Chapter 12: Pay For Performance and Financial Incentives

Question 1

Types of Incentive Plans

Answer 1

• incentives for all employees
• incentives for professional employees
• incentives for operations employees
• incentives for senior managers and executives
• Incentives for sales people

Question 2

Merit Pay

Answer 2

any salary increase that is awarded to an employee based on their individual performance

Question 3

Employee Share Purchase/Stock Ownership Plans (ESOPs)

Answer 3

a plan whereby a trust is established to hold shares of a companys’ stock purchase for or issued to employees. The trust is distributed to employees on retirement, other separation from services or as prescribed by the plan

Question 4

Profit Sharing Plan

Answer 4

a plan where most or all employees receive a share of the company’s profits

Question 5

Incentives for All Employees

Answer 5

• merit pay
• employee share purchase/stock ownership plans
• profit sharing plan

Question 6

Incentives for Professional Employees

Answer 6

• dual career ladders
• recognition programs
• social recognition programs
• performance feedback

Question 7

Dual Career Ladders

Answer 7

employers institute one career path for managers and another for technical experts, allowing the latter to earn higher pay without switching to management

Question 8

Recognition Programs

Answer 8

formal programs, such as employee of the month

Question 9

Social Recognition Programs

Answer 9

informal manager-employee exchange

Question 10

Performance Feedback

Answer 10

providing quantitative and qualitative information on tasks

Question 11

Incentives for Operations Employees

Answer 11

• piecework

Question 12

Piecework

Answer 12

a system based on the number of items produced by each individual worker in a unit of time

Question 13

Straight Piecework Plan

Answer 13

a set payment for each piece produced

Question 14

Key Position

Answer 14

Job by job review is conducted to identify the key jobs that have a measurable impact on profitability

Question 15

Salary Level

Answer 15

all employees earning over the threshold amount are automatically eligible for consideration of short-term incentive funds

Question 16

Salary Grade

Answer 16

assumes that all employees at a certain grade or above should be eligible for the short term incentive program

Question 17

Fund Size

Answer 17

the total amount of bonus money that will be available

Question 18

Non-Deductible Formula

Answer 18

a straight percentage used to create the short-term incentive fund

Question 19

Deductible Formula

Answer 19

the assumptions that the short-term incentive funds should begin to accumulate only after the firm has met a specified level of earnings

Question 20

Split Award Method

Answer 20

breaks the bonus into two parts. the manager gets two separate bonuses, one based on individual efforts and one based on the organization’s overall performance

Question 21

Multiplier method

Answer 21

the bonus is a product of the individual and corporate performance

Question 22

Capital Accumulation Programs

Answer 22

long-term incentives most often reserved for senior executives

Question 23

Stock Options

Answer 23

The right to purchase a stated number of shares of a company’s stock at today’s price at some point in time in the future

Question 24

Plans Providing Share Units

Answer 24

Executives are granted a specific number of units equal to a company’s share price
- performance share unit plan
- restricted share unit plan
- deferred unit share plan

Question 25

Performance Share Unit Plan

Answer 25

provides share units subject to the achievement of predetermined financial targets

Question 26

Restricted Share Unit Plan

Answer 26

units are promised to the executive but will be forfeited if an executive leaves the company before a vesting period

Question 27

Deferred Unit Share Plan

Answer 27

units are promised to the executive but are only payable when the executive leaves the company

Question 28

Golden Parachutes

Answer 28

a payment companies make in connection with a change in ownership or control of the company

Question 29

Incentives For Salespeople

Answer 29

• salary plan for sales people
• commission plans for sales people
• combination plans for sale people

Question 30

Salary Plan for Salespeople

Answer 30

salespeople are paid a fixed salary although there may be occasional incentives in the form of bonuses, sales prizes, etc.

Question 31

Commission Plans for Salespeople

Answer 31

pay in direct proportion to their sales

Question 32

Combination Plans for Salespeople

Answer 32

Base pay and commission