Compu-Globo is a hypothetical online marketing strategy company in Beachwood, Ohio. Three years after its founding, CEO Nick Morlan is ready to start hiring staff, because 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 new business. He knows about merit pay, which increases each employee's salary based on their individual performance. He also has experience with performance bonuses from a previous job in which employees received periodic one-time bonuses based on their individual contributions to the organization. Nick is also considering the value of sales commissions because he anticipates the development of a future sales force to expand Compu-Globo's business even more.
Although business has been good, cash is still tight, and Nick 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 other 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 in total. The performance of each employee will have a substantial impact on the business's overall results.
1. What will happen to the cost of a merit pay plan if Compu-Globo's business suffers?
A. Salaries will stay the same.
B. Payments will be reduced along with sales.
C. It depends on the value of the company at that time.
D. Employees will be laid off.
E. Nick will still have to increase salaries if individual performance is good.
2. Why is it important for Nick to have a well-developed performance appraisal system if merit pay is a substantial component of compensation?
A. Federal law requires it.
B. To attract talented people.
C. It is not important; employees will not care.
D. To keep the buzz going about the young company.
E. Because pay increases are based on assessments of individual performances.
3. Which of these is a reason that Compu-Globo's employees might be motivated by a performance bonus?
A. Such bonuses encourage hard work.
B. A chance to add the bonus information to their résumés.
C. They might not make up a large part of compensation.
D. Competing companies don't offer bonuses.
E. Bonuses won't link to innovation.
4. Which of these is most amenable to incentive pay, if Nick decides to go that route?
A. Jobs where simple and fair measures of employee performance exist
B. Jobs with significant interdependence on other employees
C. Jobs held by part-time workers
D. Jobs that are peripheral to the mission of the organization
E. Jobs where commissions are part of the plan