Chapter 10: Enterprise Incentive Plans and Compensation

Common enterprise incentive plans include profit sharing, stock options, and:

• piecework

• gainsharing plans

• merit pay

• employee stock ownership plans

Some stockholder groups, government officials, and the general public have become critical of employee stock option plans in recent years because of:

• the unpopularity of ESOPs

• dubious corporate accounting procedures

• falling stock prices

• employees' partnership role in the organization

Merle's production exceeds the standard output, so Merle receives a higher rate for all his work than the rate paid to those who do not exceed the standard. This incentive plan is known as:

• a differential piece rate

• salary plus bonus

• profit sharing

• straight piecework

Which of these statements about bonuses is true?

• A. A bonus is frequently given at the beginning of the year

• B. Bonuses can be a powerful tool to increase future performance

• C. A bonus is frequently given at the end of the year and becomes part of base pay

• D. A bonus is an incentive payment given to employees as part of their normal base wage

Which of these statements about team compensation plans is NOT true?

• A. Team compensation plans enable employees to share in the benefits of improved efficiency realized by major organizational units or various individual work teams

• B. Team compensation plans reward groups for their total contribution to the organization

• C. Team compensation plans encourage a cooperative—rather than an individualistic—spirit among all employees

• D. Team compensation plans offer simple payout formulas and highly equitable rewards

Sasha will be giving bonuses to employees in the sales department. Which of these factors will make the bonuses most effective as an incentive?

• The bonus becomes part of the employees' base pay

• Employees have no control over whether they will receive a bonus

• The amount of the bonus will be a surprise to the employees

• The link between the amount of the bonus and performance is clearly established

The more you base people's pay on merit, the better they perform. Which of these then would increase the motivation of an incentive plan?

• less association with daily performance

• more association with daily performance

Which of these statements about incentive plans is true?

• greater complexity in incentive plans

• greater relation to the performance required to earn it

• merit increases in the range of 3 to 5 percent

• Answer: C. greater relation to the performance required to earn it

Which of these statements about group incentive plans is true?

• They reward employees for individual contributions to organizational performance

• They enable employees to share the benefits of improved efficiency

• They encourage competition

• They reduce the free-rider effect

Isa is implementing an incentive plan based on employee productivity. Which of these is true for a successful rollout of this program?

• Overhead costs are not at issue in incentive plans for productivity

• Incentive payments will become pay guarantees

• Poor performance must go unrewarded

• Annual salary budgets must be significantly increased