Performance Management & Pay Flashcards
7 cards from real CCP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Performance Management & Pay flashcards as text
A company wants to reduce subjectivity in performance ratings that drive merit pay. Which approach is most effective?
Answer: Anchoring rating scales with specific behavioral examples (BARS)
Behaviorally Anchored Rating Scales (BARS) reduce subjectivity by providing concrete behavioral descriptions for each performance level, making ratings more consistent and defensible.
What is the risk of setting incentive targets that are too easy to achieve?
Answer: The plan loses motivational value and becomes an entitlement rather than an incentive
When targets are too easily achieved, employees come to expect the incentive payout regardless of effort, transforming the variable pay into a de facto entitlement that no longer drives performance.
Which performance metric is most commonly used as a long-term incentive performance measure for publicly traded companies?
Answer: Total Shareholder Return (TSR)
Total Shareholder Return (TSR), which combines stock price appreciation and dividends, is the most widely used long-term performance metric for executive incentive plans at public companies.
An organization uses a 'pay for potential' model alongside pay for performance. What does this approach emphasize?
Answer: Paying employees based on projected future contributions and development trajectory
Pay for potential recognizes an employee's future capability and growth trajectory, often applied to high-potential talent to retain individuals expected to deliver significant future value.
What is a 'clawback provision' in executive incentive compensation?
Answer: A requirement to repay previously paid incentives if specified conditions occur, such as financial restatements
Clawback provisions allow or require the company to recover incentive compensation already paid if subsequent events reveal that the underlying results were misstated or the executive engaged in misconduct.
In a team-based incentive plan, which challenge is most likely to undermine effectiveness?
Answer: The free-rider problem, where low contributors receive the same reward as high contributors
The free-rider problem occurs when team members who contribute less still receive the same payout as top contributors, reducing motivation for high performers and fairness perceptions overall.
A CCP candidate is reviewing a merit matrix. What two variables does a merit matrix typically cross-reference?
Answer: Performance rating and position in pay range (compa-ratio)
A merit matrix cross-references an employee's performance rating with their position in the pay range (often expressed as compa-ratio or range quartile) to recommend differentiated merit increase percentages.