Ch.16 Individual Performance Evaluation Verified Test Bank

Student name:__________

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.
1) If a work performance measure is based on both objective and subjective measures, the objective measure would be

A) the number of units produced.
B) employee dependability.
C) quality of units produced.
D) employees’ willingness to cooperate with coworkers.

2) If performance evaluation of work is used to change wages, raises, bonuses, or dismissals, then the system is designed to

A) indicate when training is required.
B) provide the employee with a system of self-assessment.
C) reduce risk-taking on the part of the employee.
D) determine rewards and sanctions for the employee.

3) If an employee is paid a fixed wage in a production environment where the wage is independent of output, then the employee has an incentive to

A) maximize output.
B) shirk.
C) innovate.
D) search for methods to overcome random elements in production.

4) In a very basic principal-agent model, output is contractible if

A) it can be observed with some positive cost.
B) the employee produces many products.
C) the employee works in a team
D) the employee works independently and cannot game the performance measure.

5) Employee performance evaluation is needed because

A) it justifies the incredibly high wages of the CEOs.
B) it justifies the incredibly high fringe benefits of the CEOs.
C) it minimizes the risks faced by employees for putting in their effort.
D) it determines rewards and sanctions—wages, raises, bonuses, and dismissals.

6) In a very basic principal-agent model, output is contractible if

A) output can be observed with some positive cost.
B) the employee produces many products.
C) the employee works in a team.
D) the employee produces a single output.

7) If output(e = units of effort) and Wage,, then 20 units of effort are worth ________ to the firm.

A) $170.00
B) $0.425
C) $49.20
D) $35.80

8) If a company wants an employee to average about $14.00 per hour to produce 60 units per hour, in addition to a base salary of $7.00 per hour, what should be the incentive rate per hour?

A) $0.117
B) $8.54
C) $0.333
D) $1.25

9) In a very basic principal-agent model, output is contractible if

A) output can be observed with some positive cost.
B) the employee produces many products.
C) the employee works in a team.
D) output can be observed at zero cost.

10) If TruLite's factory workers receive an hourly wage, described by the equation:, where Q is the number of light switches installed per hour, then

A) $5.00 is the basic incentive to produce.
B) Q is entirely dependent on random elements in the production system.
C) $0.10 is the incentive to increase effort.
D) effort is unimportant in the performance evaluation system of the firm.

11) Employees often limit their output and engage in soldiering because of the fear that if they exceed output levels this time, management will increase output goals for the next time period. This is called the

A) incentive effect.
B) ratchet effect.
C) benchmark effect.
D) goal standard effect.

12) A salesperson's bonus for this year is based on meeting targets based on last year's sales. This year turns out to be an unusually good year. The salesperson is likely to

A) meet the target easily and push forward with all potential sales.
B) fail to meet the last year's targets because of overconfidence.
C) just be satisfied with meeting last year's target.
D) defer some sales to the next fiscal year.

13) If managers at a firm were rewarded for meeting production quota, then

A) some managers would rebel and not meet the necessary quota.
B) all managers would exceed the quota.
C) all managers would just meet the quota.
D) some managers would just barely exceed the quota.

14) Setting performance goals based on historical data and past performance creates

A) the horizon problem.
B) a compensating differential.
C) opportunism.
D) a ratchet effect.

15) In the modelmanagement cannot readily observe

A) Q and e.
B) Q and α.
C) Q and µ.
D) e and µ.

16) If TruLite's factory workers receive an hourly wage, described by the equation;, where Q is the number of light switches installed per hour, then

A) the employee can remain completely risk-averse.
B) the employee must accept risk of production variability.
C) output becomes a subjective measure of performance.
D) there are no compensating differentials.

17) Gaming refers to a situation where

A) employers fix unachievable output and target levels.
B) employees consistently understate the target levels in order to meet them.
C) employees increase output to gain commissions beyond the firm's capacity.
D) employees inappropriately increase output to gain commissions.

18) In the TruLite boxing department, management finds that the production team maintains several boxes of lights in a nearby storage closet. On days when the assembly line breaks down, the boxes are added back at the end of day to meet production goals. This is an example of

A) beating the benchmark.
B) gaming the production system.
C) random elements in production.
D) risk premium adjustment factors.

19) If TruLite’s management studied the light fabrication department and found that the department should assemble 25 lamps per hour per worker and set its piece rate to get workers to meet output level, then this standard is called the

A) risk premium.
B) benchmark.
C) incentive adjustment.
D) random element of production.

20) Relative performance evaluation reduces the labor cost borne by the firm by

A) ratcheting up each year's performance targets.
B) focusing on the near term while setting incentive pay.
C) using the employee's output for setting the compensation.
D) filtering out common shocks from employee incentive pay.

21) The subjective evaluation method that requires the evaluator to rank the employees on a number of different performance factors using a five point scale is called a(n)

A) 360-degree performance system.
B) internal benchmarking system.
C) goal-based rating system.
D) standard rating scale system.

22) Which of these is a drawback of forming an internal reference group and using the group average to assess normal performance?

A) high influence cost incurred by employees
B) forced distributions
C) shirking among supervisors
D) explicit employee collusion that tends to hold down the benchmark

23) The performance-evaluation system under which an employee enumerates his/her accomplishments, points out strengths, and discusses weaknesses with the higher management is commonly referred to as

A) output evaluation.
B) productivity evaluation.
C) self-evaluation.
D) reneging.

24) Which of the following is not a problem with subjective performance evaluations?

A) shirking among supervisors
B) forced distributions of results by upper management
C) ability to rank employees on a standard rating scale
D) use of influence to bias outcomes

25) Which of these is a subjective evaluation method used for assessing an employee's compensation?

A) output-based system
B) ratcheting up of standards
C) across-firm performance benchmarking
D) goal-based system

26) Which of the following should not be on a list of things you should do to get an honest evaluation?

A) Have a list of creative solutions to problems that you have encountered.
B) Show how your output influenced the profitability of your division.
C) Illustrate how your actions will improve the company next year.
D) Take your manager to dinner the night before evaluations are due.

27) Objective measures included in an evaluation and incentive system might include

A) improved quality of communications with subordinates.
B) meeting or exceeding sales goals.
C) reorganizing a department for improved human relations.
D) recognition for finding and solving problems.

28) The larger the number tasks and the greater the authority required in a job, then the evaluation of the person in the job will move from ________ to ________.

A) subjective; objective
B) subjective; risk based
C) objective; subjective
D) objective; risk based

29) Identify the correct statement related to objective and subjective performance measures.

A) Subjective measures are used in explicit formal contracts.
B) Subjective measures induce dysfunctional behaviors while objective measures do not.
C) Objective measures are more accurate than subjective measures.
D) Objective measures can create incentives for gaming.

30) Beyond some minimum level of effort, it is usually expected that teamwork will have the impact of ________ relative to individual effort.

A) reducing output
B) leaving output the same
C) increasing output
D) reducing and then increasing the output

31) While production teams are important sources of productivity in business, they can suffer from the ________ problem.

A) free-rider
B) reneging
C) externality
D) benchmark

ESSAY. Write your answer in the space provided or on a separate sheet of paper.
32) TruLite is managed by Fred Powell. It has three stages of production: (1) light fabrication, (2) switch assembly, and (3) boxing. Chris Self works in the switch assembly department. He is productive and seems to work hard. Powell decides to change Chris Self's pay system to a performance-based pay system that will be determined by output per hour. Chris resists the change and asks for increase in his base pay. What is Chris Self's problem? Is he irrational or does he understand something about the production system that Fred Powell does not understand?

33) The old saying is "Be careful what you pay for, because you may get it." Discuss commission based salaries and gaming in light of the saying.

34) The goal of a performance pay system is to get an employee to meet and exceed production quotas or goals. But an employee is always faced with events that are clearly beyond his/her control. What measures can be taken by the management to understand and minimize the impact of these ‘random' elements in the production system?

35) At Always Round Tire, managers and professional employees are evaluated each year with the Subjective Information Performance Survey (SIPS). SIPS allows bosses to rank their employees on several issues including achieving budget objectives, communication quality, continuing education and training activities, and emphasis of teamwork among subordinates. SIPS software computes means and standard deviations, and benchmarks each employee relative to all others in the same evaluation system. However, nobody at the company believes in SIPS output. Why?

36) The dean of a large university issues the following policy for faculty pay-raises in the smaller satellite campuses: faculty pay increases will be possible only if enrollment increases above last year's targets. Evaluate the impact of this policy on the overall system.

37) Make a case for 360-degree performance evaluation based on the informativeness principle. What problems may be encountered from implementation of such a system?

38) Give examples of how government intervention helps reduce moral hazard and adverse selection problems in internal labor markets.