plans

d. Goal-sharing plans

ANS: B PTS: 1 REF: 188 OBJ: 3

BLM: Remember

In general, individual performance pay fits best with which managerial strategy?a. Classical

b. Human relations

c. High involvement

d. Hybrid

ANS: A PTS: 1 REF: 190 OBJ: 1

BLM: Understand

SHORT ANSWER

1. 2. 3. Identify and briefly explain the nature of individual performance pay plans.

ANS:

Individual performance pay plans – piece rates, sales commissions, merit pay, and special-purpose

incentives – generally focus on promoting task behaviour. Under piece rates , an employee receives a

specified sum of money for each unit of output produced or processed. They are commonly used in

manufacturing and service sectors. Sales commissions are used to compensate sales personnel in a

variety of industries. Sales associates receive a certain percentage of their gross sales. The

commission rate often varies depending on the products or services sold. Merit pay is used to

recognize and encourage continuing good performance and, unlike the other types of performance pay,

is based on appraisals of overall employee performance. Special-purpose incentive programs

(sometimes referred to as “targeted incentive programs”) are intended to promote and reward certain

behaviours that are of special importance to an organization, or to counteract behaviours that are

causing problems. Such incentives are most appropriate in circumstances where intrinsic motivation

does not already exist, where both intended and unintended behaviours are easy to observe, and where

no other alternatives for inducing the desired behaviour are feasible.

PTS: 1 REF: 152 OBJ: 1

Discuss the nature of suggestion systems and some of the problems you need to be aware of.

ANS:

Suggestion systems are intended to promote and reward innovative thinking by employees.

Employees are encouraged to submit suggestions that may improve organizational effectiveness in

exchange for cash bonuses. The components of such a system are as follows: a system through which

suggestions are channeled, a systematic process for evaluating them, and an incentive for submitting

usable ideas. Problematic issues include the following: non accepted ideas cause resentment and a

reluctance to contribute further suggestions, employees may feel that the amount of the award is not

equitable compared to the cost savings realized by the company, supervisors resent employees who

make suggestions feeling this is a negative reflection of managers’ performance, co-workers resent

suggestions that disrupt existing work practices, and who receives credit for the idea if developed by

several individuals.

PTS: 1 REF: 171 OBJ: 1

Explain the difference between goal sharing and gain sharing plans.

ANS:4. 5. The core of goal sharing is that work groups or teams receive a bonus when certain pre-specified

performance goals are met, while, under gain sharing, cost savings are quantified and then shared

between the company and the group. Under goal sharing, goals on one or more performance indicators

are set for each group or team, are to be met within a specified timeframe, and a bonus is paid to all

team members if the goal is achieved. Under gain sharing, there are no set goals other than to simply

improve as much as possible relative to the historical baseline. Employee involvement is considered to

be a fundamental aspect of most gain sharing plans. Goal sharing plans can be much more arbitrary

with management making most of the decisions.

PTS: 1 REF: 173 OBJ: 2

There are three types of profit sharing plans discussed in the text. Identify and briefly explain each of

them.

ANS:

Profit sharing may take one of the following three forms: the current distribution plan, the deferred

profit-sharing plan, and the combination plan. The current distribution plan is a profit sharing plan that

distributes the profit-sharing bonus to employees in the form of cash or shares, at least annually. The

deferred profit-sharing plan is a plan in which bonuses are allocated to employee accounts but not

actually paid out until a later date, usually on termination or retirement. A combination plan is a plan

that combines the current distribution and deferred profit-sharing plans by paying some of the profit-

sharing bonus on a current (cash) basis and deferring the remainder.

PTS: 1 REF: 180 OBJ: 3

Identify and briefly define each of the three types of employee stock plans.

ANS:

An employee stock plan is any type of plan through which employees acquire shares in the firm that

employs them. An employee stock bonus plan is a plan through which employees receive shares in

their employer at no cost to the employee. An employee stock purchase plan is a plan through which

employees may purchase shares in their employing firm. An employee stock option plan provides

options to employees to purchase company shares at some point in the future at a fixed price.

PTS: 1 REF: 184 OBJ: 3