Chapter 10: Pay for Performance: Incentive Rewards

Question 1

What is variable pay?

Answer 1

Tying pay to some measure of individual, group, or organizational performance

Question 2

How can incentive pay work to accomplish business strategy?

Answer 2

Incentive pay establishes a baseline performance level that employees must reach for incentive payment. Managers believe employees will assume ownership of their jobs to improve their performance and achieve the incentive

Question 3

How should performance metrics be established?

Answer 3

They should be quantitative, simple, and structured to show a clear relationship to improved performance. Also keep in mind that what gets measured and awarded gets attention

Question 4

What is “ratcheting up”?

Answer 4

When employers continually try to exceed previous results. This is undesirable because it leads to employee frustration and unattainable standards

Question 5

What is straight piecework?

Answer 5

An incentive plan where employees receive a certain rate for each unit produced

Question 6

What is a differential piece rate?

Answer 6

A compensation rate where employees whose production exceeds a standard amount of output receives a higher rate for all work than those who do not exceed the standard

Question 7

What is a standard hour plan?

Answer 7

An incentive plan that sets rates based on the completion of a job in a predetermined standard time. If work is finished in less time, the pay is still based on the standard time multiplied by their hourly rate

Question 8

What is a bonus?

Answer 8

An incentive payment supplemental to a base wage. Common among managerial and executives

Question 9

What is a spot bonus?

Answer 9

An unplanned bonus given for employee effort unrelated to an established performance measure

Question 10

What is a merit pay program?

Answer 10

Links an increase in base pay to how successfully an employee performs their job

Question 11

What are merit guidelines?

Answer 11

Guidelines for awarding merit raises that are tied to performance objectives

Question 12

What is a lump-sum merit program?

Answer 12

A program where employees receive a year-end merit payment which is not added to their pay

Question 13

What is the benefit of lump-sum merit programs to employers?

Answer 13

It freezes base salaries so salary and benefits costs are maintained at a constant level

Question 14

How can non-monetary incentives be most effective?

Answer 14

When the award is combined with a meaningful employee recognition program

Question 15

What is a straight salary plan for sales?

Answer 15

A compensation plan that allows salespeople to be paid for performing various duties that are not immediately reflected in sales volume

Question 16

What is a straight commission plan for sales?

Answer 16

A compensation plan based on a percentage of sales

Question 17

What is a salary plus bonus plan for sales?

Answer 17

A compensation plan that pays a salary plus a bonus achieved by reaching targeted sales goals

Question 18

What is a double-track wage system?

Answer 18

A pay system for professionals who do not aspire to become administrators so they still have an opportunity to earn comparable salaries

Question 19

What are the 5 basic components of an executive compensation plan?

Answer 19

1. Base salary
2. Short-term incentives or bonuses
3. Long-term incentives or stock plans
4. Benefits
5. Perquisites or “perks”

Question 20

What are perquisites?

Answer 20

Special non-monetary benefits for executives like access to a health club, chauffeur, private plane, etc

Question 21

What are stock options?

Answer 21

Rights given to executives to purchase shares of the organization’s stock at an established price for a fixed period

Question 22

What are stock appreciation rights?

Answer 22

A cash or stock award determined by an increase in stock price during any time

Question 23

What is phantom stock?

Answer 23

Granting of units equal in value to the book value of the stock. On a specified date, the executive is paid the appreciation in value of the units

Question 24

What is restricted stock?

Answer 24

Grant of stock at a reduced price with the condition that it cannot be transferred or sold before a specified date

Question 25

What are performance units?

Answer 25

They are analogous to annual bonuses except the measurement period exceeds one year. It can be expressed as a flat dollar amount or converted to a number of units

Question 26

What are performance shares?

Answer 26

Grants of actual stock or phantom stock units whose value is contingent on predetermined performance objectives over a specified period of time and the stock market

Question 27

What is a team incentive plan?

Answer 27

A compensation plan where all team members receive an incentive bonus payment when production or service standards are met or exceeded

Question 28

What is a gainsharing plan?

Answer 28

A program under which both employees and the organization share financial gains according to a predetermined formula that reflects improved productivity and profitability

Question 29

What is profit sharing?

Answer 29

Any procedure by which an employer pays or makes available to regular employees special current or deferred sums based on the profits of the company

Question 30

What are employee stock ownership plans?

Answer 30

Stock plans where an organization contributes shares of its stock to an established trust for the purpose of stock repurchases by employees

Question 31

What is an employee stock bonus plan?

Answer 31

A stock ownership plan where an employer provides company shares to employees at no cost to the employee by simply granting them

Question 32

What is an employee stock purchase plan?

Answer 32

A stock ownership plan where employees can purchase shares but they do not have to pay full market price

Question 33

What is an employee stock option plan?

Answer 33

A stock ownership plan where employees are given the option to purchase shares at some future date at a set price