Question

A Meritorious Plan?

There are many ways that organizations can organize their pay plans; indeed, pay policies have been found to be one of the biggest differences between organizations. While it is usually a good idea to link pay and performance in some way, there are different approaches that can achieve this goal. Some companies prefer to link compensation strongly to individual performance, while others rely more heavily on team rewards.

In this exercise, please read the following min-case and answer the questions that follow.

Compu-Globo is an online marketing strategy company in Beachwood, Ohio. Three years after its founding, President Nick Morlan is ready to start hiring staff, as the company has expanded past the point where its two founders can keep up with customer demand. As a result, it will need to hire two marketing consultants and a graphic designer. Because Compu-Globo has never hired employees before, it is starting from scratch with regard to its pay policies. In college, Nick learned about various types of pay-for-performance schemes and is interested in developing one for use in his business. He knows about merit pay, which increases each employee's salary based on his or her individual performance. He also has experience with profit sharing from a previous job, in which employees receive bonuses based on the company's financial results.

While business has been good, cash is still tight and he is concerned with his company's ability to pay large salaries if market conditions affect demand. He is also unsure of his abilities to set up a well-developed performance system. The new staff will be required to work together on projects; the graphic designer in particular will have to cooperate with both the new hires and the founders of the company on a regular basis. Nick expects that the new hires will become an integral part of the company; he is more than doubling the staff and it will still only consist of five people total. The performance of each employee will have a substantial impact on the business's overall results.

While Nick can (and will) use multiple kinds of incentive pay, he will need to choose one to emphasize as he interviews, selects, and negotiates with new staff.

16.

value:
2.00 points

Which of these policies is most likely to lead to individual competition among Compu-Globo's new hires?

Profit sharing

Merit pay

Skill based

Gainsharing

References

Multiple ChoiceLearning Objective: 12-02 Describe the fundamental pay programs for recognizing employees' contributions to the organization's success.

Difficulty: 2 MediumLearning Objective: 12-03 List the advantages and disadvantages of the pay programs.

17.

value:
2.00 points

What will happen to the cost of a merit pay plan if Compu-Globo's business suffers?

He will still have to increase salaries if individual performance is good

It depends on the value of the company at that time

Payments will be reduced along with sales

18.

value:
2.00 points

Why is it important for Nick to have a well-developed performance appraisal system if merit pay is a substantial component of compensation?

Federal law has enacted legislation that requires employers to provide it

Merit pay increases are based on assessments of individual performance; the stakes of the appraisal are high with this system

Because individual appraisals and merit increases determine profit sharing outcomes

19.

value:
2.00 points

Which of these is a reason that Compu-Globo's employees might not be motivated by a profit-sharing plan?

If they feel that they have no impact on the overall results

If they pay out during the current time period, instead of being deferred

If it requires them to behave like owners, by doing what it takes to make the organization more effective

20.

value:
2.00 points

Which of these is most amenable to incentive pay, if Nick decides to go that route?

Jobs with significant interdependence on other employees

Jobs that are peripheral to the mission of the organization

Jobs in which performance can be measured as individual output, productivity, and sales

Answer 1

16
Which of these policies is most likely to lead to individual competition among Compu-Globo's new hires?
Profit sharing
Merit pay	Ans	As there is individual responsibility
Skill based
Gainsharing
References
17
What will happen to the cost of a merit pay plan if Compu-Globo's business suffers?
He will still have to increase salaries if individual performance is good	Ans	If individual performce is better irrespective of the revenue increase or decrease there needs to be increase
It depends on the value of the company at that time
Payments will be reduced along with sales
18
Why is it important for Nick to have a well-developed performance appraisal system if merit pay is a substantial component of compensation?
Federal law has enacted legislation that requires employers to provide it
Merit pay increases are based on assessments of individual performance; the stakes of the appraisal are high with this system	Ans	As individual assesment is required and detached from company peformance
Because individual appraisals and merit increases determine profit sharing outcomes
19
Which of these is a reason that Compu-Globo's employees might not be motivated by a profit-sharing plan?
If they feel that they have no impact on the overall results	Ans	If there is profit sharing and they get less, it will feel they were unsuccessful and demotivate
If they pay out during the current time period, instead of being deferred
If it requires them to behave like owners, by doing what it takes to make the organization more effective
20
Which of these is most amenable to incentive pay, if Nick decides to go that route?
Jobs with significant interdependence on other employees
Jobs that are peripheral to the mission of the organization
Jobs in which performance can be measured as individual output, productivity, and sales	Ans	As every thing will be measured and liked to results it will be best suited