Supporting Business Objectives through Variable Pay

Question 1

Which of the following describes a purpose of variable pay?
A. To reward individuals for acquisition of new skills and competencies.
B. To ensure the individual’s value relative to the labor market.
C. To differentiate the pay of individuals who achieve results from those who do not.
D. To reward individuals for their sustained performance over time

Answer 1

C. To differentiate the pay of individuals who achieve results from those who do not

Question 2

What business strategy often includes a combination of price, quality, dependability and ease of purchase that competitors cannot match?

Answer 2

Operational Excellence

Question 3

Which of the following business objectives would relate most to a product/service leadership strategy? 
A. Improve operational efficiency. 
B. Time from innovation to market. 
C. Customer attraction and retention. 
D. Reduce costs.

Answer 3

B. Time from innovation to market

Question 4

In which of the following stages of the business life cycle would an organization generally be focused on maintaining/increasing market share, improving productivity and reducing cost of sales? 
A. Start up. 
B. Growth. 
C. Mature. 
D. Decline

Answer 4

C. Mature

Question 5

Which of the following business objectives would relate most to the start-up stage of a businesses life cycle? 
A. Maximize profits. 
B. Product Quality. 
C. Maintain/Increase market share
D. Obtaining capital

Answer 5

D. Obtaining capital

Question 6

What influences can variable pay provide in relation to organizational performance?

Answer 6

Focus, alignment, motivation and reinforcement

Question 7

Fixed pay –

Answer 7

nondiscretionary compensation that does not regularly vary according to
performance or results achieved. Base salary or base hourly rate are primary examples.

Question 8

Variable pay -

Answer 8

compensation that is discretionary or contingent on performance or results
achieved, and can be designed for any individual or combination of individuals (e.g., an entire
organization, business unit, division, department, location [site], workgroup or special team). It
is termed “variable” because the amount actually paid will vary based on whatever criteria the
organization chooses.

Question 9

Primary Elements of Variable Pay

Answer 9

Variable pay rewards for accomplishments and results
• Based on organizational, group or individual results – aligns and focuses organizations,
business units, teams and individuals on the accomplishment of key goals and objectives,
assesses their performance, and rewards those who accomplish them
• Performance-based compensation – serves as a pay differentiator between those who
achieve results and those who do not
• Flexible and adaptable

Question 10

Operational excellence – primarily a price / cost-based strategy

Answer 10

This strategy often includes a combination of price, quality, dependability and ease of
purchase that competitors cannot match. The corporate culture typically strives to minimize
waste and reward efficiency.

Question 11

Product / service leadership – primarily an innovation-based strategy

Answer 11

This strategy focuses on innovation, product development and market exploitation. The
corporate culture encourages imagination and a mind-set driven by the prospect of creating
the future.
• Organizations that use this strategy offer products and services that expand performance
boundaries (the best products), leapfrog / replace technologies or products, create more /
better ideas and commercialize them faster than their competitors.

Question 12

Customer intimacy – primarily a solutions-based strategy

Answer 12

This strategy focuses on creating results for carefully selected customers (making them
successful). The corporate culture encourages deep and lasting relationships with
customers.
• Organizations that use this strategy build bonds with targeted customers; they meet or
exceed customer needs to build customer loyalty.

Question 13

Business strategy: operational excellence

Answer 13

• Product quality
• Operational efficiency improvement
• Process improvement
• Cost reduction

Question 14

Business strategy: product / service leadership

Answer 14

• Market share / market penetration
• Product development
• Time from innovation to market

Question 15

Business strategy: customer intimacy

Answer 15

• Customer opinion of products
• Product quality
• Customer retention
• Customer satisfaction

Question 16

Start Up (business life cycle)

Answer 16

Start-up – The organization is new with little or no formal policies or procedures. The
organization’s focus is on obtaining capital, marketing products or services, initial sales growth
and cash conservation.

• Obtaining capital
• Cash conservation
• Develop brand awareness
• Develop marketing plan

Question 17

Growth (business life cycle)

Answer 17

Growth – In this stage, the organization is highly focused on growing sales, increasing
distribution capability and determining how to efficiently produce products or services to meet
growing demand. Growth typically generates the need to begin standardizing procedures through
policy creation.

Production capability
• Market share / market penetration
• Sales volume / revenue growth

Question 18

Mature (business life cycle)

Answer 18

Mature – The mature stage is characterized by a focus on maintaining / increasing market share,
improving productivity and otherwise reducing cost of sales. Improvements to products are more
evolutionary than revolutionary. The organization typically has higher levels of bureaucracy and
greater amounts of cash on hand than at other stages.

• Improve operational efficiency
• Stock price appreciation
• Maintain / increase market share

Question 19

Decline (business life cycle)

Answer 19

Decline – At this point, the organization’s revenues are declining. It must decide whether to
reinvest in current products, create new products or maximize profits with current products as
long as possible.

• Maximize profits
• Extend product demand
• New product development