C12 - VARIABLE PAY MODULE 2 TYPES OF VARIABLE PAY (43%) EXAM QUESTIONS WITH CORRECT ANSWERS

Three categories of variable pay - ANS - Incentives - Bonuses - Recognition Incentives - ANS - Criteria determined in advance - Payout varies with performance - Monetary (cash or equity) or non-monetary (gift, travel) - Self funded or budgeted - Nondiscretionary - Formulaic Bonuses - ANS - Completion of specific task - Amount determined in advance - Monetary - Budgeted - Nondiscretionary Recognition - ANS - Criteria broadly defined and subjective - Awarded spontaneously - Decision made after the fact - Focused on behaviors - Monetary or nonmonetary - Budgeted - Discretionary Short term incentive types - ANS - Profit Sharing - Performance Sharing - Individual Performance based Profit Sharing Plans characteristics - ANS Plans that distribute a portion of an organization's profits to its employees. Foster employee identification with org success, creates common focus but doesn't target specific behaviors - Based on financial performance - Typically entire org - Payout in equal or graduated amounts (equal for all employees, vary by employee/employee groups, individual performance Profit Sharing Plan Approaches - ANS - first return plans: starts paying on first profits earned - threshold plans: starts paying for performance in excess of fair return of investment - operating budget: not for profit orgs - peer comparisons: performance relative to peer results on specified metrics Considerations for Profit Sharing Plans - ANS - Must promote awareness/focus (common understanding of financial objectives and goas) - Payout only when company has profit - Employee don't have ability to influence overall profit - Simple Administration (easier administration, communication and education) Performance Sharing Characteristics - ANS - Define performance by select criteria (quality, customer satisfaction, etc) typically at business unit or org wide level - Focus on more than financial results - Org wide, unit or team based - Measure performance based on predetermined objectives - Defined for specific period and evaluated at end of period Performance Sharing Plan objectives - ANS - improve org's performance - foster employee identification with org's success - increase employee understanding of what is important to org through metric selection (Balanced scorecard) Performance Sharing Plan Approaches - ANS - Financial - Customer/stakeholder - Internal process