chapter 4 review

Question 1

Incentive Compensation

Answer 1

a wide variety of pay practices that seek “incentives” to employees to behave in a particular way

Question 2

How does pay influence individual employee behavior?

Answer 2

reinforcement theory, expectancy theory, and agency theory

Question 3

reinforcement theory

Answer 3

Compensation can be a
tool to encourage desirable employee behaviors

Question 4

expectancy theory

Answer 4

people are motivate to work hard if they believe their efforts will pay off

Question 5

instrumentality and valence

Answer 5

performance is rewarded, and rewards are valued

Question 6

extrinsic motivation

Answer 6

engaging in a behavior to earn an external reward or avoid punishment.

Question 7

Intrinsic motivation

Answer 7

engaging in an activity for its own sake, driven by internal rewards and personal satisfaction

Question 8

agency theory

Answer 8

Stakeholders in an organization may have different interests and goals, and compensation helps to align those interests and goals

Question 9

Principles

Answer 9

a person who seeks to direct another’s behavior (owner)

Question 10

agents

Answer 10

a person who is expected to behave on behalf of a principal (manager)

Question 11

principles and agents

Answer 11

their interests don’t always align so the principle aligns them with agency costs

Question 12

agency costs

Answer 12

goal incongruence and information asymmetry

Question 13

sorting effect

Answer 13

the effect a pay plan has on the composition of the current workforce

Question 14

pay-for-performance

Answer 14

pay rates depending on how well you succeed in your job

Question 15

incentive rewards include

Answer 15

bonuses and raises

Question 16

incentive intensity

Answer 16

the strength of the relationship between performance and pay

Question 17

bonus

Answer 17

one-time or periodic payment given to employees in addition to their regular salary

Question 18

pay raise

Answer 18

a permanent increase in an employee’s base pay or hourly wage

Question 19

how does a merit pay plan work

Answer 19

annual base pay increases are usually linked to performance ratings

Question 20

merit bonus

Answer 20

merit pay paid in the form of a bonus instead of a salary increase

Question 21

criticisms of a merit pay plan

Answer 21

discourages teamwork, measurement is unfair, too much emphasis on individual performance, unfair rates, rates don’t exist, plan can breakdown

Question 22

individual incentive plan pros

Answer 22

pushes people to work harder, ex: 5% commission increase every sale made

Question 23

individual incentive plan cons

Answer 23

competitive, costly, and can hurt organizational culture

Question 24

what are individual incentive plans

Answer 24

profit sharing, stock options, employee stock ownership plan

Question 25

profit sharing

Answer 25

payments are based on a measure of profit made, not a part of base pay

Question 26

stock options

Answer 26

plan that allow employees to buy company stock at a previously fixed price. It was typically reserved for executives

Question 27

employee stock ownership plans

Answer 27

give employers certain tax and financial advantages when restricted stock units is granted to employees

Question 28

team compensation plans

Answer 28

group incentives, broader range of performance measures

Question 29

individual incentive plans

Answer 29

person is rewarded based on their own performance, bonus, commission etc.

Question 30

gainsharing as a group incentive plan

Answer 30

group-wide compensation, not a part of employees’ salary

Question 31

What is executive compensation?

Answer 31

Top managers and executives are a strategically important group whose compensation warrants special attention