Module 2--Types of Variable Pay Flashcards
What are the THREE CATEGGORIES of VARIABLE PAY
Three Categories of Variable Pay
There are three categories of variable pay: incentives, bonuses and recognition. Within each of these categories there are specific types of variable pay plans.
Although there exists an almost limitless number of variations, most variable pay plans can be grouped into one of three categories:
■ Incentives
* Criteria determined in advance – The criteria and objectives for performance and the reward
schedule are determined in advance and communicated to participants.
* Amount of payment can vary – The amount of the payment can vary with the level of
performance.
* Monetary or nonmonetary – Rewards may be monetary (cash or equity) or nonmonetary
(merchandise, travel, etc.).
* Self-funded or budgeted – The plan is self-funded (generates its own savings) or budgeted.
* Nondiscretionary
* Formulaic
■ Bonuses
* Completion of specific task – Rewards typically are contingent upon completing a specific
task or objective.
* Amount determined in advance – Amounts typically are negotiated in advance.
* Monetary – Payments usually are cash, although sometimes equity is used.
* Budgeted – The plan usually is budgeted.
* Nondiscretionary
■ Recognition
* Criteria broadly defined and subjective – Criteria for the award are discretionary and
often defined in broad terms (such as “above and beyond” work or “exceptional customer
service”).
* Awarded spontaneously – The award is given more spontaneously than incentives
or bonuses.
* Decision made after the fact – The decision to acknowledge employee contributions is made
after the fact, usually without predetermined goals or performance levels.
* Focused on behaviors – The focus is on recognizing, promoting and replicating behaviors
(versus results) that support company objectives.
* Monetary or nonmonetary – Rewards may be monetary or nonmonetary.
* Budgeted – The plan is often budgeted at the corporate or business unit level.
* Discretionary
Identify the variable pay category for each of the following examples (incentive, bonus, recognition):
- Jane received an additional 5,000 in compensation for remaining with the company through year end, while Carlos resigned in November and received nothing.
- At the staff meeting, Linda’s supervisor presented her with a 100 gift certificate for staying late three weekends in a row to complete an important project.
- Company XYZ implemented a plan with a target payout of 10% of base pay, and actually paid 12% because results exceeded plan.
What are the TWO TYPES of INCENTIVE PLANS?
Short-Term AND Long-Term
What are the THREE SHORT TERM Incentive Plans?
Short-Term Incentive Plans
Short-term plans consist of plans for which desired results will be achieved in one year or less. The various types of short-term incentive plans include:
■ Profit-sharing
■ Performance-sharing
■ Individual performance-based
Profit-Sharing Plans
Profit-Sharing Plans
■ Share profits with employees
* Plans normally include a predetermined formula for allocating a share of the profit among
participants and for distributing funds accumulated.
■ Base rewards on financial performance
* Typically, rewards are based on financial performance. Common performance measures
include: revenue, net income, earnings per share (EPS) or other financial ratios.
■ Typically include entire organization
* All employee groups within an organization or large business unit typically are eligible.
■ Payout in equal or graduated amounts
* Awards can be a common amount for all employees.
– Equal monetary amount
– Equal percentage of base pay
* Awards can vary by employee / employee groups.
– Different monetary amount
– Different percentage of base pay
* Some plans may include individual performance hurdles.
What is the objective of PROFIT SHARING PLAN OBJECTIVE?
Profit-Sharing Plan Objectives
■ Foster employee identification with organization’s success – increase employee identification
with the organization’s financial success
■ Create a common focus – create a common focus on important financial objectives of the
organization and provide an opportunity to publicize and educate on financial measures
What are the PROFIT SHARING PLAN Approaches?
Profit-Sharing Plan Approaches
■ First-return plans (sharing all profits) – start paying on the first profits earned.
* Example: 10% of gross operating profit will be distributed to eligible employees.
■ Threshold plans – payout to eligible employees for performance in excess of fair return on
investment, which is reserved for stockholders.
* Example: 10% of gross profit over 5 million will be distributed to eligible employees.
■ Operating budget plans – In not-for-profit organizations, there is no profit metric, but an
operating budget can be substituted for that metric.
■ Peer company comparisons – Senior management selects measures of performance and a group
of competitor or peer companies to compare against. The fund is created based on performance
relative to peer group results, with an increasing pool for improved relative performance.
What are some CONSIDERATIONS for PROFIT SHARING?
Considerations for Profit-Sharing Plans
■ Promote awareness / focus
* Highlight the key financial objectives and goals for the performance period of the
organization.
* Promote a common understanding among employees.
■ Pay out only when company has profit
* Ensure financial responsibility by paying out only when the company’s financial
results warrant.
* Organization profit is one of the key performance measures that shareholders and key
stakeholders look at.
■ Employee ability to influence overall profits
* Awards are based on group or corporate performance, and not on differences in individual
performance.
* Many plan participants may have little or no ability to have a material impact on
company profits.
* Results affected by external factors (e.g., economic, geopolitical, legislative) outside the
control of employees may have a substantial positive or negative impact on the plan.
* Employees may focus on obtaining short-term financial results, which in fact may be
detrimental to the long-term health of the organization.
■ Simple administration
* One plan with corporate measures can be managed centrally, keeping administrative
costs low.
* Can include most / all employees on the same plan, making communication and
education easier.
* Typically only one or two financial measures are used.
What are PERFORMANCE SHARING PLANS?
Performance-Sharing Plans
■ Define performance by select criteria
* Performance is defined in terms of selected criteria (e.g., quality, customer satisfaction,
responsiveness, productivity).
* Standards are established and incentive awards are made contingent upon meeting those
standards, typically at the business unit or organization-wide level.
■ Focus on more than financial results
* Similar to profit sharing, but involves more measures than a single financial
performance measure
■ Exist at all organizational levels
* Can be an organization-wide, organizational unit or team-based plan
■ Measure performance based on predetermined objectives
* Examples: performance improvement plan (PIP), peer comparison, target performance,
productivity gains
■ Are defined for a specific period
* Should be reevaluated for effectiveness at the end of each period
What are PERFORMANCE SHARING PLAN OBJECTIVES?
Performance-Sharing Plan Objectives
■ Improve organization’s performance – Focus on specific performance improvement objectives
and provide incentive opportunity for employees according to how well performance
improvement is achieved.
■ Foster employee identification with organization’s success – Increase employee identification
with the organization’s success, as measured by multiple factors.
■ Increase employee understanding – Increase employee understanding of what is important to the
organization by communicating the basis upon which success is measured.
What are PERFORMANCE SHARING PLAN APPROACHES?
■ Financial: this perspective views organizational financial performance and the use of financial
resources examples
■ Customer / stakeholder: this perspective views organizational performance from the point of
view the customer or other key stakeholders that the organization is designed to serve
■ Internal process: views organizational performance through the lenses of human capital,
infrastructure, technology, culture and other perspectives that are key to breakthrough
performance. This replaces ’capacities’.
■ Organizational capacity (sometimes called “learning and growth”): views organizational
performance through the lenses of human capital, infrastructure, technology, culture and other
capacities that are key to breakthrough performance
What are some Considerations PERFORMANCE SHARING PLANS
Considerations for Performance-Sharing Plans
■ Promote awareness / focus
* Highlight the key objectives and goals for the performance period of the organization
* Promote a common understanding among employees
* Promote teamwork in accomplishing multiple objectives
* Viewed as a “win-win” for both the company and employees
* Link performance and rewards
■ Self-funding
* Payments can be funded by the financial gains made as a result of implementing the plan.
■ Employee ability to influence overall performance
* The ability of plan participants to have a material impact on selected measures should be
considered.
■ Flexibility of design
* Plans provide considerable flexibility of design, rather than emphasizing any single aspect of
company operations.
■ May increase administrative requirements
* Requires considerable time and effort at the start of the performance period to document
anticipated performance levels.
* It is important to research performance measures for practicality and performance history.
Implementing measurement systems may be very expensive or operationally impractical.
* Plans with multiple measures are more complex and require an effective communication and
education plan.
What are INDIVIDUAL PERFORMANCE BASED PLANS?
■ Base payouts on individual performance – Individual performance is used as the basis
for payouts.
■ Focus on more than financial results – Like performance-sharing plans, individual plans may
involve more measures than just financial performance.
What are INDIVIDUAL PERFORMANCE BASED PLAN OBJECTIVE?
Individual Performance-Based Plan Objectives
■ Focus on personal performance improvement
■ Increase employee understanding – Increase employee understanding of what is important to the
organization by communicating the basis upon which success is measured.
■ Link rewards with personal performance
What are some INDIVIDUAL PERFORMANCE BASED PLAN APPROACHES?
Individual Performance-Based Plan Approaches
■ Performance against predetermined objectives (e.g., management by objective [MBO] plans) –
Rewards are earned for the accomplishment of predetermined goals and objectives set for the individual.
■ Output-based (historically known as piece-rate plans) – Frequently used in certain industries
or occupations where the work is repetitive in nature, and where employees have a high level
of control over their production rate. The time taken is not used to determine pay, simply the
amount or number produced.
* Historically used by homeworkers, and then widespread in factories in the first half of the
20th century.
* Largely disappeared in developed countries, but still prevalent in developing countries, for
example in the garment industry.
* One variation is to pay a premium for exceeding a set rate of production (units made per
hour/day or ”standard output”).
* Piece work can benefit homeworkers in enabling them to be flexible in their working hours,
and it can benefit employers, who have no need to measure time on the job, nor provide
workspace.
Fixed wage - ‒In some countries, employers must pay piece workers a fair wage, using the
following method:
– Find out the average number of tasks or pieces completed per hour; for example workers
may produce on average 12 shoes per hour.
– Divide this number by 1.2 so that new workers wonʼt be disadvantaged if theyʼ’re not as
fast as the others yet; in our example we divide 12 shoes by 1.2 which is equal to 10
shoes produced.
– Divide the hourly minimum wage rate by that number to work out the fair rate for each
piece of work completed. If the minimum wage rate is $13 per hour, workers must be paid
at least $1.3 per shoe they make ($13 divided by 10).
– Once this rate is set, the actual time spent on production is not recorded or measured.
■ Commission – A predetermined incentive amount for each discrete unit of sales made by the
salesperson. It is commonly expressed as a percent of each sales amount (revenue), percent of
gross margin (profit), or a monetary amount per unit sold.
* Typically used for salespeople or individuals who influence the sale.
* Effective sales incentive plans must be matched to the type of responsibilities expected of
the salesperson. These areas of responsibility generally fall into one of three categories –
customer identification, customer service and customer persuasion.
* Commissions typically represent a higher percentage of cash compensation than other
incentive types. In some cases, 100% of the individual’s cash compensation (i.e. base
pay plus short-term incentives) is earned through commissions. This is known as straight
commission. Straight commission does not apply in countries where there is a legal
minimum (basic) wage in place.
* Designed to:
– Reward individual effort and drive results
– Create singular focus on sales volume
– Motivate sales success by tying the incentive directly to sales results
What are some CONSIDERATIONS FROR INDIVIDUAL PERFORMANCE BASED PLAN APPROACHES?
Considerations for Individual Performance-Based Plans
■ Reinforcement of performance culture
* Accomplishment is directly controlled by the individual
* Diminish entitlement mentality that base pay programs often produce
* Promote competition within work groups (could be positive or negative)
■ Narrow vision
* May focus individual on personal goals to the exclusion of organizational goals
■ Wide variations in pay
* Wide variations in pay among employees is possible
* High achievers may equal or exceed pay levels of supervisors
* Pay levels may not correlate with tenure (discounts seniority)
■ High levels of administration
* Management commitment required to set, monitor and assess goals on an individual basis
* Complicated to calibrate the relative difficulty of individual plan objectives
* Difficult to budget and may be problematic if a high percentage of employees exceed
individual objectives
* Require sound measurement system and ongoing review
What are LONG-TERM INCENTIVE PLANS?
Long-Term Incentive (LTI) Plans
Long-term incentive (LTI) plans include those for which desired results will be achieved in more than one year. The period of measurement is most often from three to five years. Types of LTI plans include:
■ Equity-based
■ Nonequity-based
What are EQUITY-BASED PLANS?
Equity-Based Plans
■ Create equity interest – Use company stock to create an equity interest in the company and
foster identification with shareholder interests.
■ Based on stock performance – The value of the award is based on the performance of the
organization’s stock.
■ Pay out using stock or cash – Actual awards may be in the form of stock or cash.
The terms “stock” and “shares” are used interchangeably.
What are EQUITY-BASED PLANS Objectives?
■ Align employees with shareholders – Management / employees are aligned with shareholders.
Employee interest in the organization’s profitability and success often is limited to the desire for job stability. Equity rewards help to create an ownership culture in which employees take a greater interest in the factors driving long-term business success.
■ Conserve cash – In many cases, equity awards, such as stock options, allow companies to provide competitive compensation without the use of cash (however, the company may be subject to a
noncash charge to earnings).
■ Create wealth – Allow eligible employees to build wealth through equity value / appreciation.
■ Increase retention – Equity plans can be a strong retention tool, especially using the feature of multi-year vesting requirements.
What are EQUITY-BASED PLANS APPROACHES?
Equity-Based Plan Approaches
■ Appreciation only – Employees receive appreciation in stock price.
* Stock options – Employees are given the right or option to buy company shares at a specified
price (usually the prevailing share price at the time the award was made) during a specified
period of time in the future. If the price of the stock rises over time, the employee can then
acquire the stock at the specified price and sell at the higher price, keeping the difference.
* Stock appreciation rights (SARs) – A plan in which the company grants an employee the
right to receive a monetary amount equal to the future appreciation of its stock. SARs are
similar in design to stock options except that actual stock is not used.
■ Total value – Employees receive entire value of stock.
* Stock grant (or stock award) – plans that provide stock to the employees without any cost to
them (recipient is responsible for income tax)
* Restricted stock – stock grants that are contingent upon remaining with the organization for
a stated period of time. Stock may not be sold until the restriction period lapses.
* Performance shares – plans that award shares or stock (or its cash equivalent) contingent
upon achievement of certain predetermined external or internal performance goals
What are the Considerations for Equity-Based Plans?
Considerations for Equity-Based Plans
■ Align employee / shareholder interests
* Benefit the organization by aligning employee and shareholder interests toward common goal(s).
* Focus employee attention on stock price and corporate performance.
■ Retention
* Widely accepted form of variable pay.
* Although equity plans can be a strong retention tool, they can also lose their retention value if the stock price falls below the grant price. The use of total value plans can mitigate this issue.
Note: Many employees sell their ownership interest as soon as the rules and regulations allow them to do so.
■ Stock performance may not reflect employee performance
* Could have limited impact on plan objectives as stock price may not reflect employee performance.
* Influences outside employee control may affect the value of the stock.
* Does not provide motivational value if the value of the stock does not appreciate.
Considerations for Equity-Based Plans (continued)
■ Communication challenge
* Can be difficult to communicate to employees.
■ Shareholder approval
* Many equity-based plans require approval of the shareholders.
* The use of stock for employees increases the number of shares and therefore dilutes
earnings per share (EPS) for common shareholders.
■ Limited eligibility
* Equity-based plans typically are reserved for a relatively small percentage of employees at
the top of the organization. This can be negatively perceived by the rest of the organization.
What are Non-Equity Based Plans?
Nonequity-Based Plans
■ Not based on stock performance – long-term incentive plans in which the determination of the reward is not based on stock performance
■ Pay out using cash – Awards typically are granted in cash, although stock may be used.
What are the objective of NON EQUITY BASED PLANS?
Nonequity-Based Plan Objectives
■ Reward long-term performance – to reward individuals or groups for their long-term performance related to organizational measures. Plans usually are three to five years in duration.
■ Focus on specific goals and objectives – to focus attention and effort, awards are based on the achievement of specific goals and objectives
■ Conserve stock – Organizations with stock may not wish to use it as part of an incentive plan.
What are Nonequity-Based Plan Approaches?
■ Performance unit plan (PUP) – A plan in which a fixed number of units are granted with a stated value per unit. Based on the attainment of the stated goals and objectives at the end of the performance period, the awarded value of each unit can increase or decrease (usually to zero below some threshold level).
■ Book value plan – A plan that bases awards on the increase in the book value of the organization over the performance period. Book value is defined as total assets minus total liabilities. These
plans typically are used in private companies where no publically-quoted stock exists.
■ Multi-year performance plan – A plan in which cash payouts are earned and paid over a period of years, with a portion of the payout earned in each year.
Performance Unit Plans?
Example – Performance Unit Plan
■ If actual ROE (return on equity) is 17%, the 1,000 units are valued at 70 per unit or 70,000.
■ Other plan variations may be used where the unit value is fixed and the number of performance
units are varied.
Book Value Appreciation Units
Example – Book Value Appreciation Units
■ Book value per share at the beginning of the period is 50.
■ Book value per share at the end of the period is 70.
■ Increase in book value over the period is 20.
■ The gain to the individual is 20 × 1,000 units or 20,000.
Considerations for Nonequity-Based Plans
■ Promote a long-term perspective
* Can help reduce short-term results
* Help to retain participants due to multiyear, long-term payouts
■ Tied to actual results
* Tied to actual results rather than stock price
* Based on objectives that typically are more within employees’ control than stock price
■ Reduce volatility
* Can reduce volatility in participant’s income due to offsetting payouts
* May lessen impact of a good or poor year on participant’s income
■ Link to equity plans
* Awards can be linked to equity plans and provide funding for stock exercises.
■ Participant perceptions
* Participants may perceive that awards are being held back due to longer payout periods.
* May lessen reinforcement for performance early in the measurement period.
■ Limited to senior management
* Typically, eligibility for nonequity-based long-term incentive plans is limited to senior
management.
What are Bonus Plans?
■ Referral
■ Hiring (sign on)
■ Retention (stay)
■ Milestone
■ Business Product / Referraks
■ Certification
Paid for completing an act or event
■ Amount determined in advance – The amount of the bonus usually is determined in advance and agreed to by the organization and the recipient.
■ Pay out using cash or equity – A bonus usually is a cash payment, although sometimes equity is used.
What is the Bonus Plan Objective?
Motivates employee to complete a specific act – provides motivation to the employee (or candidate) to complete a specific task or project. Unlike incentive plans that vary the reward based on performance, bonuses are only concerned about whether the task was completed or not. If it was, payment is made. If it was not, no payment is made.
What are the BONUS PLAN TYPES?
Bonus Plan Types
■ Referral bonus – payment for recommending an applicant who is subsequently hired. Amounts are often based on the level of the person to be hired. Some plans will pay a portion upon hire
and a portion at some milestone, such as completing training, passing a probation period or at a set period of time (e.g., 6 months or 12 months).
■ Hiring (sign-on) bonus – payment to a prospective employee to induce acceptance of an employment offer. It also can be used to buy out any compensation the employee will be walking away from in order to make a change in employment, or in the instance of normalizing compensation (e.g. lower salary for a role).
■ Retention (stay) bonus – payment to certain critical employees in exchange for agreement to continue employment until a specified date or for a specified period of time. Often used in
mergers, acquisitions, bankruptcies, closing / ceasing operations. Other criteria used for those individuals in revenue and non-revenue roles include PMP rating, potential compensation loss
and specific and unique skills. The objective is to provide continuity when there is uncertainty.
Formulas are often used (e.g., X number of weeks pay for every X+Y weeks worked) and payment
is forfeited if the employee terminates prior to a specified end date.
■ Milestone bonus – payment to an employee, key employees or sometimes a team of employees
for completing an important project (e.g., special IT projects). Sometimes used to encourage
employees to meet aggressive deadlines.
■ Business Product / Referrals – payment for referring a customer who makes a purchase of the
company’s offerings (goods or services). This bonus can be to existing employees, vendors
or clients.
■ Certification – payment for attaining education or experience credentials that are relevant to the
company’s goals.
What are the CONSIDERATIONS FOR BONUS PLANS?
Considerations for Bonus Plans
■ Must be significant yet affordable
* The size of the bonus is important. It must be significant enough to encourage the behavior
it is motivating (e.g., accept employment, stay for a period of time) yet be affordable to the
organization.
■ Appropriate use
* Bonuses can be a flexible tool, but need to be used consistently in terms of amounts and
purposes. Inconsistent application can result in mistrust within the organization.
* Avoid using bonuses for reasons that may reduce their effectiveness. For example:
– Paying bonuses to replace or supplement merit increases when pay levels are below the
maximum of the range
– Paying a special bonus to key players in lieu of an incentive plan payment even though
performance thresholds were not met
■ Eligibility
* Who will be eligible (and ineligible) should be taken into account.
* Many plans exclude at least one group.
Examples:
– Union employees may be excluded for contractual reasons.
– HR employees may be excluded from a referral bonus program.
■ One-time
* The one-time nature of bonuses provides the opportunity to deliver compensation without
increasing base pay.
What are RECOGNITION PLANS?
■ SPOT AWARDS
■ MANAGERIAL RECOGNITION
■ NOMINATIONS
■ ORGANIZATION-WIDE RECOGNITION
■ Use discretionary criteria – Recognition awards differ from bonuses in that the criteria for
receiving an award typically are more general, with discretion given to managers to determine
what constitutes qualifying behavior.
■ Acknowledge after the fact – Recognition plans acknowledge employee contributions after
the fact (e.g. after the event or behavior being recognized has taken place), usually without
predetermined goals or performance levels that the employee is expected to achieve.
■ Focus more on behavior – Typically the focus is on recognizing, promoting and replicating
behaviors (versus results) that support company objectives.
■ Budgeted at organizational level – Recognition awards often are budgeted at the corporate or
business unit level.
Recognition Plan Objectives
■ Foster a positive culture and work environment – Recognition can foster a culture in which
employees feel valued, are engaged in their work and are motivated to perform. Culture is
strongly influenced by the values of an organization’s management, and it is reflected through
behavioral practices rather than declarations of senior management.
■ Reinforce desired behaviors – By linking a reward directly to an action, behaviors are reinforced.
This also supplements the performance management process.
■ Formalize the appreciation process – Having a formalized recognition plan serves as a reminder
to the organization that recognition is important and expected.
■ Increase retention – Although typically a relatively small percentage of overall compensation,
recognition can have a significant impact on an employee’s decision to remain or leave.
What are the Recognition Plan Types?
Recognition Plan Types
■ Spot awards – A spot award is designed to be delivered spontaneously or “on the spot.”
* The idea is to reward the individual as soon as possible after the effort, behavior or
accomplishment to maximize the reinforcement opportunity of the reward.
* For long-term teams, selected intervals or milestones may be appropriate to recognize and
reward using spot awards.
* Cash is the most common form of a spot award.
* Amount ranges and performance criteria may be established by the organization or
business unit.
* Spot award plans are often budgeted.
■ Managerial recognition
* Managers may recognize both their employees and employees of other units.
– In addition to outstanding performance recognition, managers can recognize professional certification and personal development.
■ Nominations – Recipients are nominated by someone within the organization.
* Peer-to-peer – Allow everyone in the organization to recognize anyone they feel deserves
it. The peer-to-peer plan can be either totally controlled by the individual or controlled by a
nomination and review process. If a committee reviews the nomination:
– The employee submits a nomination of another employee to a committee which consists
of members representing both the employees and management.
– The employee members of the committee are selected from recipients of previous
recognition awards.
– The committee uses pre-established criteria to evaluate the nominations and determine
the appropriate award type and value.
– Team-based – Awards that recognize the efforts of a team or group of employees engaged
in a common project.
■ Organization-wide recognition
* An award that recognizes all employees
Example: Unplanned year-end recognition “bonus”
What are the FORMS of RECOGNITION?
■ Cash – most common, although equity can be used
■ Tangible award – awards that have some level of cash value
* Lower to minimal cost: reserved parking, movie tickets, dinners, flowers, candy
* Significant cost: merchandise chosen from an award catalog, travel awards (weekend getaway, top performers incentive trip)
■ Symbolic award – awards such as trophies, mementos, plaques, certificates, special team identity items, etc.
■ Verbal recognition – one of the most effective and least costly forms of recognition
What are Considerations for Recognition Plans
■ May be more motivational than cash
* Recognition can be a powerful motivator, and some employees respond better to recognition
than to cash.
* Recognition plans are an excellent way to create a general level of excitement within the
organization.
* Recognition plans involve finding the positive behaviors in others while focusing less on self,
which may help in building more cohesive teams.
■ Effective in culture change
* Recognition plans may support a broader objective of making the workplace more positive.
* Improper use or unintended consequences can lead to a detrimental impact on the desired or
existing culture.
■ Provide management visibility
* The presentation of awards provides a structured and easy way for management to be more
visible to the workforce.
* Managers may need appropriate training on providing impactful recognition.
■ Not a substitute for basic pay
* Employees basic salary needs must be met before they will begin to appreciate recognition
awards (Maslow’s Hierarchy). Implementing a recognition plan in lieu of a competitive pay
plan may be poorly received and may actually do more harm than good.
■ Provide positive and immediate feedback
- What are the three categories of variable pay?
A. Cash, noncash and equities
B. Quarterly, annual and spot bonuses
C. Incentives, bonuses and recognition
C. Incentives, bonuses and recognition
- Which of the following plans is a type of long-term incentive plan?
A. Equity-based plan
B. Profit-sharing plan
C. Individual performance-based plan
D. Performance-sharing plan
A. Equity-based plan
- Which individual performance-based plan would be most appropriate for an account representative with a high degree of influence over company sales?
A. Performance against predetermined objectives (MBO) plan
B. Output-based plan
C. Commission plan
C. Commission plan
- Which of the following is an example of an appreciation-only equity-based plan?
A. Performance shares
B. Restricted stock
C. Stock grant
D. Stock options
D. Stock options
- Which of the following is considered an objective for long-term nonequity-based plans?
A. Allow flexibility of design
B. Utilize stock
C. Promote a more balanced approach
D. Reward long-term performance
D. Reward long-term performance
- Which of the following would describe the appropriate use of a bonus?
A. Paying a bonus to supplement a merit increase
B. Paying a bonus to employees for completing a key project
C. Paying a special bonus to key players in lieu of an incentive plan payment despite
performance thresholds not being met
B. Paying a bonus to employees for completing a key project
- As opposed to incentive plans, recognition plans tend to have which of the following characteristics?
A. They are more financial than psychological.
B. They generally are self-funded rather than budgeted.
C. They are more after-the-fact than objective-based.
C. They are more after-the-fact than objective-based.
- What is a primary type of recognition award?
A. Referral
B. Sign-on
C. Spot
D. Retention
C. Spot
