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 CHOICE

1.Which of the following pay plans is geared to individual performance?

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

BLM: Remember

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

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

BLM: Understand

3.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?   

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

BLM: Apply

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

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

KEY: Understand BLM: Understand

5.Which of the following best explains why, despite their motivational potential, piece rate systems often do not motivate maximum effort?

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

BLM: Understand

6.What can you offer your employees to balance out the self-centered perspective, caused by your piece rate system, and encourage citizenship behaviour?

ANS: B PTS: 1 REF: 156 OBJ: 1

BLM: Understand

7.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?

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

BLM: Remember

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

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

BLM: Analyze

9.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?

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

BLM: Remember

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

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

BLM: Understand

11.What differentiates merit pay from other types of performance pay, such as piece rates, sales commissions, and target incentives?

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

BLM: Understand

12.Which of the following statements best describes a merit raise?

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

BLM: Remember

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

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

BLM: Understand

14.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?

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

BLM: Analyze

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

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

BLM: Remember

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

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

BLM: Understand

17.Which of the following statements refers to a targeted incentive?

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

BLM: Remember

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

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

BLM: Apply

19.In what circumstance are special-purpose incentives least appropriate?

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

BLM: Understand

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

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

BLM: Understand

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

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

BLM: Understand

22.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?

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

BLM: Apply

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

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

BLM: Remember

24.Which of the following plans allows you to defer a portion of your annual profit sharing bonus to help build your retirement income?

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

BLM: Understand

25.When is profit sharing most important to a company?

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

BLM: Understand

26.What do employees receive under an employee stock bonus plan?

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

BLM: Understand

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

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

BLM: Understand

28.Which of the following managerial practices, combined with an employee stock plan, will increase the performance effects of employee ownership?

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

BLM: Understand

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

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

BLM: Remember

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

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

BLM: Understand

SHORT ANSWER

1.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

2.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

3.Explain the difference between goal sharing and gain sharing plans.

ANS:

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

4.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

5.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