Exam 11: Designing Performance Pay Plans

An employer issues Johnny 2,000 stock options in recognition of a very good year. These particular options vest after 24 months from the date of issuance with an exercise price of $21.00 per share. After 24 months, these shares trade in the open market at $25.00 per share, and Johnny decides to exercise his 2,000 options, generating a gain of $8,000 (minus transaction fees). Which of the following statements regarding Johnny's tax situation pursuant to these gains is true?

Identify how design issues for stock plans differ for private corporations.

Which of the following is a major issue with employee stock plans?

A rolling baseline goes up each year there is a productivity gain, and last year's productivity becomes the new baseline.

Which of the following gain-sharing plans requires that management has access to historical data so as to be able to calculate a so-called "normal labour cost"?

Identify and briefly comment on the key issues in designing profit-sharing plans.

Which of the following is NOT an example of a nonmonetary award?

Which of the following is NOT true when deciding on the "share" between the company and employees in a gain-sharing plan?

According to the author, which of the following is the most important factor in the success of the goal-sharing plan?

What is the least common basis for allocating profit-sharing bonuses across employees in Canadian firms?

Working as a human resources compensation specialist for a manufacturing company, you become concerned employees will attempt to reduce labour costs "by any means" so as to enhance available bonuses via the company's gain-sharing plan. This behaviour may potentially lead to more work-related accidents or dissatisfied customers. Which would you do to mitigate this reduction in labour costs due to "by any means" mentality?

You are a minority shareholder in a private corporation, whereas your friend holds employee shares in a publicly traded corporation. Which of the following conditions will you NOT experience, in contrast to your friend?

You have been tasked with providing management with a list of factors distinguishing goal-sharing plans from gain-sharing plans. Which of the following should NOT be included in your list?

Which of the following statements regarding profit-sharing plans is NOT correct?

Financially funded plans combine at least two criteria in establishing goal-sharing bonuses. Often, one of those variables is organizational profitability, making such plans highly motivational to employees.

As a general rule, the broader the formula used to determine the pool of funds available for gain sharing the lower the "share."

Briefly describe the Scanlon Plan.

Discuss the key issues in designing a nonmonetary reward plan.

ABC Ltd. generated one million Canadian dollars in profits this year. ABC Ltd. decides to place 200,000 Canadian dollars (20 percent of pre-tax profits) in a bonus pool. In previous years, this figure has ranged from zero to 50 percent of pre-tax profits. What type of formula is ABC Ltd. using to determine contributions into the pool?

In order for the Scanlon plan to work, organizations must be able to predict future cost of inputs, particularly labour.