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					                                           Test 12
Multiple Choice:

1.   The use of _____ was popularized by Frederick Taylor in the late 1800's.
     a) Taylor bonuses                      b) financial incentives
     c) piecework plans                     d) group incentive plans

Answer: (b)                                  Easy           Page: 334

2.   Frederick Taylor's observed that careful study was needed to define:
     a) piecework plan.                       b) standard hour plan.
     c) fair day's work.                      d) quota plan.

Answer: (c)                                  Moderate       Page: 334

3.   The ____ promotes the careful, scientific study of the job for the purpose of boosting
     productivity and job satisfaction.
     a) human relations movement         b) quality control movement
     c) factor movement                  d) scientific management movement

Answer: (d)                                  Moderate       Page: 334

4.   A(n) ______ gives income over and above base salary to individual employees who meet a
     specific individual performance standard.
     a) profit sharing plan                    b) commission plan
     c) individual incentive program           d) GANT cash bonus system

Answer: (c)                                  Moderate       Page: 334

5.   An incentive plan that pays all members when the group or team collectively meets its
     performance standard is:
     a) individual incentive program.    b) profit-sharing plan.
     c) variable pay.                    d) group incentive plan.

Answer: (d)                                  Moderate       Page: 335

6.   A type of incentive plan that gives pay over and above base salary to all team members when
     the group or team collectively meets a specified standard for performance:
     a) group incentive program.               b) profit-sharing plan.
     c) gain-sharing program.                  d) individual incentive plan.

Answer: (a)                                  Moderate       Page: 335

                                                                                      Chapter 12

7.   A(n) ______ is a type of incentive plan that generally is an organization-wide incentive
     program that provides employees with a share of the organization's earnings in a specified
     a) individual incentive plan          b) profit-sharing plan
     c) gain-sharing plan                  d) semi-variable incentive plan

Answer: (b)                                  Easy            Page: 335

8.   A ______ is a type of incentive plan that is an organization -wide pay plan designed to reward
     employees for improvements in organizational productivity.
     a) group incentive program                b) variable pay
     c) gain-sharing program                   d) spot bonus

Answer: (b)                                  Moderate        Page: 335

9.   ______ is a type of incentive plan that refers to any plan that ties pay to productivity or to
     some other measure of the firm's profitability.
     a) Supplemental pay benefit              b) Fringe benefit
     c) Quality circle                        d) Variable pay

Answer: (d)                                  Moderate        Page: 335

10. The ______ is the most commonly used and oldest type of incentive plan.
    a) piecework plan                    b) process plan
    c) standard hour plan                d) itemized plan

Answer: (a)                                  Easy            Page: 335

11. Under this pay system, each worker receives a set payment for each piece produced or
    processed in a factory or shop. It is known as a:
    a) piecework plan.                        b) guaranteed piecework plan.
    c) straight piecework plan.               d) process plan.

Answer: (c)                                  Moderate        Page: 336

12. All incentive plans are:
    a) minimum wage plans.                   b)   pay-for-performance plans.
    c) straight piecework plans.             d)   minimum piecework plans.

Answer: (b)                                  Difficult       Page: 335

13. The following are advantages of a piecework incentive plan except:
    a) piecework plans are simple to calculate, and they are easily understood by employees.
    b) piece-rate plans appear equitable in principle.
    c) piece-rate plans can be powerful since rewards are directly tied to performance.
    d) production quantities are easily determined.

Answer: (d)                                  Difficult       Page: 335

Test Item File

14. The following is a disadvantage of a piecework incentive plan:
    a) piece-rate plans create inequities among employees.
    b) quality is variable.
    c) production often is inappropriately affected.
    d) production standards are difficult to determine.

Answer: (b)                                   Difficult      Page: 336

15. When being paid under a ______, the worker is rewarded by a percent premium that equals
    the percent by which his/her performance is above standard.
    a) premium plan                         b) standard hour plan
    c) bonus hour plan                      d) percent incentive plan

Answer: (b)                                   Moderate       Page: 336

16. The piecework plan is expressed in monetary terms, but the standard hour plan is expressed
    a) units per hour.                    b) percent of standard
    c) percent premium.                   d) percent of base wage.

Answer: (c)                                   Moderate       Page: 336

17. A _______ is a plan in which a production standard is set for a specific work group, and its
    members are paid incentives if the group exceeds the production standard.
    a) standard group hour plan             b) work group plan
    c) team or group incentive plan         d) combination plan

Answer: (c)                                   Easy           Page: 336

18. The following are ways that employers use team or group incentive plans except:
    a) setting standards for each group member and measuring the output of each member.
    b) setting a production standard based on the final output of the group as a whole.
    c) tying rewards to goals based on some overall standard of group performance.
    d) tying rewards to goals based on the productivity of the group’s least productive worker.

Answer: (d)                                   Difficult      Page: 337

19. Which of the following is not a reason to use team planning?
    a) To ensure effort                       b) To reinforce group planning
    c) To reinforce problem solving           d) To ensure collaboration

Answer: (a)                                   Moderate       Page: 337

20. The chief disadvantage of group plans is that:
    a) a worker’s pay may not be proportionate to his or her own efforts.
    b) each worker sees his or her effort leading to the desired reward.
    c) group incentive plans are not as effective as an individual incentive pla ns.
    d) a group incentive plan does not facilitate on-the-job training.

Answer: (a)                                   Moderate       Page: 337

21. Because of the role managers play in determining divisional and corporate profitability, most
    employers pay their managers and executives some type of:
    a) stock option.                       b) short or long-term bonus or incentive.

                                                                                      Chapter 12

    c)   salary.                              d)   profit sharing.

Answer: (b)                                   Moderate        Page: 337

22. A(n) ______ is a short-term incentive plan that is designed to motivate the short-term
    performance of managers and is tied to company profitability.
    a) performance plan                     b) stock option plan
    c) capital accumulation program         d) annual bonus

Answer: (d)                                   Moderate        Page: 338

23. Which of the following is not one of the three basic issues when a firm awards short -term
    a) Eligibility                         b) Formula design
    c) Fund-size determination             d) Individual awards

Answer: (b)                                   Moderate        Page: 338

24. A company is using ______when everyone gets a bonus based on the company's results,
    regardless of individual effort.
    a) a team incentive plan           b) a group incentive plan
    c) profit-sharing                  d) an annual bonus

Answer: (c)                                   Easy            Page: 335

25. In a true individual incentive, the manager's individual performance is typically rewarded with
    a) stock option.                         b) bonus.
    c) profit sharing.                       d) capital accumulation program.

Answer: (b)                                   Moderate        Page: 338

26. In a profit-sharing plan, each participant gets a bonus based on the company's results:
    a) regardless of the participant's actual effort.
    b) factored together with the participant's actual effort.
    c) combined with the individual effort and performance of each manager.
    d) and the individual’s performance rating.

    Answer: (a)                               Moderate        Page: 335

27. In a true individual incentive bonus plan, each individual person gets the bonus based on :
    a) group effort and performance.
    b) individual performance.
    c) individual preference and desire.
    d) no factors. Bonuses are always the same amount, from year to year.

Answer: (b)                                   Moderate        Page: 338

28. A drawback to the split-award approach to incentives is that it pays too much to the marginal
    performer. The _____ is one way to get around this.
    a) corrected split award system         b) individual bonus method
    c) lump-sum bonus method                d) multiplier method

Answer: (d)                                   Difficult       Page: 339

Test Item File

29. Estimates of stock options as a percentage of the compensation paid by America’s top 100
    companies in 1998 to their CEOs are:
    a) 26.                                 b) 75.
    c) 53.                                 d) 36.

Answer: (c)                                  Moderate       Page: 340

30. The following are rewards offered in long-term incentive plans except:
    a) preferred retained earnings.          b) phantom stock.
    c) stock appreciation rights.            d) cash.

Answer: (a)                                  Moderate       Page: 339

31. A _______ gives an executive the right to purchase a specific number of shares of company
    stock at a specific price during a specified period of time.
    a) stock option                            b) stock appreciation right
    c) restricted stock plan                   d) phantom stock plan

Answer: (a)                                  Easy           Page: 340

32. ______ are incentive plans that permit the recipient to either exercise the option (by buying
    the stock) or instead to take any appreciation in the stock price in cash or stock.
    a) Stock options                          b) Stock appreciation rights
    c) Restricted stock plans                 d) Phantom stock plans

Answer: (b)                                  Moderate       Page: 341

33. In these incentive plans, shares are usually awarded without cost to the executive, but limits
    are placed on when the employee can sell the stock.
    a) Stock payment plans                  b) Stock gifting plans.
    c) Phantom stock plans                  d) Restricted stock plans.

Answer: (d)                                  Difficult      Page: 341

34. In ______ plans, executives do not receive shares but "units.” Then at a future date the
    executives receive value (usually cash) equal to the appreciation of the company’s stock.
    a) stock options                         b) stock appreciation rights
    c) restricted stock                      d) phantom stock

Answer: (d)                                  Moderate       Page: 341

                                                                                        Chapter 12

35. Incentive plans whose payment or value is contingent on financial performance measured
    against objectives set at the start of a multi-year period are called:
    a) multi-year plans.                       b) performance plans.
    c) financial performance plans.            d) contingency plans.

Answer: (b)                                   Easy            Page: 341

36. In the McKinsey & Company study, about one-half the companies surveyed had stock options
    only, and about one-half had performance-based plans where managers were given cash
    bonuses for:
    a) financial results.                 b) productivity results.
    c) long-term performance.             d) stock appreciation.

Answer: (c)                                   Difficult       Page: 341

37. In the New Workplace feature of the text it is suggested that ______ is a tricky problem in
    developing long-tem incentives for a firm’s overseas operations.
    a) exchange rate                          b) taxation
    c) political instability                  d) foreign law

Answer: (b)                                   Difficult       Page: 342

38. In the New Workplace feature of the text, it is suggested that developing effective long -term
    incentives for a firm's overseas operations presents some tricky problems with regard to:
    a) foreign exchange controls.             b) translation risk.
    c) balance of payments problems.          d) political instability issues.

Answer: (d)                                   Moderate        Page: 342

39. It is suggested in the text that few HR practices have as profound or obvious impact on
    strategic success as:
    a) the company’s long-term incentives.
    b) the regulatory environment.
    c) domestic policy.
    d) foreign exchange controls.

Answer: (a)                                   Moderate        Page: 342

40. Sales compensation plans typically rely heavily on incentives but this varies by:
    a) strategic plan.                       b) industry.
    c) competitive policy.                   d) labor contract.

Answer: (b)                                   Easy            Page: 343

41. Compensation plans for salespeople have relied heavily on incentives in the form of:
    a) stock options.                     b) bonuses.
    c) sales commissions.                 d) profit sharing.

Answer: (c)                                   Easy            Page: 344

Test Item File

42. The most prevalent approach for compensating salespeople is to use a combination of:
    a) salary and commissions.            b) salary and bonuses.
    c) commissions and stock options.     d) commission and bonuses.

Answer: (a)                                     Moderate        Page: 343

43. The following are advantages of compensating salespeople on a straight salary basis except:
    a) salespeople know in advance what their income will be.
    b) employers have fixed, predictable sales force expenses.
    c) it makes it difficult for employees to switch jobs.
    d) it develops a high degree of loyalty among the sales staff.

Answer: (c)                                     Easy            Page: 344

44. Which of the following is a disadvantage of paying salespeople a straight sala ry?
    a) Emphasizes "making the sale."         b) Pay isn’t proportionate to results.
    c) Does not promote loyalty              d) Little flexibility in switching territories.

Answer: (b)                                     Moderate        Page: 344

45. A _____ compensates salespeople in direct proportion to their sales.
    a) direct compensation plan           b) proportional compensation plan
    c) piece rate plan                    d) commission plan

Answer: (d)                                     Easy            Page: 344

46. The most frequent percentage split for compensating salespeople is:
    a) 80% salary and 20% incentives.        b) 70% salary and 30% incentives.
    c) 60% salary and 40% incentives.        d) 50% salary and 50% incentives.

Answer: (a)                                     Easy            Page: 345

47. When using a combination of commissions and straight salary to pay salespersons, the
    employer is:
    a) prevented from giving special awards.
    b) prevented from giving individual bonuses.
    c) trading away some incentive value.
    d) prevented from using prize awards.

Answer: (a)                                     Moderate        Page: 345

48. ______ is any salary increase awarded to an employee based on his/her individual
    a) Merit pay                       b) Performance pay
    c) Incentive pay                   d) Value-added pay

Answer: (a)                                     Easy            Page: 348

                                                                                       Chapter 12

49. The following are reasons why merit pay plans can backfire except:
    a) usefulness of the merit plan depends on the validity of the appraisal system.
    b) supervisors often tend to minimize differences in employee performance.
    c) being paid a below-average merit increase can be demoralizing.
    d) pay cannot be tied directly to specific performance.

Answer: (d)                                   Moderate         Page: 348

50. Two adaptations of merit pay plans are becoming more popular today. One ties awards to
    both individual and organizational performance, and the other awards merit raises in:
    a) a lump sum once a year.                b) proportion to organizational profitability.
    c) proportion to group performance. d) proportion to profit sharing.

Answer: (a)                                   Moderate         Page: 348

51. Lump-sum merit raises help contain benefit costs because it is, in effect, a:
    a) non-financial incentive.
    b) piece rate production incentive.
    c) short-term bonus that does not increase base pay.
    d) reflection of the annual review.

Answer: (c)                                   Difficult        Page: 348

52. In using lump sum merit raises, it is possible   that employees with unacceptable performance
    would receive no lump-sum awards even for        a year in which the organization's performance
    a) disturbing.                            b)     diminished.
    c) unrewarding.                           d)     outstanding.

Answer: (d)                                   Easy             Page: 349

53. _______ work involves the application of learned knowledge to the solution of the employer's
    a) Managerial employees’                b) Supervisory employees’
    c) Professional employees’              d) Technical employees’

Answer: (c)                                   Easy             Page: 349

54. In a recent survey of 300 IT departments, 77% were offering _____ to IT professionals.
    a) hourly wages                          b) bonuses and incentives
    c) piece rate incentives                 d) straight salary

Answer: (b)                                   Easy             Page: 349

55. Many employers have incentive plans in which virtually all employees can participate. They
    include the following except:
    a) stock appreciation plans.          b) profit-sharing.
    c) employee stock ownership.          d) group incentive plans.

Answer: (a)                                   Moderate         Page: 350

56. In a(n) _______, most employees receive a share of the company's profits.
    a) ESOP plan                           b) Scanlon plan
    c) gainsharing plan                    d) profit-sharing plan

Test Item File

Answer: (d)                                   Moderate       Page: 350

57. A(n) _____ places a predetermined portion of profits in each employee's account under the
    supervision of a trustee.
    a) Scanlon plan                       b) deferred profit-sharing plan
    c) employee trust fund plan           d) endowed trust plan

Answer: (b)                                   Easy           Page: 350

58. Research suggests that ESOPs do encourage employees to develop a sense of:
    a) indebtedness to the firm.         b) ownership in and commitment to the firm.
    c) cooperation.                      d) the financial concerns of the company.

Answer: (b)                                   Easy           Page: 351

59. In a(n) ______, a corporation contributes shares of its own stock to a trust in which additional
    contributions are made annually, and distributes the stock to employees on retirement or
    separation from services.
    a) employee stock ownership plan         b) employee trusteeship plan
    c) individual retirement plan            d) profit-sharing plan

Answer: (a)                                   Moderate       Page: 350

60. The following are basic features of the Scanlon plan except:
    a) a philosophy of cooperation.
    b) a clear identity that will help focus employee involvement.
    c) competence required from all employees.
    d) a significant portion of the pay is at-risk.

Answer: (d)                                   Easy           Page: 352

61. The Scanlon plan has been quite successful at reducing costs and fostering a sense of
    sharing and cooperation among:
    a) unions.                         b) industrial associations.
    c) labor-management teams.         d) employees.

Answer: (d)                                   Easy           Page: 352

62. A(n) _______ is a type of incentive plan that engages employees in a common effort to
    achieve a company's productivity objectives and where the resulting cost savings are shared
    among employees.
    a) cost savings plan                    b) profit-sharing plan
    c) gainsharing plan                     d) ESOP

Answer: (c)                                   Moderate       Page: 353

63. Management must be committed to implementing and maintaining the gainsharing plan, since
    managers will have to set and maintain:
    a) team goals.                          b) the performance evaluations.
    c) the financial outcomes.              d) bonuses and rewards.

Answer: (a)                                   Easy           Page: 353

                                                                                       Chapter 12

64. In a(n) ______, some portion of the employee's pay is at risk, and subject to the firm meeting
    its financial goals.
    a) at-risk variable pay plan            b) profit-sharing plan
    c) Scanlon plan                         d) gainsharing plan

Answer: (a)                                   Moderate       Page: 354

65. The at-risk variable pay plan is aimed at turning employees into:
    a) stockholders.                           b) creditors.
    c) debtors.                                d) committed partners.

Answer: (d)                                   Moderate       Page: 354

66. According to the feature of the text, many firms, including Nortel Networks, Levi/Strauss
    and others, now:
    a) partner with online incentive firms.
    b) pool together to increase political influence.
    c) try to reduce the work performed by each employee.
    d) shun networking.

Answer: (a)                                   Difficult      Page: 346

67. AmeriSteel’s top management undertook:
    a) designing a new incentive plan.    b)       new cost-cutting methods.
    c) a downsizing to reduce incentives. d)       a restructuring to improve productivity.

Answer: (a)                                   Moderate       Page: 354

68. According to the Fair Labor Standards Act:
    a) employee seniority is not a valid basis for differential overtime provisions.
    b) only quantifiable job performance measures must be used to calculate incentives.
    c) reaching financial goals must be paramount before giving incentives.
    d) many types of incentive pay must be included in overtime pay calculations.

Answer: (d)                                   Difficult      Page: 357

69. The feature of the Scanlon plan that means the company’s mission or purpose must be clearly
    articulated and employees must fundamentally understand how the business operates is
    referred to as:
    a) competence.                          b) involvement.
    c) identity.                            d) evaluation.

Answer: (c)                                   Easy           Page: 352

70. The feature of the Scanlon plan that allows employees to pres ent improvement suggestions to
     the appropriate committee is referred to as:
     a) competence.                            b) involvement.
     c) identity.                              d) evaluation.

Answer: (b)                                   Easy           Page: 352


Test Item File

71. Frederick Taylor saw the need for a standardized, acceptable view of a f air day's work.

Answer: True                                  Easy           Page: 334

72. Competition, shareholder value, and turbulence characterize business today, and they have
    produced a decline in the use of financial incentive/pay for performance plans.

Answer: False                                 Easy           Page: 334

73. The oldest and most commonly used type of incentive plan is the piecework plan.

Answer: True                                  Easy           Page: 335

74. Piecework generally implies a strict proportionality between results and rewards, regardless of
    the level of output.

Answer: True                                  Difficult      Page: 336

75. A disadvantage to the piecework incentive plan is that it creates quality problems.

Answer: True                                  Moderate       Page: 336

76. The standard hour plan worker is rewarded by a percent premium that is preset.

Answer: False                                 Easy           Page: 336

77. One approach to using the team incentive plan is to set work standards for each member of
    the group and maintain a count of the output of each member.

Answer: True                                  Difficult      Page: 336

78. One survey found that for firms offering short-term incentives about 96% of large companies
    pay managers and executives with cash.

Answer: True                                  Moderate       Page: 337

                                                                                    Chapter 12

79. Short-term incentive bonuses may result in plus or minus adjustments of 25% or more in total

Answer: True                                Moderate       Page: 338

80. When using short-term incentives, most firms restrict these to upper level management.

Answer: False                               Moderate       Page: 338

81. Most experts argue that in most organizations, managerial and executive level bonuses should
    be tied to both organizational and individual performance.

Answer: True                                Easy           Page: 339

82. Outstanding performers should never be paid less than their target reward and should get
    substantially larger awards than do other managers.

Answer: True                                Difficult      Page: 339

83. A stock option is the right to purchase a specific number of shares of company stock at a
    specific price during a period of time determined by the employee.

Answer: False                               Moderate       Page: 340

84. Employee stock ownership plans are plans whose payment or value is contingent on financial
    performance measured against objectives set at the start of a multi-year period.

Answer: False                               Easy           Page: 350

85. Compensation plans for salespeople have typically relied heavily on sales commissions.

Answer: True                                Easy           Page: 343

86. Merit pay can apply to the incentive raises given to exempt or nonexempt, office or factory,
    management or non-management office and clerical employees.

Answer: True                                Moderate       Page: 348

87. Knowing that base salary levels are not permanently impacted by merit pay decisions
    encourages management to award lump-sum merit raises.

Answer: True                                Difficult      Page: 349

88. The basic difference between the Scanlon plan and the Rucker plan is the formula used to
    determine which employees will receive bonuses.

Answer: True                                Moderate       Page: 353

Test Item File

89. At-risk variable pay plans put all of an employee’s salary at risk, subject to the firm meeting its
    financial goals.

Answer: False                                  Moderate        Page: 354

90. Incentive plans always are successful.

Answer: False                                  Easy            Page: 355

91. All incentive plans are pay-for-performance plans.

Answer: True                                   Easy            Page: 335

92. Many firms are turning to Web-based incentive sites to help them with non-financial incentives
     for employees.

Answer: True                                   Easy            Page: 335

93. Piecework plans do not have any apparent disadvantag es.

Answer: False                                  Easy            Page: 336

94. The main disadvantage of team incentives is that a worker’s pay may not be proportionate to
     his or her efforts, which may motivate slackers to increase their lingering.

Answer: False                                  Easy            Page: 337

95. For firms offering short-term incentives, 48% of them offer stock options.

Answer: False                                  Moderate        Page: 337

96. Employers use short-term incentives to inject a long-term perspective into their executives’
    decisions because the sum of many short term incentives eventually adds up to long term

Answer: False                                  Difficult       Page: 339

97. “Golden handcuffs” are a type of long-term incentive.

Answer: True                                   Easy            Page: 339

98. Today, there is less emphasis on building more executive risk into long -term incentive formulas.

Answer: False                                  Easy            Page: 341

99. Performance plans are essentially bonuses but the measurement period is longer than a year.

Answer: True                                   Difficult       Page: 341

100. Many firms today are trying to tie manager’s incentives to economic value rathe r than just to

Answer: True                                   Moderate        Page: 343

                                                                                         Chapter 12


101. Discuss and explain the advantages and disadvantages of a piecework plan.

Answer:                                        Easy            Page: 336

    A system of pay based on the number of items processed by each worker in a unit of time. It
    is the oldest of the incentive plans and the most commonly used. Advantages: simple to
    calculate; equitable in principle; incentive value can be powerful since rewards are tied to
    performance. Disadvantages: unsavory reputation among employe es; piece rates are stated
    in monetary terms; tailor-made for specialized jobs; fosters rigidity; quality problems; can result
    in lower than minimum wage being paid.

102. Identify and explain two different ways of setting up team or group incentive pla ns.

Answer:                                        Easy            Page: 337

    There are two basic ways that the group incentives can be designed. 1) Set work standards
    for each member of a group and maintain a count of the output of each member. All members
    of the group are then paid based on one of three formulas: a) the pay earned by the highest
    producer, b) the pay earned by the lowest producer, 3) the average pay earned by the group.
    2) Set a production standard based on the final output of the group as a whole. All members
    then receive the same pay, based on the piece rate that exists for the group’s job. Simply
    choose a measurable definition of group performance or productivity that the group can

103. List and explain the basic issues to be considered when awarding short -term

Answer:                                        Moderate        Page: 338 - 341

    There are three basic issues to be considered: 1) eligibility—conduct job-by-job reviews to
    identify key jobs that have impact on profitability. 2) fund size determination —amount of
    bonus money available. 3) decide the individual awards to be paid. Advantages of short -term
    incentives are that if they are properly constructed, they can greatly enhance the performance
    and behaviors that the firm needs from these positions. However, sometimes to achieve short -
    term goals, actions may be taken that adversely affect long-term goals of the company. An
    example is when a manager neglects basic machine maintenance in order to hold down
    expenses to meet a short-term goal. The long-term effect is higher expenses because the
    machines not properly cared for will experience breakdowns.

Test Item File

104. What are the advantages and disadvantages of a long -term incentive such as a
     stock option?

Answer:                                      Moderate        Page: 339 - 341

    A stock option is the right to purchase a specific number of shares of company stock at a
    specific price during a period of time. The assumption is that management will work towards
    having the price of the stock go up, rather than going down or staying the same. It is the most
    popular choice for providing long-term incentives for top executives. A disadvantage is that
    there are many factors outside the executive’s control that affect the stock price. These
    incentives also tie the executive to the organization thus reducing turnover and the need for
    recruiting and selection.

105. Compare the salary plan to the commission plan for salespeople.

Answer:                                      Moderate        Page: 343 - 347

    In the salary plan, salespeople are given a fixed salary with occasional incentives in the form
    of bonuses, sales contest prizes, etc. The main objectives are finding new clients or stressing
    customer service. The firm has fixed expenses; and salespeople know their income. The
    salary plan should be used in start-up situations, or in situations where you want to make
    customer service, as opposed to high-pressure sales, your competitive edge. Commission
    plans pay salespeople in proportion to sales; have greatest incentive because it links pay to
    performance; attract high-performing people; sales costs are proportional to sales; and th e
    company's selling investment is reduced. Combination plans should be used when there are
    seasonal highs and lows so that salespeople have a base salary to get through the low times.
    It should also be used when there are non-sales related duties that you want the employees to
    do as well.

106. List and describe the steps in creating an effective executive compensation

Answer:                                      Difficult       Page: 342

    The answer here should contain six steps listed on pages 342 -343 of the text. Explanations of
    the steps would round out a complete answer.

107. Explain the art of setting effective quotas.

Answer:                                      Difficult       Page: 347

    Here, certain questions must be asked. These include: have we communicated quotas to the
    sales force within one month of the start of the period? Does the sales force know exactly how
    quotas are set? Do you combine bottom-up with top-down requirements? Does 60 to 70
    percent of the sales force generally hit their quota? Do high or low performers hit their target
    consistently? Are sales quotas stable through the performance period? Are returns and
    debookings reasonably low? Has the firm avoided compensation -related lawsuits? Are the
    commission rates allowing the company to pay its bills?

                                                                                        Chapter 12

108.       What are the features of the Scanlon plan? Explain these features.

Answer:                                         Moderate       Page: 352

       There are five elements that must be listed and addressed in this answer. These are listed on
       page 352 of the text.

109. What are the steps in implementing a gainsharing plan?

Answer:                                         Moderate       Page: 353

       There are eight steps which include: establish general plan objectives; choose specific
       performance measures; decide on a funding formula; decide on a method for dividing ad
       distributing the employee’s share of the gains; make the disbursement s ignificant enough to
       get participant’s attention; choose the form of payment; decide how often to pay bonuses;
       develop the involvement system.

110. Describe the steps that should be followed to implement incentive plans.

Answer:                                         Difficult      Page: 356

       The student should list and explain the 11 steps described on page 356 of the text.