31. An example of extrinsic motivation is 
A. challenging work.
B. variety of work.
C. promotion.
D. social interaction.

Extrinsic motivation depends on rewards (such as pay and benefits) controlled by an external source.

32. In agency theory, the _____ seeks to direct the behavior of the _____. 
A. owner; principal
B. agent; principal
C. manager; agent
D. principal; agent

As per the agency theory, the principal is a person who seeks to direct another person's behavior. An agent is a person who is expected to act on behalf of a principal.

33. Research shows that owner-controlled and manager-controlled firms differ in which manner? 
A. Owners like to change ownership more often than managers.
B. Managers are less likely to maximize short-run performance and pay.
C. Managers prefer relatively little risk in their pay.
D. Owners pursue more perquisites.

Managerial compensation in manager-controlled firms lay more emphasis on base salary and a lesser emphasis on uncertainty bonuses or incentives.

34. Which of the following is not a type of agency cost that arises in managerial compensation? 
A. Management's desire for perquisites
B. Management's risk aversion
C. Management's desire for outcome-based pay systems
D. Management's focus on short-term performance and pay

Outcome-based pay systems help minimize agency costs.

35. Which of the following is not a feature of outcome-oriented principal-agent contracts? 
A. When profits are high, compensation goes up.
B. The principal must invest in monitoring information.
C. Agents require a compensating wage differential.
D. Risk is increased for the agent.

Behavior-based contracts require that principal invest in monitoring in order to overcome information asymmetry.

36. According to agency theory, when a compensation system aligns the interests of the agent with the principal's own interests, the compensation system should 
A. be behavior oriented.
B. reduce agency costs.
C. be outcome oriented.
D. reduce risks.

The agency theory says that the principal must choose a contracting scheme that helps align the interests of the agent with the principal's own interests thereby reducing agency costs.

37. Which of the following compensation systems would not be classified as an outcome-oriented contracting scheme (using agency theory terminology)? 
A. Stock options
B. Profit sharing
C. Commissions
D. Merit pay

Merit pay is a behavior-oriented contracting scheme.

38. Which of the following factors would support the use of a behavior-based contract between principals and agents? 
A. A tradition of using outcome-oriented contracts
B. R&D-oriented jobs
C. Outcome uncertainty
D. Employer has the ability to pay

In the case of outcome uncertainty, agents are exposed to greater risk and so would prefer behavior-based contracts.

39. Agency theory is of particular value in compensation management because of its emphasis on the _____ trade-off. 
A. performance-reward
B. risk-reward
C. motivation-reward
D. ability-reward

Agency theory is of particular value in compensation management because of its emphasis on the risk-reward trade-off, an issue that needs close attention when companies consider variable pay plans.

40. ______ refers to decisions about whether to join or remain with the organization. 
A. Membership behaviors
B. Identification behaviors
C. Organizational gregariousness
D. Associative habits

Membership behaviors are decisions about whether to join or remain with the organization.

31. An example of extrinsic motivation is 
A. challenging work.
B. variety of work.
C. promotion.
D. social interaction.

Extrinsic motivation depends on rewards (such as pay and benefits) controlled by an external source.

32. In agency theory, the _____ seeks to direct the behavior of the _____. 
A. owner; principal
B. agent; principal
C. manager; agent
D. principal; agent

As per the agency theory, the principal is a person who seeks to direct another person's behavior. An agent is a person who is expected to act on behalf of a principal.

33. Research shows that owner-controlled and manager-controlled firms differ in which manner? 
A. Owners like to change ownership more often than managers.
B. Managers are less likely to maximize short-run performance and pay.
C. Managers prefer relatively little risk in their pay.
D. Owners pursue more perquisites.

Managerial compensation in manager-controlled firms lay more emphasis on base salary and a lesser emphasis on uncertainty bonuses or incentives.

34. Which of the following is not a type of agency cost that arises in managerial compensation? 
A. Management's desire for perquisites
B. Management's risk aversion
C. Management's desire for outcome-based pay systems
D. Management's focus on short-term performance and pay

Outcome-based pay systems help minimize agency costs.

35. Which of the following is not a feature of outcome-oriented principal-agent contracts? 
A. When profits are high, compensation goes up.
B. The principal must invest in monitoring information.
C. Agents require a compensating wage differential.
D. Risk is increased for the agent.

Behavior-based contracts require that principal invest in monitoring in order to overcome information asymmetry.

36. According to agency theory, when a compensation system aligns the interests of the agent with the principal's own interests, the compensation system should 
A. be behavior oriented.
B. reduce agency costs.
C. be outcome oriented.
D. reduce risks.

The agency theory says that the principal must choose a contracting scheme that helps align the interests of the agent with the principal's own interests thereby reducing agency costs.

37. Which of the following compensation systems would not be classified as an outcome-oriented contracting scheme (using agency theory terminology)? 
A. Stock options
B. Profit sharing
C. Commissions
D. Merit pay

Merit pay is a behavior-oriented contracting scheme.

38. Which of the following factors would support the use of a behavior-based contract between principals and agents? 
A. A tradition of using outcome-oriented contracts
B. R&D-oriented jobs
C. Outcome uncertainty
D. Employer has the ability to pay

In the case of outcome uncertainty, agents are exposed to greater risk and so would prefer behavior-based contracts.

39. Agency theory is of particular value in compensation management because of its emphasis on the _____ trade-off. 
A. performance-reward
B. risk-reward
C. motivation-reward
D. ability-reward

Agency theory is of particular value in compensation management because of its emphasis on the risk-reward trade-off, an issue that needs close attention when companies consider variable pay plans.

40. ______ refers to decisions about whether to join or remain with the organization. 
A. Membership behaviors
B. Identification behaviors
C. Organizational gregariousness
D. Associative habits

Membership behaviors are decisions about whether to join or remain with the organization.

31. An example of extrinsic motivation is 
A. challenging work.
B. variety of work.
C. promotion.
D. social interaction.

Extrinsic motivation depends on rewards (such as pay and benefits) controlled by an external source.

32. In agency theory, the _____ seeks to direct the behavior of the _____. 
A. owner; principal
B. agent; principal
C. manager; agent
D. principal; agent

As per the agency theory, the principal is a person who seeks to direct another person's behavior. An agent is a person who is expected to act on behalf of a principal.

33. Research shows that owner-controlled and manager-controlled firms differ in which manner? 
A. Owners like to change ownership more often than managers.
B. Managers are less likely to maximize short-run performance and pay.
C. Managers prefer relatively little risk in their pay.
D. Owners pursue more perquisites.

Managerial compensation in manager-controlled firms lay more emphasis on base salary and a lesser emphasis on uncertainty bonuses or incentives.

34. Which of the following is not a type of agency cost that arises in managerial compensation? 
A. Management's desire for perquisites
B. Management's risk aversion
C. Management's desire for outcome-based pay systems
D. Management's focus on short-term performance and pay

Outcome-based pay systems help minimize agency costs.

35. Which of the following is not a feature of outcome-oriented principal-agent contracts? 
A. When profits are high, compensation goes up.
B. The principal must invest in monitoring information.
C. Agents require a compensating wage differential.
D. Risk is increased for the agent.

Behavior-based contracts require that principal invest in monitoring in order to overcome information asymmetry.

36. According to agency theory, when a compensation system aligns the interests of the agent with the principal's own interests, the compensation system should 
A. be behavior oriented.
B. reduce agency costs.
C. be outcome oriented.
D. reduce risks.

The agency theory says that the principal must choose a contracting scheme that helps align the interests of the agent with the principal's own interests thereby reducing agency costs.

37. Which of the following compensation systems would not be classified as an outcome-oriented contracting scheme (using agency theory terminology)? 
A. Stock options
B. Profit sharing
C. Commissions
D. Merit pay

Merit pay is a behavior-oriented contracting scheme.

38. Which of the following factors would support the use of a behavior-based contract between principals and agents? 
A. A tradition of using outcome-oriented contracts
B. R&D-oriented jobs
C. Outcome uncertainty
D. Employer has the ability to pay

In the case of outcome uncertainty, agents are exposed to greater risk and so would prefer behavior-based contracts.

39. Agency theory is of particular value in compensation management because of its emphasis on the _____ trade-off. 
A. performance-reward
B. risk-reward
C. motivation-reward
D. ability-reward

Agency theory is of particular value in compensation management because of its emphasis on the risk-reward trade-off, an issue that needs close attention when companies consider variable pay plans.

40. ______ refers to decisions about whether to join or remain with the organization. 
A. Membership behaviors
B. Identification behaviors
C. Organizational gregariousness
D. Associative habits

Membership behaviors are decisions about whether to join or remain with the organization.

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