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    Question

    Which of the following statements regarding incentive pay plans is most accurate?

    A.    Unlike merit pay plans, base pay is set at the market rate for incentive plans.

    B.    Maximum earning potential is usually greater with an incentive plan than a traditional merit plan.

    C.   Once earned, the incentive pay becomes part of the employee's base pay.

    D.   Maximum caps are used to keep incentive pay levels even with the industry pay level.

    A Only A Correct Answer Incorrect Answer
    B Only B Correct Answer Incorrect Answer
    C B and C Correct Answer Incorrect Answer
    D C and D Correct Answer Incorrect Answer
    E A and C Correct Answer Incorrect Answer

    Solution

    Incentive pay rewards employees for achieving defined goals. The company sets performance objectives at the beginning of the pay period and if these are achieved, employees receive a lump-sum payment. Incentive pay plans can be based on the performance of the individual, team, business unit or company. Company-wide incentive pay schemes include gainsharing and profit sharing. The ability of an individual to influence the outcome of the incentive pay plan declines as the group being measured grows larger. However, team-based incentive pay plans offer advantages to companies.

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