Chapter 10 - Pay-for-Performance Plans

81. (p. 363) A combination plan often favored by CEOs who don't like to make payouts when the

company loses money is a completely self-funding plan. 

TRUE

Difficulty: Medium

 

82. (p. 363) Broad-based option plans are usually limited to managerial and professional

employees. 

FALSE

Difficulty: Medium

 

 

Short Answer Questions

 

83. (p. 318) Discuss the trends that are leading to the increased interest in variable pay. 

The greater interest in variable pay probably can be traced to two trends. First, the increasing

competition from foreign producers forces American firms to cut costs and/ or increase

productivity. Second, today's fast-paced business environment means that workers must be

willing to adjust what they do and how they do it. Failure to adapt to new technologies, new

work processes, and new work relationships could lead to possible layoffs and terminations. The

ability and incentive to learn these come partially from reward systems that more closely link

worker interests with the objectives of the company.

Difficulty: Medium

 

84. (p. 320) How can merit pay systems be better managed? 

Management merit pay systems requires a complete overhaul of the way raise are allocated:

improving the accuracy of performance ratings, allocating enough merit money to truly reward

performance, and making sure the size of the merit increase differentiates across performance

levels.

Difficulty: Easy

 

10-18

© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any

manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 10 - Pay-for-Performance Plans

85. (p. 320-321) Why do companies prefer lump-sum pay over merit pay increases? 

Lump-sum bonuses can be considerably less expensive than merit pay over the long run.

Analysis says that over a fixed period, the increase in merit pay will higher than it is under a

lump-sum bonus plan. By giving lump-sum bonuses for several years, a company is essentially

freezing base pay. This is why cost-conscious firms report switching to lump-sum pay. It also

should be no surprise that employees aren't particularly fond of lump-sum bonuses.

Difficulty: Medium

 

86. (p. 322-323) What are the basic dimensions on which individual incentive plans vary? 

The first dimension on which incentive systems vary is in the method of rate determination.

Plans set up a rate based either on units of production per time period or on time period per unit

of production. The second dimension on which individual incentive systems vary is the specified

relationship between production level and wages.

Difficulty: Easy

 

87. (p. 325-326) Discuss the plans that provide for variable incentives linked to a standard

expressed as a time period per unit of production. 

In the Halsey 50-50 plan, an allowed time for a task is determined via time study. The savings

from completion of a task in less than the standard time are allocated 50-50 (most frequent

division) between the worker and the company.

The Rowan plan is similar to the Halsey plan in that an employer and employee both share in

savings resulting from work completed in less than standard time. The major distinction in this

plan, however, is that a worker's bonus increases as the time required to complete the task

decreases.

The Gantt plan differs from both the Halsey and the Rowan plans in that the standard time for a

task is purposely set at a level requiring high effort to complete. Any worker who fails to

complete the task in the standard time is guaranteed a preestablished wage.

Difficulty: Medium

 

10-19

© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any

manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.