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Module 2 - Types of Variable Pay Exam Questions with Answers
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Module 2 - Types of Variable Pay ExamQuestions with Answers
Three Categories of Variable Pay - -1. Incentives
2. Bonuses
3. Recognition
- Incentives - -1. *Criteria determined in advance* - The criteria and
objectives for performance and the reward schedule are determined in
advance and communicated to participants.
2. *Amount of payment can vary* - The amount of the payment can vary
with the level of performance.
3. *Monetary or nonmonetary* - Rewards may be monetary (cash or equity)
or nonmonetary (merchandise, travel, etc.).
4. *Self-funded or budgeted* - The plan is self-funded (generates its own
savings) or budgeted.
5. *Nondiscretionary*
- Bonuses - -1. *Completion of specific task* - Rewards typically are
contingent upon completing a specific task or objective.
2. *Amount determined in advance* - Amounts typically are negotiated in
advance.
3. *Monetary* - Payments usually are cash, although sometimes equity is
used.
4. *Budgeted* - The plan usually is budgeted.
5. *Nondiscretionary*
- Recognition - -1. *Criteria broadly defined and subjective* - discretionary
and often broad termed (such as "above and beyond").
2. *Awarded spontaneously*
3. *Decision made after the fact* - The decision to acknowledge employee
contributions is made after the fact, usually without predetermined goals or
performance levels.
4. *Focused on behaviors* - The focus is on recognizing, promoting and
replicating behaviors versus results.
5. *Monetary or nonmonetary*
6. *Budgeted* - The plan is often budgeted at the corporate or business unit
level.
7. *Discretionary*
, - Incentive Plans - -Base rewards on a predetermined performance and
reward schedule.
Must be re-earned each year or performance period.
May be classified as either short-term or long-term depending on the length
of time the desired outcomes are expected.
- Short-Term Incentive Plans - -Plans for which desired results will be
achieved in one year or less.
Various types include:
1. *Profit-sharing*
2. *Performance-sharing*
3. *Individual performance-based*
- Profit Sharing Plans - -1. *Share profits with employees*
i. Plans normally include a predetermined formula for allocating a share of
the profit among participants and for distributing funds accumulated.
2. *Base rewards on financial performance*
i. Typically, rewards are based on financial performance. Common
performance measures include: revenue, net income, earnings per share
(EPS) or other financial ratios.
3. *Typically include entire organization*
i. All employee groups within an organization or large business unit typically
are eligible.
4. *Payout in equal or graduated amounts*
i. Awards can be a common amount for all employees.
a. Equal monetary amount
b. Equal percentage of base pay
ii. Awards can vary by employee /employee groups.
a. Different monetary amount
b. Different percentage of base pay
iii. Some plans may include individual performance hurdles.
- Profit Sharing Plan Objectives - -1. *Foster employee identification with
organization's success* - increase employee identification with the
organization's financial success
2. *Create a common focus* - create a common focus on important financial
objectives of the organization
- Profit Sharing Plan Approaches - -1. *First-return plans* - Start paying on
first profits earned.
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