Exam 10: Pay for Performance: Incentive Rewards

Employers using a lump-sum merit program will need to periodically increase base salaries in order for employees to keep pace with the cost of living or general market wages.

Which of the following pay plans can be plagued by the "free rider" effect?

When employees receive a higher rate of pay for all of their work if production exceeds a standard level of output, which incentive plans are they are working with?

A new start-up firm wants to encourage team behaviours and a "culture of ownership" among all employees in the organization. Which of the following pay plans would you advise against?

Scenario 10.2 Meritas Financial Ltd. is a financial advisory firm located in downtown Toronto. Most of the firm's senior employees (referred to as partners)are paid top dollar for bringing in huge accounts regardless of whether these accounts bring in the appropriate amount of business to justify the incentives paid. The partners are compensated on the net worth of the companies that sign on to use Meritas as their financial advisor. The owner is now concerned about this pay arrangement and wants to make changes to the way he compensates his employees. However, he is worried that with a potential reduction of salary and short-term incentives, he might lose some of his most valuable employees and the accounts that they brought on board. -Refer to Scenario 10.2. In implementing a new profit sharing plan, Meritas has various options by which payouts can be made to its employees. Which of the following is the best way for Meritas to distribute profits?

Employees working under a standard hour plan are paid on the basis of a predetermined time allowed to finish the job.

A weakness of profit-sharing plans is that employees do not have total control over the profitability of the organization.

Employers use stock ownership incentive plans to increase employee "ownership" in the company.

Stock options are rights attached to the achievement of specific organizational objectives.

Gainsharing plans are designed to improve productivity through more effective use of organizational resources.

One philosophy of incentive systems is that tying compensation to employee effort will improve employee performance.

Management must be careful to ensure that incentive payments are viewed as both a reward and an entitlement.

Under what condition is piecework appropriate?

Which of the following is a pay plan that only compensates sales employees based on a percentage of sales?

Scenario 10.2 Meritas Financial Ltd. is a financial advisory firm located in downtown Toronto. Most of the firm's senior employees (referred to as partners)are paid top dollar for bringing in huge accounts regardless of whether these accounts bring in the appropriate amount of business to justify the incentives paid. The partners are compensated on the net worth of the companies that sign on to use Meritas as their financial advisor. The owner is now concerned about this pay arrangement and wants to make changes to the way he compensates his employees. However, he is worried that with a potential reduction of salary and short-term incentives, he might lose some of his most valuable employees and the accounts that they brought on board. -Refer to Scenario 10.2. Meritas may be able to increase short-term incentives and retain its most valuable employees by embarking on which of the following?

For incentive plans to be successful, one of the most critical requirements is that managers be willing to grant incentives based on differences in individuals, teams, or organizational criteria.

Balanced scorecards refer to the use of operational yardsticks as well as traditional financial measures as a basis for computing executive pay.

Scenario 10.1 BioMetrics Imaging Ltd. is a small Saskatoon-based firm that designs and produces one-of-a-kind machines that are capable of capturing medical imaging similar to that of MRI machines but with a higher percentage of accuracy. So far, the company has been able to sell various units to privately-owned medical clinics and a few hospitals in the United States. The problem currently facing BioMetrics Imaging is finding salespeople with the appropriate experience who not only understand the equipment but are also trustworthy and willing to work extremely hard to bring the product to the marketplace. It takes roughly six months to convince potential clients to purchase the machines. Sales agents receive a hefty paycheque when a unit is sold based on a percentage of the unit price, and all travel expenses are covered. Still, the company is not able to retain its employees because the time lag between beginning to sell machines and getting paid is too long. -Refer to Scenario 10.1. One way to address the turnover problem that is driven by the frequency of payout would be to have some form of guaranteed pay. Which pay method for sales employees addresses this issue?

A potential difficulty with pay-for-performance programs is how to measure employee performance.

Briefly discuss three individual incentive plans. (Students should discuss three of the four following plans.)