Question 1

Discuss the five basic elements of executive compensation packages.

Accepted Answer

There are five basic elements of most executive compensation packages:
1()Base salary: Being competitive is a very important factor in the determination of executive base pay. Although formalized job evaluation still plays an occasional role in determining executive base pay, other sources are much more important. Particularly important is the opinion of a compensation committee of the company's board of directors.
2()Bonuses: Annual bonuses play a major role in executive compensation and are primarily designed to motivate better performance. Today, bonuses are given to 90 percent of executives. The types of organizations relying almost exclusively on base salary for total direct compensation typically have one or more of the following characteristics: (a)tight control of stock ownership, (b)not-for-profit institutions, or
(c)firms operating in regulated industries.
3()Long term incentives: By far the most common long-term incentive remains the executive stock option.
4()Employee benefits: Because many benefits are tied to income level, executives typically receive higher benefits than most other exempt employees. Beyond the typical benefits, however, many executives also receive additional life insurance, exclusions from deductibles for health care costs, and supplementary pension income exceeding the maximum limits permissible under legal guidelines for registered (eligible for tax deductions)pension plans.
5()Perquisites: Perquisites, or "perks," are designed to satisfy several types of executive needs. One type of perk could be classified as internal, providing a little something extra while the executive is inside the company: luxury offices, executive dining rooms, special parking. A second category also is designed to be company-related, but for business conducted externally: company-paid membership in clubs/associations, payment of hotel, resort, airplane, and auto expenses. The final category of perquisites, called personal perks, includes such things as low-cost loans, personal and legal counselling, free home repairs and improvements, personal use of company property, and expenses for vacation homes.

Question 2

Group incentive plans suffer from what is called the where at least one person doesn't carry his or her share of the load.

Accepted Answer

A) self-serving bias 
B) halo effect 
C) free rider problem 
D) bandwagon effect 
E) moral hazard problem 
A) self-serving bias 
B) halo effect 
C) free rider problem 
D) bandwagon effect 
E) moral hazard problem C

Question 3

Describe the difficulties in designing team compensation plans.

Accepted Answer

Plans are frequently not well communicated.

Question 4

One disadvantage of individual incentive plans is that more direct supervision is required to ensure productivity increases.

Accepted Answer

A) True 
 B)False

Question 5

According to the social comparison view, when salaries of lower-level employees rise in response to market forces, top executive salaries also rise to maintain the same relative relationship.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is a disadvantage of profit sharing?

Accepted Answer

A) Most profit sharing plans involve high administrative costs. 
B) Most profit sharing plans are highly sophisticated and hence not easily understood by employees. 
C) Most employees don't feel their jobs have a direct impact on profits. 
D) Most employees are not concerned about the profitability of their organizations. 
E) Most employees are unwilling to learn about financial measures and the business factors that influence them. 
A) Most profit sharing plans involve high administrative costs. 
B) Most profit sharing plans are highly sophisticated and hence not easily understood by employees. 
C) Most employees don't feel their jobs have a direct impact on profits. 
D) Most employees are not concerned about the profitability of their organizations. 
E) Most employees are unwilling to learn about financial measures and the business factors that influence them.

Question 7

What is the primary focus of a merit pay system?

Accepted Answer

A) to reward employees for exceptional performance on special projects 
B) to reward employees for not being fired 
C) to provide end-of-year bonuses that do not build into base pay 
D) to offer a uniform merit increase to all employees across performance levels 
E) to link increases in base pay to how employees are rated on a subjective performance evaluation 
A) to reward employees for exceptional performance on special projects 
B) to reward employees for not being fired 
C) to provide end-of-year bonuses that do not build into base pay 
D) to offer a uniform merit increase to all employees across performance levels 
E) to link increases in base pay to how employees are rated on a subjective performance evaluation

Question 8

Which of the following is true of a straight piecework system?

Accepted Answer

A) It is a complex system and hence is not readily accepted by employees. 
B) It is the least frequently implemented incentive system. 
C) It is based on providing end-of-year bonuses when the organization performs well. 
D) It is a system where standards are based on time per unit. 
E) It is a system where rate determination is based on units of production per time period. 
A) It is a complex system and hence is not readily accepted by employees. 
B) It is the least frequently implemented incentive system. 
C) It is based on providing end-of-year bonuses when the organization performs well. 
D) It is a system where standards are based on time per unit. 
E) It is a system where rate determination is based on units of production per time period.

Question 9

Which of the following is an example of an employee benefit in an executive compensation package?

Accepted Answer

A) pension plans 
B) bonuses 
C) special parking 
D) low-cost loans 
E) stock options 
A) pension plans 
B) bonuses 
C) special parking 
D) low-cost loans 
E) stock options

Question 10

The "free rider" problem is an issue associated with individual incentive plans.

Accepted Answer

A) True 
 B)False

Question 11

Spot awards are examples of group incentive plans.

Accepted Answer

A) True 
 B)False

Question 12

The major focus of individual spot awards is on:

Accepted Answer

A) rewarding group or team performance 
B) promising pay for some objective, pre-established level of performance 
C) rewarding employees with monthly increments to keep up their motivation 
D) awarding employees for exceptional performance on a special project 
E) linking increases in base pay to employee ratings on performance evaluations 
A) rewarding group or team performance 
B) promising pay for some objective, pre-established level of performance 
C) rewarding employees with monthly increments to keep up their motivation 
D) awarding employees for exceptional performance on a special project 
E) linking increases in base pay to employee ratings on performance evaluations

Question 13

According to the agency theory approach to understanding CEO compensation:

Accepted Answer

A) the worth of a CEO should correspond closely to some measure of company success, such as profitability or sales 
B) executives should not be allowed to own stock options 
C) executive compensation should be regulated and monitored by government agencies 
D) executive compensation should be designed to ensure that executives have the best interests of stockholders in mind when they make decisions 
E) executive salaries bear a consistent relative relationship to the compensation of lower-level employees 
A) the worth of a CEO should correspond closely to some measure of company success, such as profitability or sales 
B) executives should not be allowed to own stock options 
C) executive compensation should be regulated and monitored by government agencies 
D) executive compensation should be designed to ensure that executives have the best interests of stockholders in mind when they make decisions 
E) executive salaries bear a consistent relative relationship to the compensation of lower-level employees

Question 14

Which of the following is an example of a perquisite for executives?

Accepted Answer

A) Bonuses 
B) Low-cost loans 
C) Life insurance 
D) Executive stock options 
E) Pension plans 
A) Bonuses 
B) Low-cost loans 
C) Life insurance 
D) Executive stock options 
E) Pension plans

Question 15

A disadvantage of group incentive plans is that:

Accepted Answer

A) they deemphasize cohesiveness and team identity 
B) it is difficult to set equitable targets for all teams 
C) they are ineffective in stimulating ideas and problem-solving 
D) they are often too simplistic in design 
E) they maximize distinctions between team members 
A) they deemphasize cohesiveness and team identity 
B) it is difficult to set equitable targets for all teams 
C) they are ineffective in stimulating ideas and problem-solving 
D) they are often too simplistic in design 
E) they maximize distinctions between team members

Question 16

Discuss the key elements in designing a gain-sharing plan.

Accepted Answer

The following issues are key elements in

Question 17

Employee stock ownership plans:

Accepted Answer

A) grant stock options to employees at all levels rather than just senior executives 
B) offer employees the opportunity to purchase company stock, often partially or fully matched by employer-paid stock for the employee 
C) link increases in base pay to how highly employees are rated on a subjective performance evaluation 
D) provide employees with end-of-year bonuses that do not build into their base pay 
E) provide employees with the right to purchase stock at a specified (exercise)price for a fixed time period 
A) grant stock options to employees at all levels rather than just senior executives 
B) offer employees the opportunity to purchase company stock, often partially or fully matched by employer-paid stock for the employee 
C) link increases in base pay to how highly employees are rated on a subjective performance evaluation 
D) provide employees with end-of-year bonuses that do not build into their base pay 
E) provide employees with the right to purchase stock at a specified (exercise)price for a fixed time period

Question 18

To align the interest of the directors and the organizations, publicly traded companies are increasingly adopting mandatory or recommended share ownership guidelines.

Accepted Answer

A) True 
 B)False

Question 19

Discuss three possible explanations for extremely high levels of CEO compensation.

Accepted Answer

One approach to explaining why executive

Question 20

How is perceived fairness of a formula a key element in designing a gain-sharing plan?

Accepted Answer

One way to ensure that a gain-sharing pl

Discuss the five basic elements of executive compensation packages.

Group incentive plans suffer from what is called the where at least one person doesn't carry his or her share of the load.

Describe the difficulties in designing team compensation plans.

One disadvantage of individual incentive plans is that more direct supervision is required to ensure productivity increases.

According to the social comparison view, when salaries of lower-level employees rise in response to market forces, top executive salaries also rise to maintain the same relative relationship.

Which of the following is a disadvantage of profit sharing?

What is the primary focus of a merit pay system?

Which of the following is true of a straight piecework system?

Which of the following is an example of an employee benefit in an executive compensation package?

The "free rider" problem is an issue associated with individual incentive plans.

Spot awards are examples of group incentive plans.

The major focus of individual spot awards is on:

According to the agency theory approach to understanding CEO compensation:

Which of the following is an example of a perquisite for executives?

A disadvantage of group incentive plans is that:

Discuss the key elements in designing a gain-sharing plan.

Employee stock ownership plans:

To align the interest of the directors and the organizations, publicly traded companies are increasingly adopting mandatory or recommended share ownership guidelines.

Discuss three possible explanations for extremely high levels of CEO compensation.

How is perceived fairness of a formula a key element in designing a gain-sharing plan?

The Pay Model

Strategy: the Totality of Decisions

Defining Internal Alignment

Job Analysis

Job-Based Structures and Job Evaluation

Person-Based Pay Structures

Defining Competitiveness

Designing Pay Levels, Pay Mix, and Pay Structures

Employee Benefits

Pay for Performance: Performance Appraisal and Plan Design

The Role of Governments and Unions in Compensation

Compensation Budgets and Administration

Filters

Exam 11: Pay-For-Performance Plans

Discuss the five basic elements of executive compensation packages.

Group incentive plans suffer from what is called the where at least one person doesn't carry his or her share of the load.

Describe the difficulties in designing team compensation plans.

One disadvantage of individual incentive plans is that more direct supervision is required to ensure productivity increases.

According to the social comparison view, when salaries of lower-level employees rise in response to market forces, top executive salaries also rise to maintain the same relative relationship.

Which of the following is a disadvantage of profit sharing?

What is the primary focus of a merit pay system?

Which of the following is true of a straight piecework system?

Which of the following is an example of an employee benefit in an executive compensation package?

The "free rider" problem is an issue associated with individual incentive plans.

Spot awards are examples of group incentive plans.

The major focus of individual spot awards is on:

According to the agency theory approach to understanding CEO compensation:

Which of the following is an example of a perquisite for executives?

A disadvantage of group incentive plans is that:

Discuss the key elements in designing a gain-sharing plan.

Employee stock ownership plans:

To align the interest of the directors and the organizations, publicly traded companies are increasingly adopting mandatory or recommended share ownership guidelines.

Discuss three possible explanations for extremely high levels of CEO compensation.

How is perceived fairness of a formula a key element in designing a gain-sharing plan?

The Pay Model

Strategy: the Totality of Decisions

Defining Internal Alignment

Job Analysis

Job-Based Structures and Job Evaluation

Person-Based Pay Structures

Defining Competitiveness

Designing Pay Levels, Pay Mix, and Pay Structures

Employee Benefits

Pay for Performance: Performance Appraisal and Plan Design

The Role of Governments and Unions in Compensation

Compensation Budgets and Administration

Filters