Strategic Compensation in Canada 5th Edition By Richard Long – Test Bank

Complete Test Bank With Answers

Sample Questions Posted Below

Chapter 5: Performance Pay Choices

TRUE/FALSE

1.The central issue associated with attendance incentives is the notion that these programs treat only the symptoms while ignoring the underlying issues that cause absenteeism in the first place.

ANS: T PTS: 1 REF: 166 OBJ: 1

2.The concept of piece rates has its roots in the service industry as a way to compensate individual strong performance.

ANS: F PTS: 1 REF: 148 OBJ: 1

3.Sales commissions are usually appropriate in situations where individual sales people exercise significant independence.

ANS: T PTS: 1 REF: 155 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: 172 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 select group of employees, usually senior management.

ANS: F PTS: 1 REF: 175 OBJ: 2

6.Unions generally oppose profit-sharing plans on the basis of potential manipulation of profits by management and the uncertainty associated with profit sharing when compared with base pay.

ANS: T PTS: 1 REF: 176 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: 179 OBJ: 3

8.Employee stock plans are congruent and often used by companies using a classical management strategy

ANS: F PTS: 1 REF: 182 OBJ: 3

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

ANS: T PTS: 1 REF: 183 OBJ: 3

10.The key challenge associated with long-term incentive plans is the need to establish three- to five-year goals, particularly in fairly dynamic industries.

ANS: T PTS: 1 REF: 183 OBJ: 3

MULTIPLE CHOICE

1.Which of the following pay plans targets organizational-level performance?

ANS: D PTS: 1 REF: 147 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: 148 OBJ: 1

BLM: Higher Order: Understand

3.You work for a company that assembles plastic toys. Generally speaking, employees working at similar assembly plants receive $15.00 per hour. Internal corporate data indicates that the average worker should be able to assemble 20 toys per hour. Your organization has made a strategic decision to pay assembly line workers on the basis of their output. What is the piece rate you are contemplating paying your assembly line workers?

ANS: C PTS: 1 REF: 149 OBJ: 1

BLM:Higher Order: Apply

4.There is strong congruency between classical management philosophies and piece rate pay schemes, particularly in industrial settings. What characteristic of this management philosophy do you believe hinders the expansion of piece rate schemes in such organizations?

ANS: C PTS: 1 REF: 151 OBJ: 1

BLM: Higher Order: 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: 150 OBJ: 1

BLM: Higher Order: Understand

6.Which of the following would NOT be an ideal scenario in which to consider using a piece rate plan?

ANS: B PTS: 1 REF: 152 OBJ: 1

BLM: Higher Order: Understand

7.John works for an aerospace company selling satellites to communication companies. He receives a set percentage of the overall sale price of the satellite in the form of compensation. He does not receive a fixed salary or benefits. Which term best describes John’s compensation plan?

ANS: D PTS: 1 REF: 152 OBJ: 1

BLM:Higher Order: Apply

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

ANS: B PTS: 1 REF: 149 | 153 OBJ: 1

BLM: Higher Order: Analyze

9.John’s employer decides to provide him with regular advances against his future commissions as a way to smooth out John’s income. Which term best describes the pay plan used by John’s employer?

ANS: B PTS: 1 REF: 155 OBJ: 1

BLM: Remember

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

ANS: C PTS: 1 REF: 156 OBJ: 1

BLM: Higher Order: 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: 157 OBJ: 1

BLM: Higher Order: Understand

12.Which of the following statements best describes how North American employees view merit raises?

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

BLM: Remember

13.As a human resources specialist, your job is to review the pattern of merit raises issued by managers last year. You found that the vast majority of managers did not differentiate between high and low performers, choosing to provide similar merit raises. What would you speculate is the driving force behind the managers’ actions?

ANS: C PTS: 1 REF: 157 OBJ: 1

BLM: Higher Order: Analyze

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: 159 OBJ: 1

BLM: Higher Order: Analyze

15.As a human resource specialist, you have been asked by your organization to lead a discussion on the merits of using internal promotions as a main reward mechanism. Which of the following point(s) would you most likely NOT raise?

ANS: A PTS: 1 REF: 160 OBJ: 1

BLM: Higher Order: Understand

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

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

BLM: Higher Order: Understand

17.An automotive shop wants to reward employees for demonstrating creative customer service that leads to repeat business. A particular employee received a 10 percent bonus for suggesting that the company contact customers 24 hours after repairs to ensure customers are satisfied. What type of incentive would be the most appropriate in this scenario?

ANS: D PTS: 1 REF: 164 OBJ: 1

BLM:Higher Order: Apply

18.Which of the following management strategies is likely to benefit from a suggestion bonus system set on a group basis?

ANS: C PTS: 1 REF: 165 OBJ: 1

BLM:Higher Order: Apply

19.According to the textbook, what is the main drawback associated with attendance plans?

ANS: D PTS: 1 REF: 166 OBJ: 2

BLM: Higher Order: Understand

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

ANS: A PTS: 1 REF: 169 OBJ: 2

BLM: Higher Order: Understand

21.Which of the following management strategies is likely to benefit the most from using a gain-sharing plan as part of their compensation strategy?

ANS: D PTS: 1 REF: 171 OBJ: 2

BLM: Higher Order: 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: 173 OBJ: 2

BLM:Higher Order: Apply

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

ANS: C PTS: 1 REF: 175 OBJ: 3

BLM: Remember

24.Your CEO is concerned that employees are not saving enough for their retirement. At the same, the CEO wants to have some of the company’s profits shared with all employees. To address these issues, your CEO asks you, a human resource compensation specialist, to recommend the most appropriate profit-sharing plan to address this retirement issue. Which of the following profit-sharing plans would you recommend?

ANS: A PTS: 1 REF: 175 OBJ: 3

BLM: Higher Order: Understand

25.Which of the following characteristics of profit-sharing plans may be viewed as negative from the perspective of an employer?

ANS: D PTS: 1 REF: 176 OBJ: 3

BLM: Higher Order: Understand

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

ANS: A PTS: 1 REF: 179 OBJ: 3

BLM: Higher Order: Understand

27.A publically traded Canadian corporation provides employees with one year of continuous service and the opportunity to place 6% of their pre-tax income in a plan that may be invested in the company’s stock. Furthermore, the company matches the shares by 50% up to a limit of 4% of the employees’ pre-tax income. From the perspective of the employee, what are the potential drawbacks of participating in this program?

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

BLM: Higher Order: 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: 181 OBJ: 3

BLM: Higher Order: Understand

29.Which 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: 182 OBJ: 3

BLM: Remember

30.Which of the following is normally seen as an advantage associated with long-term incentives plans?

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

BLM: Higher Order: 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: 148 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 channelled, 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: 164 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 prespecified 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, goals 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: 168–169 | 171 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 at least annually in the form of cash or shares. 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: 175 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 employing firm 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: 179 OBJ: 3

6.What is the rationale that makes employee stock plans such a “natural fit” with organizations using a high-involvement management strategy?

ANS:

The notion of unity and common purpose (goals) fits well with providing employees with a so-called stake in the company via share ownership. This could be further expanded by including elements of power, transparency, and accountability. In a sense, employees become owners with “skin in the game,” so to speak.

PTS: 1 REF: 181 OBJ: 3