Which of the Following Statements Is Least True Regarding the Use

question 7

Multiple Choice

Which of the following statements is least true regarding the use of incentive pay for sales employees?

• A)If a firm wants to tie pay to a performance measure that is affected by random factors, the firm need not compensate employees for the resulting increase in the variability of their pay
• B)In determining how closely to tie pay to performance, the firm must weigh the costs of imposing risk on risk-averse employees against the benefits of providing additional incentives
• C)When both risk and incentives are present, the optimal commission rate will reflect a tradeoff among these forces and will be somewhere between 0 percent and 100 percent
• D)Stronger incentives are called for if the variance of measured performance is lower
• E)When an employee captures all the value associated with extra effort, the employee chooses the effort level that equates the total marginal benefit of effort to the total marginal cost

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Definitions:

Unit Costs

The cost incurred to produce, store, and sell one unit of a product, including raw material, labor, and overhead costs.

Cost-Minimizing

A strategy or approach aimed at reducing expenses to the lowest possible level while achieving the desired output.

Price of Capital

The cost of using capital for production, often measured by the interest rate on borrowed funds or the rate of return required on investment.