Pay-for-Performance Plans Chapter Summary

Chapter 10 - Pay-for-Performance Plans
Chapter 10
Pay-for-Performance Plans
Multiple Choice Questions
1. It is observed that _____ is/are commanding a larger share of the total compensation for all
employee groups.
A. merit pay
B. health benefits
C. retirement benefits
D. variable pay
2. Which of the following is not true of lump-sum bonuses?

A. They help maintain competitive pay position relative to competitors.
B. They are less expensive than merit pay.
C. Employees dislike them.
D. They are a more visible reward than merit pay.
3. Usually _____ are awarded for exceptional performance, often on special projects or for
performance that so exceeds expectations as to be deserving of an add-on bonus.
A. variable pay awards
B. individual spot awards
C. lump-sum bonuses
D. merit pay
4. Which of the following is not true about individual spot awards?

A. Smaller companies may be more casual about recognition.
B. Someone in the organization alerts top management to the exceptional performance.
C. A majority of companies do not feel that these awards are effective.
D. Smaller companies are more subjective about deciding the size of the award.
10-1
5. A penalty for poor performance rather than reward for good is an example of:
A. benchmarking.
B. a reengineering plan.
C. a Rowan plan.
D. a reverse incentive plan.
6. Which of the following does not use the time period per unit of production to determine the
rate?
A. Gantt plan
B. Rowan plan
C. Halsey 50-50 method
D. Merrick system
7. Paying a dime for every bottle collected and turned into a collection center is an example
of:
A. a commission based work.
B. a standard hour based work.
C. straight piecework.
D. a Rowan plan.
8. The most frequently used incentive system is the:

A. standard hour plan.
B. straight piecework.
C. Halsey 50-50 plan.
D. Taylor differential piece-rate plan.
9. In which of the following incentive pay plans does the wage rate not increase for
production above the standard?
A. Standard hour plan
B. Rowan plan
C. Taylor plan
D. Merrick plan
10-2
10. A _____ plan divides a task into simple actions and determines the time an average
worker takes to complete each action.
A. standard hour
B. Rowan
C. Bedeaux
D. Merrick
11. An incentive system with three piecework rates is the _____ plan.
A. Taylor
B. Gantt
C. Halsey 50-50
D. Merrick
12. The incentive system with two rates, one for above production standard and one for below
standard is the _____ plan.
A. Taylor
B. Merrick
C. Rowan
D. Gantt
13. Compensation security is highest for workers who fail to complete tasks within the
standard time under the _____ plan?
A. Halsey 50-50
B. Gantt
C. Taylor
D. Rowan
14. Advantages of individual incentive plans include all of the following except:
A. lowered production costs.
B. less direct supervision.
C. greater trust between workers and management.
D. higher productivity.
10-3
15. The common feature to all types of incentive plans is:

A. a standard of performance to determine magnitude of incentive pay.
B. a sharing formula between worker and employer.
C. penalties for poor performance.
D. limits on magnitude of incentive pay.
16. Hoarding star performers, reluctance to accept new team members and resistance to
transferring team members are examples of which team-related compensation problem?
A. Level
B. Large variety of teams
C. Pay plan complexity
D. Control
17. A team works on a project with specific performance level goals and time deadlines, but
weather problems cause the team to miss the deadline. What is the key factor affecting how
the team feels about their incentive?
A. The incentive was as promised
B. The incentive was less than promised
C. The team's perception of reward fairness
D. The timing of the incentive
18. The two most commonly used team incentive performance standards are:
A. productivity and quality.
B. productivity and customer satisfaction.
C. financial performance and quality.
D. customer satisfaction and financial performance.
19. All of the following are human resource capabilities performance indicators used for
group incentive plans except:
A. turnover rates.
B. total recruitment costs.
C. promotability index.
D. accuracy/error rates.
10-4
20. Dissatisfaction with _____ performance indicators for group incentives has led to greater
use of _____.
A. financial; the balanced scorecard
B. human resource capabilities; financial measures
C. financial; customer-focused measures
D. the balanced scorecard; resource utilization measures
21. The balanced scorecard includes all of the following performance categories except:
A. innovation.
B. customer service.
C. process improvements.
D. tenure.
22. _____ have (has) advantages of having minimal impact on the company's financial
statements.
A. Cash profit sharing
B. A balanced scorecard
C. Stock options
D. Deferred profit sharing
23. _____ offer(s) a reward pool based upon achieving performance targets and
communicates organizational priorities.
A. The balanced scorecard
B. Stock options
C. Deferred profit sharing
D. Cash profit sharing
24. _____ has the disadvantage that employees may be required to spend money to obtain the
incentive.
C. Stock options
10-5
25. The purpose of this variable pay plan is to foster a "one for all" culture and to educate
employees about business.
A. Team incentives
B. Cash profit sharing
C. Balanced score card
D. Stock options
26. The best variable pay plan for employees when company financial performance is poor is
_____.
A. profit sharing
B. a balanced scorecard
C. stock ownership
D. gain sharing
27. The variable pay plan with the highest instrumentality is _____.
A. gain sharing
B. team incentives
C. a balanced scorecard
D. stock ownership
28. Which of the following is not an advantage of team incentives?

A. Stimulates problem solving
B. May better reflect how work is performed
C. Encourages competition between teams
D. Minimizes distinctions between team members
29. When a firm is _____ on business risk and outcomes are _____, corporate performance is
higher without any incentive plans.
A. high, well defined
B. high, uncertain
C. low, well defined
D. low, uncertain
10-6
30. A team leader with a free rider problem could maximize performance by:
A. instructing them to do their best.
B. specifying performance levels and due dates.
C. assigning another team member to monitor their performance.
D. punishing free riders who fail to meet standards.
31. All of the following are conditions supporting use of individual incentives except:
A. task accomplishment is independent of others.
B. the worker has a strong commitment to their profession.
C. production methods and labor mix are stable.
D. presence of a union.
32. In gain sharing plan formulas, _____ is/are the numerator and _____ the denominator.
A. productivity measures, inputs
B. productivity measures, labor inputs
C. costs and scrap rate, revenues
D. labor inputs, productivity measures
33. More complex gain sharing plans create needs for:

A. higher levels of trust among participants and more effective communication.
B. greater variety of incentives and more effective communication.
C. revisions in the management worker split and revisions to the scope of the formula.
D. more effective communication and greater variety of incentives.
34. Which gain sharing plan is most similar to the standard hour plan?
A. Scanlon
B. Improshare
C. Rucker
10-7
35. Labor costs are to value added as pay roll costs are to:
A. total standard value hours
B. production costs minus scrap
C. SVOP
D. customer satisfaction
36. Components identified as vital to the success of both Scanlon and Rucker plans are:
A. top management support and employee acceptance.
B. a flexible and accepted pay out formula.
C. union and top management support.
D. a productivity norm and effective worker committees.
37. All of the following factors except _____ have been associated with success of
Scanlon/Rucker plans.
A. the presence of a union
B. managers open to criticism
C. competent supervision
D. cooperative union-management attitudes
38. Which of the following is not a long-term incentive plan?

A. ESOPs
B. Broad-based option plans (BBOPs)
C. Improshares
D. Performance plans
39. The trend in recent variable-pay design is to combine the best of _____ and _____ plans.
A. individual, group
B. gain-sharing, profit-sharing
C. short-term, long-term
D. long-term, short-term
10-8
40. Which of the following is not an advantage of group incentive pay plans?
A. Performance measures are easier to develop than for individual plans
B. Cooperation within and across groups is encouraged
C. Compensation risk to income stability is reduced
D. Employee participation in decision-making increases
True / False Questions
41. The percent of companies using some form of variable pay is declining because many
employees prefer base wages.
True False
42. Merit pay differs from other forms of incentive pay in that it must be "earned" every year.
True False
43. High performance ratings are nearly always statistically related to high merit increases.
True False
44. Over time, lump-sum bonuses cost employers less than merit pay.
True False
45. Individual incentives never include financial penalties for poor performance.
True False
46. Jobs with short cycle tasks normally have a rate based upon a time period per unit of
production.
True False
10-9
47. A job involving production of many parts each hour would have a rate based upon a time
period per unit of production.
True False
48. The standard hour plan is likely to be an effective incentive plan for plumbers employed
by a plumbing company.
True False
49. Time studies do not take into account fatigue or worker personal needs.
True False
50. Standard hour plans are better for non-repetitive jobs requiring numerous skills for
completion.
True False
51. A fast and efficient worker would earn more money under a Rowan plan than under a
Halsey 50-50.
True False
52. The Rowan plan uses a standard that is purposefully set high requiring high performance
levels.
True False
53. Employees working under individual incentive plans tend to resist the introduction of new
technology.
True False
10-10
54. Costing and budgetary control are more difficult using individual incentives than under
time-based pay.
True False
55. Many of the disadvantages of individual incentives are due to both a fear production
standards may be changed and workers' focus on maximizing output.
True False
56. The focus of team incentive plans is work groups or teams and does not include divisions
or an entire company.
True False
57. The level problem in team compensation is an example of the line of sight problem.
True False
58. Advantages of the balanced scorecard are that it is easily understood by employees and
has low administrative costs.
True False
59. Individual incentives yield higher productivity gains.

True False
60. The free-rider problem is common in firms using individual incentive plans.
True False
61. Unions prefer individual to group incentive pay plans since members can earn more
money.
True False
10-11
62. A group performance based pay plan is superior to an individual plan when individual
production standards and production methods must change to meet changing events.
True False
63. Gain sharing plans tend not to use a historical standard to set productivity standards since
environmental conditions can change quickly.
True False
64. A major problem of group incentive plans is performance targets are not correctly set.
True False
65. A good solution to the problem of production variability is to set gain sharing goals based
upon industry norms.
True False
66. Most variable-pay plans have some form of profit "trigger" linked to revenue growth or
profit margins.
True False
67. Performance plans typically feature corporate performance objectives for a time three
years in the future.
True False
68. A combination plan often favored by CEOs who don't like to make payouts when the
company loses money is a completely self-funding plan.
True False
10-12
69. An advantage of group incentives is turnover may be higher among poorer performers
because they hurt group performance.
True False
70. Broad-based option plans are usually limited to managerial and professional employees.
True False
Short Answer Questions
71. Discuss the trends that are leading to the increased interest in variable pay.
72. How can merit pay systems be better managed?
73. Why do companies prefer lump-sum pay over merit pay increases?
10-13
74. What are the basic dimensions on which individual incentive plans vary?
75. Discuss the plans that provide for variable incentives linked to a standard expressed as a
time period per unit of production.
76. What is the trend in team incentive plans?
77. What are the advantages of using the productivity/gainsharing methods of group
incentives?
10-14
78. What are the key elements in designing a gainsharing plan?
79. Discuss SVOP.
80. What is the difference between success-sharing plans and risk-sharing plans?
10-15
Chapter 10 Pay-for-Performance Plans Answer Key
Multiple Choice Questions
1. (p. 318) It is observed that _____ is/are commanding a larger share of the total compensation
for all employee groups.
A. merit pay
B. health benefits
C. retirement benefits
D. variable pay
Difficulty: Medium
2. (p. 320-321) Which of the following is not true of lump-sum bonuses?

A. They help maintain competitive pay position relative to competitors.
B. They are less expensive than merit pay.
C. Employees dislike them.
D. They are a more visible reward than merit pay.
Difficulty: Difficult
3. (p. 321) Usually _____ are awarded for exceptional performance, often on special projects or
for performance that so exceeds expectations as to be deserving of an add-on bonus.
A. variable pay awards
B. individual spot awards
C. lump-sum bonuses
D. merit pay
Difficulty: Medium
10-16
4. (p. 321-322) Which of the following is not true about individual spot awards?
A. Smaller companies may be more casual about recognition.
B. Someone in the organization alerts top management to the exceptional performance.
C. A majority of companies do not feel that these awards are effective.
D. Smaller companies are more subjective about deciding the size of the award.
Difficulty: Medium
5. (p. 322) A penalty for poor performance rather than reward for good is an example of:
A. benchmarking.
B. a reengineering plan.
C. a Rowan plan.
D. a reverse incentive plan.
Difficulty: Easy
6. (p. 323) Which of the following does not use the time period per unit of production to
determine the rate?
A. Gantt plan
B. Rowan plan
C. Halsey 50-50 method
D. Merrick system
Difficulty: Medium
10-17
7. (p. 323) Paying a dime for every bottle collected and turned into a collection center is an
example of:
A. a commission based work.
B. a standard hour based work.
C. straight piecework.
D. a Rowan plan.
Difficulty: Easy
8. (p. 323) The most frequently used incentive system is the:

A. standard hour plan.
B. straight piecework.
C. Halsey 50-50 plan.
D. Taylor differential piece-rate plan.
Difficulty: Medium
10-18
9. (p. 323-324) In which of the following incentive pay plans does the wage rate not increase for
production above the standard?
A. Standard hour plan
B. Rowan plan
C. Taylor plan
D. Merrick plan
10. (p. 325) A _____ plan divides a task into simple actions and determines the time an average
worker takes to complete each action.
A. standard hour
B. Rowan
C. Bedeaux
D. Merrick
11. (p. 325) An incentive system with three piecework rates is the _____ plan.
A. Taylor
B. Gantt
C. Halsey 50-50
D. Merrick
12. (p. 325) The incentive system with two rates, one for above production standard and one for
below standard is the _____ plan.
A. Taylor
B. Merrick
C. Rowan
D. Gantt
10-19
13. (p. 326) Compensation security is highest for workers who fail to complete tasks within the
standard time under the _____ plan?
A. Halsey 50-50
B. Gantt
C. Taylor
D. Rowan
14. (p. 326) Advantages of individual incentive plans include all of the following except:
A. lowered production costs.
B. less direct supervision.
C. greater trust between workers and management.
D. higher productivity.
Difficulty: Medium
15. (p. 327) The common feature to all types of incentive plans is:
A. a standard of performance to determine magnitude of incentive pay.
B. a sharing formula between worker and employer.
C. penalties for poor performance.
D. limits on magnitude of incentive pay.
Difficulty: Easy
16. (p. 328) Hoarding star performers, reluctance to accept new team members and resistance to
transferring team members are examples of which team-related compensation problem?
A. Level
B. Large variety of teams
C. Pay plan complexity
D. Control
10-20
17. (p. 329) A team works on a project with specific performance level goals and time deadlines,
but weather problems cause the team to miss the deadline. What is the key factor affecting
how the team feels about their incentive?
A. The incentive was as promised
B. The incentive was less than promised
C. The team's perception of reward fairness
D. The timing of the incentive
Difficulty: Medium
18. (p. 329) The two most commonly used team incentive performance standards are:
A. productivity and quality.
B. productivity and customer satisfaction.
C. financial performance and quality.
D. customer satisfaction and financial performance.
19. (p. 330) All of the following are human resource capabilities performance indicators used for
group incentive plans except:
A. turnover rates.
B. total recruitment costs.
C. promotability index.
D. accuracy/error rates.
Difficulty: Medium
20. (p. 329- 331) Dissatisfaction with _____ performance indicators for group incentives has led to
greater use of _____.
A. financial; the balanced scorecard
B. human resource capabilities; financial measures
C. financial; customer-focused measures
D. the balanced scorecard; resource utilization measures
Difficulty: Medium
10-21
21. (p. 331) The balanced scorecard includes all of the following performance categories except:
A. innovation.
B. customer service.
C. process improvements.
D. tenure.
Difficulty: Medium
22. (p. 331) _____ have (has) advantages of having minimal impact on the company's financial
statements.
C. Stock options
Difficulty: Medium
23. (p. 331) _____ offer(s) a reward pool based upon achieving performance targets and
communicates organizational priorities.
A. The balanced scorecard
B. Stock options
C. Deferred profit sharing
Difficulty: Medium
24. (p. 331) _____ has the disadvantage that employees may be required to spend money to
obtain the incentive.
C. Stock options
Difficulty: Medium
10-22
25. (p. 331)) The purpose of this variable pay plan is to foster a "one for all" culture and to
educate employees about business.
A. Team incentives
B. Cash profit sharing
C. Balanced score card
D. Stock options
Difficulty: Medium
26. (p. 332) The best variable pay plan for employees when company financial performance is
poor is _____.
A. profit sharing
B. a balanced scorecard
C. stock ownership
D. gain sharing
Difficulty: Medium
27. (p. 332) The variable pay plan with the highest instrumentality is _____.
A. gain sharing
B. team incentives
C. a balanced scorecard
D. stock ownership
Difficulty: Medium
28. (p. 332) Which of the following is not an advantage of team incentives?
A. Stimulates problem solving
B. May better reflect how work is performed
C. Encourages competition between teams
D. Minimizes distinctions between team members
Difficulty: Medium
10-23
29. (p. 333) When a firm is _____ on business risk and outcomes are _____, corporate
performance is higher without any incentive plans.
A. high, well defined
B. high, uncertain
C. low, well defined
D. low, uncertain
30. (p. 333) A team leader with a free rider problem could maximize performance by:
A. instructing them to do their best.
B. specifying performance levels and due dates.
C. assigning another team member to monitor their performance.
D. punishing free riders who fail to meet standards.
Difficulty: Medium
31. (p. 333) All of the following are conditions supporting use of individual incentives except:
A. task accomplishment is independent of others.
B. the worker has a strong commitment to their profession.
C. production methods and labor mix are stable.
D. presence of a union.
Difficulty: Easy
32. (p. 336) In gain sharing plan formulas, _____ is/are the numerator and _____ the
denominator.
A. productivity measures, inputs
B. productivity measures, labor inputs
C. costs and scrap rate, revenues
D. labor inputs, productivity measures
Difficulty: Medium
10-24
33. (p. 336) More complex gain sharing plans create needs for:
A. higher levels of trust among participants and more effective communication.
B. greater variety of incentives and more effective communication.
C. revisions in the management worker split and revisions to the scope of the formula.
D. more effective communication and greater variety of incentives.
34. (p. 339) Which gain sharing plan is most similar to the standard hour plan?
A. Scanlon
B. Improshare
C. Rucker
35. (p. 337) Labor costs are to value added as pay roll costs are to:
A. total standard value hours
B. production costs minus scrap
C. SVOP
D. customer satisfaction
36. (p. 338) Components identified as vital to the success of both Scanlon and Rucker plans are:
A. top management support and employee acceptance.
B. a flexible and accepted pay out formula.
C. union and top management support.
D. a productivity norm and effective worker committees.
Difficulty: Medium
10-25
37. (p. 338-339) All of the following factors except _____ have been associated with success of
Scanlon/Rucker plans.
A. the presence of a union
B. managers open to criticism
C. competent supervision
D. cooperative union-management attitudes
Difficulty: Medium
38. (p. 339) Which of the following is not a long-term incentive plan?
A. ESOPs
B. Broad-based option plans (BBOPs)
C. Improshares
D. Performance plans
Difficulty: Medium
39. (p. 340) The trend in recent variable-pay design is to combine the best of _____ and _____
plans.
A. individual, group
B. gain-sharing, profit-sharing
C. short-term, long-term
D. long-term, short-term
Difficulty: Easy
40. (p. 341) Which of the following is not an advantage of group incentive pay plans?
A. Performance measures are easier to develop than for individual plans
B. Cooperation within and across groups is encouraged
C. Compensation risk to income stability is reduced
D. Employee participation in decision-making increases
Difficulty: Medium
10-26
True / False Questions
41. (p. 318) The percent of companies using some form of variable pay is declining because
many employees prefer base wages.
FALSE
Difficulty: Easy
42. (p. 321) Merit pay differs from other forms of incentive pay in that it must be "earned" every
year.
FALSE
Difficulty: Easy
43. (p. 319) High performance ratings are nearly always statistically related to high merit
increases.
TRUE
Difficulty: Easy
44. (p. 320) Over time, lump-sum bonuses cost employers less than merit pay.
TRUE
Difficulty: Easy
45. (p. 322) Individual incentives never include financial penalties for poor performance.
FALSE
Difficulty: Medium
10-27
46. (p. 322) Jobs with short cycle tasks normally have a rate based upon a time period per unit of
production.
FALSE
Difficulty: Medium
47. (p. 322) A job involving production of many parts each hour would have a rate based upon a
time period per unit of production.
FALSE
Difficulty: Medium
48. (p. 323) The standard hour plan is likely to be an effective incentive plan for plumbers
employed by a plumbing company.
TRUE
Difficulty: Medium
49. (p. 324) Time studies do not take into account fatigue or worker personal needs.
FALSE
50. (p. 325) Standard hour plans are better for non-repetitive jobs requiring numerous skills for
completion.
TRUE
10-28
51. (p. 325) A fast and efficient worker would earn more money under a Rowan plan than under
a Halsey 50-50.
TRUE
52. (p. 325) The Rowan plan uses a standard that is purposefully set high requiring high
performance levels.
FALSE
53. (p. 326) Employees working under individual incentive plans tend to resist the introduction
of new technology.
TRUE
Difficulty: Medium
54. (p. 326) Costing and budgetary control are more difficult using individual incentives than
under time-based pay.
FALSE
Difficulty: Medium
55. (p. 326) Many of the disadvantages of individual incentives are due to both a fear production
standards may be changed and workers' focus on maximizing output.
TRUE
Difficulty: Easy
10-29
56. (p. 327) The focus of team incentive plans is work groups or teams and does not include
divisions or an entire company.
FALSE
Difficulty: Medium
57. (p. 328, 341) The level problem in team compensation is an example of the line of sight
problem.
TRUE
58. (p. 331-332) Advantages of the balanced scorecard are that it is easily understood by
employees and has low administrative costs.
FALSE
Difficulty: Medium
59. (p. 333) Individual incentives yield higher productivity gains.

TRUE
Difficulty: Easy
60. (p. 333) The free-rider problem is common in firms using individual incentive plans.
FALSE
10-30
61. (p. 333) Unions prefer individual to group incentive pay plans since members can earn more
money.
FALSE
Difficulty: Medium
62. (p. 333) A group performance based pay plan is superior to an individual plan when
individual production standards and production methods must change to meet changing
events.
TRUE
Difficulty: Medium
63. (p. 335) Gain sharing plans tend not to use a historical standard to set productivity standards
since environmental conditions can change quickly.
FALSE
Difficulty: Medium
64. (p. 336) A major problem of group incentive plans is performance targets are not correctly
set.
TRUE
Difficulty: Medium
65. (p. 336) A good solution to the problem of production variability is to set gain sharing goals
based upon industry norms.
TRUE
Difficulty: Medium
10-31
66. (p. 340) Most variable-pay plans have some form of profit "trigger" linked to revenue growth
or profit margins.
TRUE
Difficulty: Medium
67. (p. 345) Performance plans typically feature corporate performance objectives for a time
three years in the future.
TRUE
Difficulty: Medium
68. (p. 346) A combination plan often favored by CEOs who don't like to make payouts when the
company loses money is a completely self-funding plan.
TRUE
Difficulty: Medium
69. (p. 341) An advantage of group incentives is turnover may be higher among poorer
performers because they hurt group performance.
FALSE
Difficulty: Medium
70. (p. 345) Broad-based option plans are usually limited to managerial and professional
employees.
FALSE
Difficulty: Medium
10-32
Short Answer Questions
71. (p. 318) Discuss the trends that are leading to the increased interest in variable pay.
The greater interest in variable pay probably can be traced to two trends. First, the increasing
competition from foreign producers forces American firms to cut costs and/ or increase
productivity. Second, today's fast-paced business environment means that workers must be
willing to adjust what they do and how they do it. Failure to adapt to new technologies, new
work processes, and new work relationships could lead to possible layoffs and terminations.
The ability and incentive to learn these come partially from reward systems that more closely
link worker interests with the objectives of the company.
Difficulty: Medium
72. (p. 320) How can merit pay systems be better managed?
Management merit pay systems requires a complete overhaul of the way raise are allocated:
improving the accuracy of performance ratings, allocating enough merit money to truly
reward performance, and making sure the size of the merit increase differentiates across
performance levels.
Difficulty: Easy
73. (p. 320-321) Why do companies prefer lump-sum pay over merit pay increases?
Lump-sum bonuses can be considerably less expensive than merit pay over the long run.
Analysis says that over a fixed period, the increase in merit pay will higher than it is under a
lump-sum bonus plan. By giving lump-sum bonuses for several years, a company is
essentially freezing base pay. This is why cost-conscious firms report switching to lump-sum
pay. It also should be no surprise that employees aren't particularly fond of lump-sum
bonuses.
Difficulty: Medium
10-33
74. (p. 322-323) What are the basic dimensions on which individual incentive plans vary?
The first dimension on which incentive systems vary is in the method of rate determination.
Plans set up a rate based either on units of production per time period or on time period per
unit of production. The second dimension on which individual incentive systems vary is the
specified relationship between production level and wages.
Difficulty: Easy
75. (p. 325-326) Discuss the plans that provide for variable incentives linked to a standard
expressed as a time period per unit of production.
In the Halsey 50-50 plan, an allowed time for a task is determined via time study. The savings
from completion of a task in less than the standard time are allocated 50-50 (most frequent
division) between the worker and the company.
The Rowan plan is similar to the Halsey plan in that an employer and employee both share in
savings resulting from work completed in less than standard time. The major distinction in
this plan, however, is that a worker's bonus increases as the time required to complete the task
decreases.
The Gantt plan differs from both the Halsey and the Rowan plans in that the standard time for
a task is purposely set at a level requiring high effort to complete. Any worker who fails to
complete the task in the standard time is guaranteed a preestablished wage.
Difficulty: Medium
76. (p. 329, 331) What is the trend in team incentive plans?
Historically, financial measures have been the most widely used performance indicator for
group incentive plans. Increasingly, though, top executives express concern that these
measures provide a financial picture rather than one of operating effectiveness. Managers are
increasingly using the balanced scorecard to offset this challenge. The balanced scorecard
evaluates strategic measures that fall into four categories: financial results, process
improvements, customer service, and innovation.
10-34
77. (p. 332) What are the advantages of using the productivity/gainsharing methods of group
incentives?
The advantages of using the productivity/gain sharing methods are:

 Awards that share economic benefits of improved productivity, quality, or other measurable
results
 Focus on group, plant, department, or division results
 Designed to capitalize on untapped knowledge of employees
Difficulty: Medium
78. (p. 334-336) What are the key elements in designing a gainsharing plan?
The following issues are key elements in designing a gain-sharing plan:

 Strength of reinforcement
 Productivity standards
 Sharing the gains split between management and workers
 Scope of the formula
 Perceived fairness of the formula
 Ease of administration
 Production variability
Difficulty: Medium
79. (p. 337) Discuss SVOP.
Scanlon plans are designed to lower labor costs without lowering the level of a firm's activity.
Incentives are derived as a function of the ratio between labor costs and sales value of
production (SVOP). The SVOP includes sales revenue and the value of goods in inventory.
Difficulty: Medium
10-35
80. (p. 340) What is the difference between success-sharing plans and risk-sharing plans?
In success-sharing plans, employee base wages are constant and variable pay adds on during
successful years. If the company does well, you receive a predetermined amount of variable
pay. If the company does poorly, you simply forgo any variable pay—there is no reduction in
your base pay, though. In a risk-sharing plan, base pay is reduced by some amount relative to
the level that would be offered in a success-sharing plan. At-risk plans shift part of the risk of
doing business from the company to the employee.
10-36

Pay-for-Performance Plans Chapter Summary

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Chapter 10 - Pay-for-Performance Plans

Multiple Choice Questions

2. Which of the following is not true of lump-sum bonuses?

4. Which of the following is not true about individual spot awards?

8. The most frequently used incentive system is the:

15. The common feature to all types of incentive plans is:

28. Which of the following is not an advantage of team incentives?

33. More complex gain sharing plans create needs for:

38. Which of the following is not a long-term incentive plan?

True / False Questions

59. Individual incentives yield higher productivity gains.

Short Answer Questions

72. How can merit pay systems be better managed?

76. What is the trend in team incentive plans?

78. What are the key elements in designing a gainsharing plan?

79. Discuss SVOP.

Chapter 10 Pay-for-Performance Plans Answer Key

Multiple Choice Questions

2. (p. 320-321) Which of the following is not true of lump-sum bonuses?

8. (p. 323) The most frequently used incentive system is the:

59. (p. 333) Individual incentives yield higher productivity gains.

The advantages of using the productivity/gain sharing methods are:

The following issues are key elements in designing a gain-sharing plan:

79. (p. 337) Discuss SVOP.

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