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Comp > Ch 5-6 > Flashcards

Ch 5-6 Flashcards

1
Q

What are the two approaches to output-related pay?

A

Piece rates and sales commissions.

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2
Q

Define “straight piece rate”.

A

The same specified sum of money is paid for each piece produced or processed, regardless of how many peices are produced or processed.

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3
Q

Define “differential piece rate”.

A

A lower sum of money per piece is paid if employee production does not meet the production standard, and then a higher sum per piece is paid once the production standard is met.

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4
Q

What are some advantages of piece rates? (4)

A
  1. Can be highly motivational in producing task behaviour.
  2. Reduce the need for external control of employees through supervision.
  3. Reduces employer risk (links compensation to output).
  4. Provides an expectation for workers for a “day’s work”.
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5
Q

What are some disadvantages of piece rates (9)?

A
  1. Applies in limited circumstances. Work must be measureable and productivity attributed to an individual worker.
  2. Tasks and tools much be consistent.
  3. Not a very scientific process. Abritratry guess are required when setting piece rates.
  4. Social forces may stunt effort.
  5. If management has laid off workers due to productivity increase, workers will not be motivated to increase productivity further.
  6. Can create conflict among workers (compete for “loose” jobs, no incentive to train new workers or do work unrelated to the piece rate).
  7. Quality issues.
  8. Workers may be incentivized to act in ways that wear out equipment faster, and adjusting for this creates complexity.
  9. More concern over production than safety.
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6
Q

Define sales commission.

A

Pay that is geared to the dollar volume of sales or transactions conducted.

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7
Q

Define straight commission.

A

Pay that is geared only to the volume of sales or transactions, with no base pay component.

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8
Q

What are some advantages of commission? (7)

A
  1. Relatively easy to set up and measure
  2. Less interdependence among sales employees than among production workers; output is more direct.
  3. In theory, there is no cap on sales that requires reducing the sales force.
  4. Reduces the need for other controlling mechanisms.
  5. Serves as a source of feedback and as a self-correcting mechanism.
  6. Reduces employer risk because worker pay is linked directly to sales revenue.
  7. Sales commissions increase sales.
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9
Q

Disadvantages of commission? (8)

A
  1. Income is highly variable, making personal financial planning difficult.
  2. Higher pay overall for the company.
  3. Recessions cause pay drop, through no fault of the worker.
  4. During learning and developing customer contacts, new salespeople receive little income.
  5. Salespeople may resist work that isn’t directly tied to sales.
  6. May encourage salespeople to be overly aggressive, lie, or upsell to the detriment of the customer.
  7. Produces intense competition among salespeople.
  8. Apportioning responsibility for making sales can be a major problem.
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10
Q

What three dimensions determine if commissions are appropriate (3)?

A
  1. Degree of interdependence
  2. Degree of persuasive skills required
  3. Length of sales cycle
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11
Q

What are the four types of selling?

A
  1. Maintenance selling (established products to existing customers).
  2. Conversion selling (established products to new customers).
  3. Leverage selling (new products to existing customers).
  4. New market selling (new products to new customers).
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12
Q

Which types of selling should have more commission %?

A

New market, conversion/leverage tied, then maintenance.

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13
Q

What issues are related to merit raises? (3)

A
  1. Performance measurement.
  2. The difference between raises for above-average performers and average performers.
  3. Employee can top out.
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14
Q

What questions need to be asked before adding merit pay to an employee group? (8)

A
  1. Is individual performance variable?
  2. Is performance controllable by the individual?
  3. Can individual performance be separated out?
  4. Can an accurate performance appraisal system be developed?
  5. Will pay actually be linked to performance appraisals?
  6. Will the marit system serve a purpose that cannot be served in some other way?
  7. Are any undesireable side effects readily manageable?
  8. Will the merit system fit with the firm’s culture and strategy?
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15
Q

What is the name for an incentive designed to motivate a specific type of employee behaviour?

A

Special-purpose incentive.

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16
Q

What are the two most common special-purpose incentives?

A

Suggestion programs and attenance programs.

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17
Q

What are the three components of a suggestion system?

A
  1. A system through which suggestions are channelled.
  2. A systematic process for evaluating them.
  3. An incentive for submitting usable ideas.
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18
Q

Where do special-purpose incentives work best?

A

In classical and human relations firms under some circumstances.

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19
Q

What are some advantages of gain-sharing plans? (6)

A
  1. Self-funding.
  2. Generates productivity-enhancing or money-saving suggestions.
  3. Help creates positive work group norms.
  4. Leads to internalized worker commitment.
  5. Can lead to increased employee awareness of the business and improved communication between management and employees.
  6. Can be applied to not-for-proft and government organizations.
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20
Q

What are some disadvantages of gain-sharing plans? (6)

A
  1. Costs of developing.
  2. Not very open to rapidly changing circumstances because it relies on a historical base line to measure productivity changes.
  3. Workers may focus only on what they can do to maximize their bonuses.
  4. Labour-management conflict may increase.
  5. Collective reward systems can open the door to “free riding.”
  6. Difficulty in making them successful.
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21
Q

Define “gain sharing.”

A

Group performance pay plan that shares cost savings or productivity gains generated by a work group with all members of that group.

22
Q

Define “goal sharing”.

A

A group performance pay plan in which a work group receives a bonus when it meets prespecified performance goals.

23
Q

Advantages of goal-sharing (5).

A
  1. More flexible and simpler to develop than gain-sharing.
  2. Less costly to operate than gain-sharing.
  3. Bonuses can be adjusted easily.
  4. Powerful motivational tool.
  5. Can help generate positive group norms.
24
Q

Disadvantages of goal-sharing (7).

A
  1. Can be arbitrary.
  2. No established basis for judging the value of meeting a particular goal.
  3. Setting goals appropriately can be very difficult.
  4. Using identical, or adjusted goals for different work groups may be perceived as unfair either way.
  5. Can develop dissatisfaction if the goal was not achieved but employees worked hard.
  6. Can produce conflict.
  7. High discontinuation rate.
25
Q

Define competitive bonus plan.

A

A group pay plan that rewards work groups for outperforming other work groups.

26
Q

Define pooled performance pay.

A

A pay plan in which the performance results of a group are pooled and group members share equally in the performance bonus.

27
Q

Define group commissions.

A

A performance pay plan in which the commissions of a group of sales workers are pooled and then shared equally among members of the group.

28
Q

What are the two categories of other types of group bonus plans?

A

Competitive bonus plans and pooled performance plans.

29
Q

What is an employee profit-sharing plan?

A

A formal pay program in which a firm provides bonus payments to employees based on the profitability of the firm.

30
Q

What is a current distribution profit-sharing plan?

A

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

31
Q

What is a deferred profit-sharing plan (DPSP)?

A

A profit-sharing plan in which the profit-sharing bonuses are allocated to employee accounts but not actually paid out until a later date, usually on termination or retirement.

32
Q

What is a combination profit sharing plan?

A

A plan that combines the current distirbution and deferred profit-sharing plans by paying some of the profitsharing bonus on a current (cash) basis and deferring the remainder.

33
Q

What is an employee stock plan?

A

Any type of plan through which employees acquire shares in the firm that employs them.

34
Q

What are the three main types of employee stock plans?

A

Employee stock bonus plans, employee share purchase plans, and employee stock option plans.

35
Q

What is an employee stock bonus plan?

A

A plan through which employees receive shares in their employer firm at no cost to the employee.

36
Q

What is an employee share purchase plan?

A

A plan through which employees may purchase shares in their employer firm.

37
Q

What is an employee stock option plan?

A

A plan through which employees are provided with options to purchase shares in their employer at a fixed price within a limited time period.

38
Q

What is a long-term incentive (LTI)?

A

A type of performance pay in which the incentives are tied to an organization performance horizon that ranges beyond one year, often three to five years.

39
Q

What is a performance unit plan?

A

A long-term incentive in which the bonus amounts are expressed in units for which the monetary value will fluctuate, depending on degree of goal accomplishment.

40
Q

What is a performance share plan?

A

A long-term incentive in which the bonus amounts are expressed in company shares.

41
Q

Advantages of profit-sharing plans.

A
  • May contribute to higher employee productivity
  • May foster increased cooperation
  • May improve labour-management cooperation
  • May increase organizational identification
  • Can reduce need for employee supervision
  • May help employees understand the business
  • May result in more attractive compensation package
  • Ties compensation to ability to pay
  • May help employment stability
  • Relatively simple to set up and administer
  • Relatively low discontinuation rate
42
Q

Disadvantages of profit-sharing plans.

A
  • May not pay off
  • May not motivate due to weak line of sight
  • Subject to the “free-rider” problem
  • Employees like predictable reward
  • May be opposed by unions
  • Administrative costs
43
Q

Advantages of employee stock plans.

A
  • Aligns interests of employers and employees
  • May stimulate improved management
  • May increase employee-management cooperation
  • Fosters employee interest in firm performance
  • Can improve perceptions of equity in firm
  • Can be used as retirement fund
  • Can icnrease employee job security
  • Does not require firm to lay out cash
44
Q

Disadvantages of employee stock plans.

A
  • Possible dilution of shareholder equity.
  • Cost of establishing and managing plan.
  • Employee dissatisfaction if share prices decline.
  • More difficult to esatablish in private corporations.
  • Employees may not have funds to purchase shares.
  • Employees have “all their eggs in one basket”.
45
Q

Advantages of long-term incentives.

A
  • Encourages a long-term focus
  • Can encourage better understanding of business
46
Q

Disadvantages of long-term incentives.

A
  • Difficulty in establishing realistic long-term goals
  • Line of site may be weak
47
Q

What four basic understandings are needed to formulate a compensation strategy?

A
  1. An understanding of your organization and its context
  2. An understanding of your workforce
  3. An understanding of your compensation options
  4. An understanding of your compensation constraints
48
Q

What are the four types of constraints for compensation?

A
  1. Legislated
  2. Labour market
  3. Product/service market
  4. Financial
49
Q

What four types of legislation affect compensation systems?

A
  1. Provincial employment standards act or Canada Labour Code
  2. Human rights act (also maybe specific pay equity legislation)
  3. Labour legislation
  4. Income and corporate tax laws
50
Q

What are the five steps in the Compensation Strategy Formulation Process?

A
  1. Define the required behaviour
  2. Define the role of compensation
  3. Determine the compensation mix
  4. Determine the compensation level
  5. Evaluate the proposed strategy
51
Q

What are the three screens for evaluating a compensation strategy?

A

Affordability, legality, and employee attraction.

52
Q

What are the six generic employee groups?

A

Hourly paid employees; clerical employees; sales employees; professional employees; managerial employees; and executives.

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