Question 1

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?

Accepted Answer

A)  Because these options were a bonus provided by the employer, there are no tax consequences attributable to Johnny. 
B)  Because these shares are "under water," Johnny's employer is responsible for any taxes on the gains. 
C)  Johnny will have to pay taxes based on the corporate tax rate. 
D)  Johnny's gain will be deemed as income, but taxes will be paid at the capital gains rate.

Question 2

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

Accepted Answer

The answer of Identify how design issues for stock plans...

Question 3

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

Accepted Answer

A)  government support for employee share ownership 
B)  taxation 
C)  decline in popularity 
D)  senior executive involvement

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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"?

Accepted Answer

A)  Rucker plan 
B)  family of measures plan 
C)  Scanlon plan 
D)  Improshare plan

Question 6

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

Accepted Answer

The answer of Identify and briefly comment on the key...

Question 7

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

Accepted Answer

A)  a day off for perfect attendance 
B)  a pat on the back for a job well done 
C)  a company picnic 
D)  an all-expenses-paid holiday

Question 8

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

Accepted Answer

A)  When productivity gains are defined on a relatively small base, the split tends to be skewed towards employees. 
B)  When companies use capital-intensive methods, the share tends to be lower. 
C)  When the base line increases significantly, the share needs to be higher so as to compensate for the increased level of difficulty in attaining productivity gains. 
D)  When productivity gains are defined on a relatively large base, the split tends to be skewed towards employees.

Question 9

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

Accepted Answer

A)  identification of the goals to be rewarded 
B)  determination of levels for goal achievement 
C)  establishment of bonus amounts 
D)  determination of time frames for goal achievement

Question 10

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

Accepted Answer

A)  seniority 
B)  individual performance 
C)  salary level 
D)  equal distribution across all employees

Question 11

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?

Accepted Answer

A)  Expand the pool. 
B)  Introduce a modifier. 
C)  Use a Scanlon plan. 
D)  Introduce a "top hat" program.

Question 12

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?

Accepted Answer

A)  owner reluctance to share ownership 
B)  little control over what goes on in the organization 
C)  no easy way to liquidate shares if you feel your interests are not being well represented 
D)  no external market to place a value on company shares

Question 13

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?

Accepted Answer

A)  The essence of gain sharing is simply to improve on past performance. 
B)  Goal-sharing plans typically include several levels of attainment. 
C)  Goal-sharing plans quantify cost savings and then share those benefits with both employees and the company using a fixed formula. 
D)  Both require that management identify the group participating in the plan.

Question 14

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

Accepted Answer

A)  Deferred profit-sharing plans (DPSPs) need to be registered with the federal government. 
B)  So called "top-hat" plans are often widely available to all employees, thus making them eligible for registration as a DPSP. 
C)  Income generated by a DPSP is tax exempt until such time as the employee cashes in the plan. 
D)  The majority of Canadian profit-sharing plans are cash-based plans.

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Briefly describe the Scanlon Plan.

Accepted Answer

The answer of Briefly describe the Scanlon Plan....

Question 18

Discuss the key issues in designing a nonmonetary reward plan.

Accepted Answer

The answer of Discuss the key issues in designing a...

Question 19

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?

Accepted Answer

A)  fixed percentage 
B)  fixed threshold 
C)  discretionary 
D)  percentage approach

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 11: Designing Performance Pay Plans

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?

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.

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