Topic 9 - Performance-Based Pay: System Types Flashcards
What is the key distinction of Performance-based Pay compared to job-based or hourly pay systems?
Performance-based Pay is contingent upon performance levels of the employee, team, or organization, whereas job-based or hourly pay is based on holding a job or time spent working.
What is another term often used to describe Performance-based Pay?
Performance-based Pay is also referred to as Variable Pay.
On what levels can performance be evaluated for Performance-based Pay systems?
Performance-based Pay can be based on individual, team, or organizational performance.
How does the reward structure of Performance-based Pay differ from hourly wages?
Performance-based rewards vary with performance, while hourly wages depend solely on the amount of time worked.
What makes Performance-based Pay systems “contingent”?
These systems tie the distribution of rewards directly to varying performance levels, ensuring that better performance results in greater rewards.
The definition of performance-based pay is:
Rewards with distributions independent of performance levels
Rewards with distributions dependent upon performance levels
Rewards with distributions reliant on market trends
None of the above
Rewards with distributions dependent upon performance levels
Define variable pay:
Rewards earned independently
Rewards that are dependent on performance.
Rewards that move in and out depending on market trends
Rewards that grow based on government regulations
Rewards that are dependent on performance.
True or False. Hourly pay, or wages, are also contingent in the sense that the amount received depends upon the amount of time that an employee spends on the job.
True
True or False. Variable pay is always better than performance-based pay.
False
What is one primary reason organizations use Performance-based Pay?
To increase employee motivation by linking valued rewards to performance-related behaviors or results.
How does Performance-based Pay help focus organizational action?
It signals the importance of company, unit, or individual objectives and allows for quick adaptation to changing strategic needs.
Why is Performance-based Pay considered more flexible than Job-based or Individual-based pay systems?
It can quickly adapt to changing strategic needs and align rewards with specific objectives.
How does Performance-based Pay help organizations manage risk and uncertainty?
It passes some of the risk onto employees by adjusting rewards based on performance, helping mitigate costs during downturns.
What is a key cost-control advantage of Performance-based Pay?
Labor costs decrease when performance is low, aligning costs with company performance.
How do Variable Rewards differ from Fixed Rewards?
Variable Rewards fluctuate based on criteria such as performance, while Fixed Rewards remain constant regardless of performance or company outcomes.
What are some examples of Variable Rewards in Performance-based Pay systems?
Bonuses, gain-sharing, and stock options.
Why might organizations prefer Variable Rewards during unprofitable periods?
Variable pay systems reduce labor costs during periods of poor performance or financial downturns.
What is the impact of Fixed Rewards like salaries on organizational costs?
Salaries remain constant, increasing costs even when employee performance or company profitability declines.
What is one example of how Performance-based Pay aligns company costs with outcomes?
Labor costs are reduced during low performance periods, protecting the company’s financial structure.
Motivation refers to:
Focus, effort, and persistence that employees demonstrate
Ability to do a great job in the workplace
Rewards that allow employees to perform better
None of the above
Focus, effort, and persistence that employees demonstrate
Which of the following is not a reason to use performance-based pay?
Focus
Motivation
Risk & uncertainty
Market trends
Control costs
Market trends
True or False. Incentive systems are more flexible than job-based and individual-based pay systems.
True
Environments of risk and uncertainty create unforeseen or controllable circumstances, resulting in changes in:
Profitability
Variable pay
Goals
Results
Profitability
Without a variable pay component, ________________remain the same even when revenues, sales, or profits drop.
Fixed costs
Utility costs
Variable costs
Labor costs
Labor costs