CCP Performance Management & Pay 3

Question 1

Which type of incentive plan rewards employees for improving operational efficiency, such as reducing labor costs per unit of output?

Accepted Answer

Gainsharing

Answer

Gainsharing plans reward employees for measurable improvements in productivity or cost reduction, sharing the financial gains with the workforce.

Question 2

A performance management system uses 360-degree feedback. What is the primary challenge when linking this feedback to compensation decisions?

Accepted Answer

Respondents may inflate ratings to avoid harming colleagues' pay

Answer

When 360-degree feedback directly affects pay, raters may inflate scores to protect colleagues' compensation, reducing the accuracy and usefulness of the feedback.

Question 3

An organization sets a merit budget of 3%. How should managers typically allocate increases across employees with different performance ratings?

Accepted Answer

Allocate higher percentages to top performers and lower or no increases to poor performers

Answer

Merit budgets should be allocated differentially, with top performers receiving above-average increases and low performers receiving minimal or no increases to reinforce the pay-for-performance philosophy.

Question 4

What is a 'performance share plan' in executive compensation?

Accepted Answer

An equity plan granting shares contingent on achieving multi-year performance goals

Answer

Performance share plans grant executives a target number of shares that vest only if specified performance metrics (e.g., EPS growth, TSR) are achieved over a defined period, typically three years.

Question 5

What does 'line of sight' mean in the context of incentive compensation design?

Accepted Answer

The degree to which employees can see how their actions influence the metrics tied to their pay

Answer

Line of sight refers to how clearly employees can connect their individual behaviors and results to the incentive metrics that determine their pay, which is critical for motivating desired performance.

(CCP) Certified Compensation Professional Practice Test

(CCP) Certified Compensation Professional Practice Test

CCP Performance Management & Pay 3