Compensation 6th Canadian Edition by Margaret Yap, Jerry Newman and Bruce Gerhart TEST BANK.

Chapter 1 The Pay Model TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.

1) Paying executives based on company performance measures such as shareholder return can help keep executives focused on the best interests of the company ⊚ ⊚

true false

2) Compensation refers to all forms of non-financial returns and intangible services and benefits that employees receive as part of an employment relationship. ⊚ ⊚

true false

3) Total compensation includes psychological aspects of work such as recognition and status, challenging work, and learning opportunities. ⊚ ⊚

4)

true false

Base pay is the cash compensation an employer pays for the work performed. ⊚ ⊚

true false

5) Cost-of-living adjustment refers to percentage increment to base pay provided to employees based on their performance. ⊚ ⊚

6)

true false

Incentives may be long-term or short-term. ⊚ ⊚

Version 1

true false

1

7)

Total compensation only includes salary and incentives; not benefits. ⊚ ⊚

8)

Making contributions to Workers' Compensation is at discretion of the employer. ⊚ ⊚

9)

true false

Allowances are rewards given to employees based on their performance. ⊚ ⊚

10)

true false

true false

Compliance means an organization cares about how its results are achieved ⊚ ⊚

true false

11) External competitiveness refers to pay comparisons between different skill levels in an organization. ⊚ ⊚

12)

true false

While external competitiveness directly affects efficiency, it does not affect fairness. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.

13) Which of the following is NOT a contributing factor to wage determination?

Version 1

2

A) gender B) education C) size of organization D) volunteer experience E) tenure

14)

Pay for executives should supposedly to be tied to:

A) the company's financial performance B) the company's reputation C) the financial needs of the employee D) the company's growth potential E) the cost of living index

15)

Which of the following refers to a multiple meaning of compensation?

A) societal B) employee C) stockholder D) relational E) personal

16)

Which of the following is NOT part of an employee's total compensation?

A) paid vacation B) health insurance C) relational returns D) cost-of-living adjustments E) pay

17)

Which of the following best describes relational returns?

Version 1

3

A) all rewards received by employees, including cash compensation, benefits, and psychological returns B) all forms of financial returns and tangible services that employees receive as part of an employment C) programs that help employees better integrate their work and life responsibilities D) one-time payments for meeting previously established performance objectives E) the psychological returns people believe they receive in the workplace

18)

includes cash compensation, benefits, and relational returns.

A) Total compensation B) Total cash benefit C) Total base pay D) Total rewards E) Total incentive

19)

Which of the following is NOT a form of relational return?

A) employment security B) recognition and status C) work-life balance D) challenging work E) learning opportunities

20)

Working with great co-workers is a(n)

.

A) incentive B) entitlement C) relational return D) network of returns E) benefit

Version 1

4

21)

Which of the following statements is true about the forms of pay?

A) Relational returns are more transactional than total compensation.

B) Unlike relational returns, total compensation typically refers to the psychological returns people believe they receive in the workplace.

C) Base pay, incentives, and cost-of-living adjustments are the typical relational returns.

D) Merit increases refer to the same percentage increase that everyone receives regardless of performance in order to maintain pay levels relative to increases in the cost of living.

E) Base pay tends to reflect the value of the work or skills and generally ignores differences attributable to individual employees.

22)

A merit increase is best described as:

A) an increment to base pay that recognizes past work behaviour.

B) psychological returns employees believe they receive in the workplace.

C) a one-time reward for past performance that does not increase base pay.

D) percentage increment to base pay provided to all employees regardless of performance.

E) compensation given to provide for items that are in short supply.

23)

Which of the following best describes cost-of-living adjustment?

A) one-time payments for meeting previously established performance objectives B) increment to base pay in recognition of past work behaviour C) percentage increment to base pay provided to all employees regardless of performance D) compensation to provide for items that are in short supply E) consolidated pay which is not subject to any change regardless of the cost-of-living

24) objectives.

Version 1

refer to one-time payments for meeting previously established performance

5

A) Cost-of-living adjustments B) Incentives C) Merit increments D) Relational returns E) Allowances

25)

Which of the following is a work/life program?

A) stock options B) health insurance C) telecommuting D) employment Insurance E) cost-of-living adjustment

26)

refers to the compensation given to purchase items that are in short supply.

A) Variable pay B) Incentive C) Cost-of-living adjustment D) Allowance E) Wage

27)

Which of the following is true of the present value perspective?

A) It considers today's initial offers to employees.

B) It considers future bonuses, merit increases, and promotions.

C) It establishes a limit on the amount spent on benefits.

D) It creates an external competitiveness through future promises.

E) It assesses the present value of a company to offer stock options to employees.

28)

Which of the following is a form of relational return?

Version 1

6

A) life Insurance B) allowances C) recognition and status D) monitory incentives E) benefits

29)

Internal alignment may be achieved by:

A) creation of cross-functional departments B) matching competitors' wage rates C) paying below-market base wages but offering training and rapid promotion D) compensating employees at above-market rates E) comparing pay between jobs or skill levels inside a single organization

30)

Which of the following is true of internal alignment?

A) It does not influence the company's compensation objectives.

B) It compares pay between jobs inside a single organization.

C) It uses incentive programs as a technique to implement the policy.

D) It places greater emphasis on performance than the other policies.

E) It relates to comparison of compensation with that of competitors.

31)

External competitiveness refers to:

A) competitiveness between different departments in a company B) the relative importance of jobs within a company C) comparison of product prices with that of competitors D) comparison of compensation with that of competitors E) inflationary pressure caused by external market factors

32)

Which of the following pay policies lays emphasis on performance?

Version 1

7

A) Employee contributions B) Administration of the pay system C) External competitiveness D) Internal alignment E) Management

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

33) How can a well-designed compensation system help achieve and sustain competitive advantage?

34)

What are some of the main reasons for the gender wage gap?

35)

Explain the two major categories of total rewards.

36)

Why are work-life programs becoming so popular with employers?

37)

What are the differences between short-term and long-term incentives?

Version 1

8

38)

What are the three basic building blocks of a pay model?

39)

What is the difference between procedural and distributive fairness?

40)

Briefly describe the four main strategic policy decisions in the pay model.

Version 1

9

Answer Key Test name: Chap 01_6ce 1) TRUE 2) FALSE 3) FALSE 4) TRUE 5) FALSE 6) TRUE 7) FALSE 8) FALSE 9) FALSE 10) FALSE 11) FALSE 12) FALSE 13) D 14) A 15) D 16) C 17) E 18) D 19) C 20) C 21) E 22) A 23) C 24) B 25) C 26) D Version 1

10

27) B 28) C 29) E 30) B 31) D 32) A 33) How people are paid affects their behaviour at work, which affects an organization's chances of success. For most employers, compensation is a major part of the total cost of running a business, and often it is the single largest part of operating cost. These two facts together mean that well-designed compensation systems can help an organization achieve and sustain competitive advantage.

34) There are a few observations of what may have contributed to the gender wage gap: that women are more likely to study health and education, whereas men are more likely to study engineering and other technology fields; that women are more willing than men to adjust their work location and hours to take care of young children and elderly parents, and to do most if not all of the "unpaid" housework; and, finally, that nearly one in three women work in sales and service occupations, whereas men are likely to work in construction trades, in transport, and as equipment operators.

35) The two major categories of total rewards are relational returns and total compensation. The relational returns (development opportunities, status, opportunity to belong, challenging work, and so on) are the psychological returns people believe they receive in the workplace.

Total compensation is more transactional and includes pay received directly as cash (e.g., base, merit increases, incentives, cost-of-living adjustments) and indirectly as benefits (e.g., pensions, medical insurance, programs to help balance work and life demands).

Version 1

11

36) Work/life programs that help employees better integrate their work and life responsibilities include time away from work (e.g., vacations, jury duty), access to services to meet specific needs (e.g., drug counselling, financial planning, referrals for child- and eldercare), and flexible work arrangements (e.g., telecommuting, non-traditional schedules, non-paid time off). Responding to the tight labour market for highly skilled employees and the changing demographics of the workforce (e.g., two-income families that demand employer flexibility so that family obligations can be met), many Canadian employers are giving higher priority to these forms of benefits.

37) Short-term incentives are typically one-time payments without a permanent effect on labour costs. When performance declines, incentive pay automatically declines, too.

Long-term incentives are intended to focus employee efforts on multiyear results. Typically they are in the form of stock ownership or options to buy stock at a predetermined price.

38) A pay model contains three basic building blocks: (1) the strategic compensation objectives, (2) the strategic policies that form the foundation of the compensation system, and (3) the techniques of compensation.

39) Procedural fairness refers to the process used to make decisions about pay. It suggests that the way a pay decision is made may be as important to employees as the result of the decision, which is distributive fairness. The fairness objective calls for fair treatment for all employees by recognizing both employee contributions (e.g., higher pay for greater performance, experience, or training) and employee needs (e.g., a fair wage as well as fair procedures).

Version 1

12

40) Internal alignment refers to pay comparisons between jobs or skill levels inside a single organization. Jobs and people's skills are compared in terms of their relative contribution to the organization's objectives.

External competitiveness refers to compensation relationships external to the organization (i.e., compared with competitors). External competitiveness directly affects both efficiency and fairness.

Employee conditions refers to the degree of emphasis placed on performance, which directly affects employees' attitudes and work behaviours. Employers with strong pay-for-performance policies put greater emphasis on incentives and merit pay.

A policy regarding management of the pay system is the last building block in the pay model, which recognizes that a pay system will not achieve its objectives unless it is managed properly. Proper management of the pay system ensures that the right people get the right pay for achieving the right objectives in the right way.

Version 1

13

Chapter 2 Strategy: The Totality of Decisions TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.

1) "How should total compensation help this business gain and sustain competitive advantage" is a corporate level strategic choice. ⊚ ⊚

true false

2) The underlying premise of the support business strategy is that the greater the alignment between the organization and the compensation system, the more effective the organization. ⊚ ⊚

3)

Greater focus on variable pay is most appropriate with the innovator strategy ⊚ ⊚

4)

true false

true false

A compensation strategy emerges from the pay decisions that an organization makes. ⊚ ⊚

true false

5) An unstated compensation strategy is inferred from an organization's compensation practices. ⊚ ⊚

6)

true false

Trial and error play a major role in developing a compensation strategy. ⊚ ⊚

Version 1

true false

1

7) From a strategic perspective, organizations may try to shape the sociopolitical environment. ⊚ ⊚

8)

true false

Pay systems mirror a company's image and reputation. ⊚ ⊚

true false

9) Government relations to influence laws and regulations are never a part of compensation strategies. ⊚ ⊚

10)

true false

Pay strategies need to be adapted to the nature of the union-management relationship. ⊚ ⊚

true false

11) Union interests are part of the environmental pressures that help shape compensation strategies. ⊚ ⊚

12)

true false

The alignment test helps pass the differentiation test ⊚ ⊚

true false

13) Of the three tests of competitive advantage—align, differentiate, add value—align is the most difficult.

Version 1

2

⊚ ⊚

true false

14) Managing total compensation strategically means fitting the compensation system to the business and environmental conditions. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.

15) A focus on compensation decisions that help the organization gain and sustain competitive advantage is known as .

A) strategic perspective B) strategic alliance C) planned perception D) association perspective E) competitive heterogeneity

16) A business practice or process that results in better performance than one's competitors is known as .

A) strategic perspective.

B) strategic alliance.

C) planned perception.

D) association perspective.

E) competitive advantage.

17)

A supporting compensation approach for an innovator:

Version 1

3

A) places less emphasis on evaluating skills and jobs and more emphasis on incentives designed to encourage innovations.

B) seldom stresses on innovations or risk taking.

C) stresses doing more with less by minimizing costs and specifying in greater detail exactly how jobs should be performed.

D) stresses delighting customers and bases employee pay on how well they do this.

E) focuses on system control and work specifications.

18)

A customer-focused business strategy:

A) places less emphasis on evaluating skills and jobs and more emphasis on incentives designed to encourage innovations.

B) stresses new products and short response times to market trends.

C) stresses doing more with less by minimizing costs, encouraging productivity increases, and specifying in greater detail exactly how jobs should be performed.

D) stresses delighting customers and bases employee pay on how well they do this.

E) focuses on business practice or process that results in better performance than one's competitors.

19) According to the pay model, the strategic compensation decisions regarding objectives involve:

A) how the different types and levels of skills and work should be paid within the organization.

B) how compensation should support the business strategy and be adaptive to the cultural and regulatory pressures in a global environment.

C) how total compensation should be positioned against competitors.

D) how pay increases should be based.

E) how open and transparent the pay decisions should be to all employees.

20) According to the pay model, the strategic compensation decisions regarding external competitiveness involve:

Version 1

4

A) how the different types and levels of skills and work should be paid within the organization.

B) how compensation should support the business strategy and be adaptive to the cultural and regulatory pressures in a global environment.

C) how total compensation should be positioned against competitors.

D) how pay increases should be based.

E) how open and transparent the pay decisions should be to all employees.

21) According to the pay model, the strategic compensation decisions regarding management involve:

A) how the different types and levels of skills and work should be paid within the organization.

B) how compensation should support the business strategy and be adaptive to the cultural and regulatory pressures in a global environment.

C) how total compensation should be positioned against competitors.

D) how pay increases should be based.

E) how open and transparent the pay decisions should be to all employees.

22)

Which of the following is NOT an employee preference?

A) deferring taxes B) changing benefit coverage C) cultural differences D) child care coverage E) flexible working arrangements

23) Which of the following is a step in the development of the total compensation strategy that deals with competitive dynamics?

Version 1

5

A) mapping a total compensation strategy B) implementing cultural and regulatory progress C) implementing strategy D) assessing total compensation implications E) reassessing the fit

24) Personal satisfaction in work accomplished, security, advancement opportunity, and means to share in the company success are fostered by a company's .

A) core culture and values.

B) social and political context.

C) competitive heterogeneity.

D) patronage concentration.

E) competitive dynamics.

25) Which of the following is a step in the formulation of the total compensation strategy that deals with employee or union needs?

A) mapping a total compensation strategy B) assessing total compensation implications C) implementing cultural and regulatory changes D) reassessing the fit E) implementing strategy

26)

Which of the following pay strategies is a source of competitive advantage?

Version 1

6

A) a pay strategy that adds value and is difficult for employers to imitate.

B) a pay strategy that specifies low base pay and high job security.

C) a pay strategy that emphasizes on work/life programs over cash compensation and giving only limited bonuses and no stock awards.

D) a pay strategy that ignores individual attitudes and preferences.

E) a pay strategy that overemphasizes on outstanding employee performance and commitment.

27) Making compensation decisions based on how the organization wants to compete is based on .

A) employee contributions B) external competitiveness C) internal alignment D) management E) objectives

28)

Context refers to a wide range of factors EXCEPT:

A) legal requirements B) changing demographics C) cultural differences D) HR strategy E) expectations

29) Which of the following is a step in the formulation of the total compensation strategy that deals with setting objectives and specifying policies on alignment, competitiveness, contributions, and management?

Version 1

7

A) implementing cultural and regulatory changes B) deciding on a total compensation strategy C) reassessing the fit D) assessing total compensation implications E) implementing strategy

30) on

Mapping a total compensation strategy includes setting objectives and specifying policies .

A) contributions.

B) employee/union needs.

C) core culture/values.

D) social and political context.

E) HR systems.

31) "How much does pay differ among job levels and how well does compensation support career growth" relates to which of the following:

A) objectives B) external competitiveness C) employee contributions D) management E) internal alignment

32) Which of the following is a step in the development of the total compensation strategy that involves the choosing of techniques to fit the strategy?

A) mapping a total compensation strategy B) implementing cultural and regulatory changes C) reassessing the fit D) assessing total compensation implications E) implementing strategy

Version 1

8

33) This step recognizes that the compensation strategy must change to fit changing conditions.

A) mapping a total compensation strategy B) implementing cultural and regulatory changes C) assessing total compensation implications D) reassessing the fit E) implementing strategy

34) to:

Periodic reassessment of a compensation strategy's fit to changing conditions is needed

A) set objectives on alignment, competitiveness, contributions, and management.

B) design work so that employees have opportunities to work independently without collaboration with others.

C) continuously learn, adapt, and improve.

D) specify the four policies on alignment, competitiveness, contributions, and management.

E) defer taxes by putting pay into retirement funds.

35)

Which of the tests of competitive is the most difficult to achieve?

A) align B) compete C) differentiate D) innovate E) add value

36)

A pay strategy is a source of competitive advantage:

Version 1

9

A) if it offers stock options.

B) if it rarely aligns.

C) if it differentiates.

D) if it seldom provides value.

E) if it defers taxes.

37)

Internal alignment suggests that:

A) both smaller and larger pay differences among jobs inside an organization can affect results.

B) paying higher than the average wage offered by competitors can affect results.

C) performance-based pay can affect results.

D) embedding compensation strategy within the broader HR strategy affects results.

E) rather than focusing on only one dimension of the pay strategy, such as pay for performance or internal pay differences, all dimensions need to be considered together.

38)

Unless

, the downward spiral will speed up.

A) increased risks are offset by larger returns B) pay is externally competitive C) employee contributions are equal D) decreased risks are taken E) pay is internally aligned

39)

As organizational performance increases, pay-for-performance should

.

A) stay the same to avoid a vicious circle B) decrease C) increase D) become risk averse E) none of the above

Version 1

10

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

40) What are the strategic choices at the three different organizational levels?

41) How do compensation systems differ for innovators, cost cutters, and customer-focused strategies?

42) What three tests determine whether a compensation strategy is providing a competitive advantage to the organization?

43)

List the aspects of alignment of the pay strategy.

44)

Describe the process of developing a total compensation strategy.

45)

What is meant by context in the process of formulating a total compensation strategy?

Version 1

11

46) How do employee preferences influence the formulation of an organization's total compensation strategy?

47) How does context shape organizational objectives as it relates to internal alignment and external competitiveness?

48)

What does the "best fit" perspective on compensation suggest?

49)

Describe the relationship between virtuous and vicious circles.

Version 1

12

Answer Key Test name: Chap 02_6ce 1) FALSE 2) TRUE 3) FALSE 4) TRUE 5) TRUE 6) TRUE 7) TRUE 8) TRUE 9) FALSE 10) TRUE 11) TRUE 12) FALSE 13) FALSE 14) TRUE 15) A 16) E 17) A 18) D 19) B 20) C 21) E 22) C 23) D 24) A 25) B 26) A Version 1

13

27) E 28) D 29) B 30) A 31) E 32) E 33) D 34) C 35) E 36) C 37) A 38) A 39) C 40) At the corporate level, the fundamental strategic choice is: What business should we be in? At the business unit level, the choice shifts to: How do we gain and sustain competitive advantage in this business? At the function level, the strategic choice is: How should total compensation help this business gain and sustain competitive advantage?

41) Innovators provide reward for innovative products and process, follow market pay, and use flexible job descriptions.

Cost cutters focus on competitors' labour costs, tend to have an increase in variable pay, emphasize productivity, and focus on system control and work specifications.

Customer-focused organizations provide incentives for customer satisfaction and value jobs and skills based on customer contact.

Version 1

14

42) Three tests determine whether a pay strategy is a source of competitive advantage. They are: (1) Does the pay strategy align?

(2) Does the pay strategy differentiate?

(3) Does the pay strategy add value?

43) Alignment of the pay strategy includes three aspects: (1) alignment with the business strategy, (2) alignment externally with the economic and socio-political conditions, and (3) alignment internally with the overall HR system.

44) The four steps to develop a total compensation strategy are: (1) assess total compensation implications, including competitive dynamics, core culture/values, social and political context, employee/union needs, and the role of pay in overall HR strategy; (2) create a total compensation strategy from the five decisions in the pay model that include setting objectives and specifying the four policies on alignment, competitiveness, contributions, and management; (3) implement the compensation strategy; and (4) reassess and realign the strategy.

45) Context refers to a wide range of factors, including legal and regulatory requirements, cultural differences, changing workforce demographics, expectations, and so on.

Governments are major stakeholders in determining compensation.

Hence, government relations to influence laws and regulations may also be part of compensation strategies. From a strategic perspective, managers of compensation may try to shape the socio-political environment as well as be shaped by it.

Version 1

15

46) The simple fact that employees differ is easily overlooked in formulating a compensation strategy. Individual employees join the organization, make investment decisions, design new products, assemble components, and judge the quality of results. Individual employees receive the pay. A major limitation of contemporary pay systems is the degree to which individual attitudes and preferences are ignored.

Offering more choice is one approach. Older, highly paid workers may wish to defer taxes by putting their pay into retirement funds, whereas younger employees may have high cash needs to buy a house, support a family, or finance an education. Dual-career couples who are over insured medically may prefer to use more of their combined pay for child care, automobile insurance, financial counselling, or other benefits such as flexible schedules. Employees who have young children or dependent parents may desire dependent care coverage. However, preferences are notoriously unstable, changing according to the economic and personal conditions people face.

47) There is consistent research evidence that the following practices do matter to the organization's objectives: Internal alignment: Both smaller and larger pay differences among jobs inside an organization can affect results. Smaller internal pay differences and larger internal pay differences can both be a "best" practice. Which one depends on the context, including the fit with business strategy, other HR practices, organizational culture, and so on.

External competitiveness: Paying higher than the average paid by competitors can affect results. Is higher competitive pay a best practice?

Again, it depends on the context.

Version 1

16

48) The "best fit" perspective on compensation suggests that compensation be aligned, or fit, with the specific business strategy adopted by the organization, given its environment, in order to maximize competitive advantage. The "best practices" perspective suggests there is one set of best pay practices that can be applied universally across situations and strategies, attracting superior employees who then create a winning strategy.

49) Some studies suggest that performance-based pay works best when the organization is performing well. An organization with increasing profits or market share can pay larger incentives in the form of bonuses and stock awards which is reflected in employee attitudes and work behaviours, which in turn improves their performance and ultimately results in better organizational performance. The circle gains upward momentum. Contrarily when organization performance declines, say in a recessionary period, performance-based pay plans do not pay off; there are no bonuses, and the value of stock declines—with potentially negative effects on organizational performance. Declining organizational performance increases the risks facing employees—risks of demotions, wage cuts, and even layoffs. Declining employee attitudes may speed the downward spiral, creating a vicious circle.

Version 1

17

Chapter 3 Defining Internal Alignment TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.

1) Internal alignment is the first pay policy issue in a strategic approach. ⊚ ⊚

true false

2) An internal pay structure is defined by the number of levels of work and the criteria used to determine those levels and differentials. ⊚ ⊚

3)

true false

Line of sight means that the structure must be fair to employees ⊚ ⊚

true false

4) A job-based structure looks at the skills, knowledge, or competencies the employee possesses. ⊚ ⊚

true false

5) In addition to supply of and demand for labour, supply and demand for products and services also affect internal structures. ⊚ ⊚

true false

6) Pay for non-entry jobs is buffered from external forces and is more heavily influenced by internal factors. ⊚ ⊚

Version 1

true false

1

7) Applied to internal structures, procedural justice addresses whether the actual pay differences among employees are acceptable. ⊚ ⊚

8)

true false

A hierarchical pay structure implies a belief that all workers should be treated equally. ⊚ ⊚

true false

9) A hierarchical pay structure seeks to encourage teamwork by minimizing pay differentials among employees. ⊚ ⊚

true false

10) Equal treatment of employees can result in more knowledgeable employees with more responsible jobs going unrecognized and unrewarded. ⊚ ⊚

true false

11) Employees judge the fairness or equity of their pay by comparing it to that for other jobs at their own employer but not to that for jobs at other employers. ⊚ ⊚

12)

true false

Perceived equity could exist even if there were differences in pay. ⊚ ⊚

Version 1

true false

2

13) According to tournament theory, the greater the pay differential between an employee's present salary and his or her boss's salary, the harder the employee will work. ⊚ ⊚

true false

14) Institutional theory predicts that one can outperform one's competitors by simply imitating their practices ⊚ ⊚

true false

15) Institutional theory predicts that very few firms are "first movers." Instead they copy innovative practices after innovators have learned how to make the practices work. ⊚ ⊚

true false

16) Egalitarian structures are related to greater performance when the workflow depends more on individual contributions. ⊚ ⊚

true false

17) Aligning the pay structures to fit the organization and the surrounding conditions will seldom lead to competitive advantage for the organization. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.

18) Internal alignment refers primarily to:

Version 1

3

A) the value of the work of one individual compared to that of another individual B) the strategy of paying above market salaries C) the pay relationships among jobs, skills, and competencies within a single organization D) the pay relationships of all jobs within the same industry E) the pay relationships in a geographic region

19) refers to the pay relationships between the jobs/skills/competencies within a single organization.

A) External alignment B) Internal equity C) Total cash D) Total alignment E) Base pay

20) to as

The array of pay rates for different work or skills within a single organization is referred .

A) pay structure B) pay scale C) pay band D) rate board E) total cash

21)

The process by which goods and services are delivered to the customer is known as .

Version 1

4

A) pay structure B) salary administration C) line-of-sight D) workflow E) procedural justice

22) is the ability of the employee to see the link between an individual employee's work and the achievement of organizational objectives.

A) Workflow B) Job evaluation C) Internal alignment D) Line-of-sight E) Marginal productivity

23)

refer to the pay variances between job levels in an organization.

A) Factor levels B) Job benchmarks C) Differentials D) Earmarks E) Anomalies

24)

reflects the worth of goods or services an employee produces in a job.

A) Exchange value B) Use value C) Differential value D) Workflow value E) Marginal value

Version 1

5

25)

Whatever wage the employer and the employee agree upon is called:

A) use value B) exchange value C) nominal value D) marginal value E) differential value

26)

Which of the following is an external factor that influences internal structures?

A) culture and custom B) human capital C) HR policy D) cost implication E) employee acceptance

27)

Marginal productivity theory states that:

A) an employee can produce anything of value if the profit margin of a product or service is large enough for the employer to reap.

B) both employees and management will act opportunistically to obtain the most favourable exchange possible.

C) people are concerned about fairness of the reward outcomes exchanged for employee inputs.

D) unless an employee can produce something of value from his/her job equal to the value received in wages, it will not be worthwhile for an employer to hire that employee.

E) people cognitively evaluate potential behaviours in relation to rewards offered in exchange.

28) Internal labour markets refer to the rules and procedures that (1) determine the pay for the different jobs within a single organization and (2) .

Version 1

6

A) cut down the number of work levels B) reduce the budget allocated to individual departments C) allocate employees among those different jobs D) establish an ergonomic workflow E) create more number of supervisory jobs

29) A major influence on internal structures, the education, experience, knowledge, abilities, and skills that people possess is referred to as:

A) capital formation B) capital goods C) labour intensity D) cultural diversity E) human capital

30)

change(s) the value of jobs on the team and hence changes the job structure.

A) Labour intensity B) Ergonomic policies C) Procedural justice D) Employee redressal E) Self-management

31)

Delayering is a work design change that involves:

A) cutting down the number of work levels B) creating more number of supervisory jobs C) creating a union-free workforce D) establishing an ergonomic workflow E) reducing the budget allocated to individual departments

Version 1

7

32) refer to rules and procedures that determine the pay for different jobs within a single organization and that allocate employees to those different jobs.

A) Internal labour markets B) External labour markets C) Customary labour markets D) Jurisdictional labour markets E) Marginal labour markets

33)

In the context of internal labour markets, pay for non-entry jobs is heavily influenced by:

A) availability of skills in the external market B) the wage paid at entry level C) internal factors of the organization D) tenure with the organization E) wages paid by other organizations for similar jobs

34)

refers to the fairness of a process by which a decision is reached.

A) Procedural justice B) Distributive justice C) Marginal productivity D) Employee redressal E) Tailored structure

35) More egalitarian structures are related to greater performance when sharing of knowledge are required.

Version 1

and

8

A) competition B) participation C) management D) performance E) collaboration

36) More hierarchical structures are related to greater performance when the workflow depends more on .

A) individual contributors B) teamwork C) seniority D) collaboration E) supervision

37) in pay.

structure is a pay structure for well-defined jobs with relatively small differences

A) Loosely coupled B) Adaptive C) Egalitarian D) Tailored E) Flexible

38)

An egalitarian pay structure is different from hierarchical pay structure in that:

A) the pay differentials between the levels in an egalitarian pay structure are large.

B) the job structure in an egalitarian pay structure has greater number of levels.

C) the egalitarian pay structure supports a fit that is tailored.

D) the egalitarian pay structure supports individual performers more than teams.

E) the egalitarian pay structure supports equal treatment of employees.

Version 1

9

39)

Hierarchical pay structure is different from egalitarian pay structure in that:

A) the pay differentials between the levels in a hierarchical pay structure are small.

B) the job structure in a hierarchical pay structure has fewer levels.

C) hierarchical pay structure supports a fit that is loosely coupled.

D) hierarchical pay structure encourages employees to expect equal treatment irrespective of performance.

E) hierarchical pay structure places greater emphasis on individual performance than team performance.

40)

Setting greater pay differentials at the top of the pay structure is based on:

A) marginal productivity theory B) institutional theory C) tournament theory D) equity theory E) marginal utility theory

41)

Which of the following is a consequence of an internally aligned pay structure?

A) It increases pay-related grievances.

B) It increases employees' experience.

C) It increases turnover.

D) It hinders career progression.

E) It increases pay-related work stoppages.

42) fairness, and legal compliance are the three consequences of an internally aligned pay structure.

Version 1

10

A) Economic pressures B) Culture C) Efficiency D) Human capital E) Organization factors

43) Which of the following is NOT a factor that determines the appropriate number of levels, the size of the differentials, and the criteria to advance employees through a structure?

A) organization's strategic intent B) organization's design C) organization's history D) organization's workflow E) organization's human capital

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

44) How do internal pay structures influence employees' behaviour?

45)

How does line-of-sight play a role in influencing employees' behaviour?

46)

What are the factors that define an internal pay structure?

Version 1

11

47)

What does a person-based structure focus on?

48) Define content and value and discuss the difference between a job structure based on content and another based on value.

49)

What are two examples of Canadian legislation that shape internal structures?

50)

How do external stakeholders influence an internal pay structure?

51) Define procedural and distributive justice and describe how each applies to internal structures.

52)

When are pay procedures more likely to be perceived as fair?

Version 1

12

53)

What is a tailored structure and what type of business strategy matches well with it?

54) it?

What is a loosely coupled structure and what type of business strategy matches well with

55)

What are the main differences between hierarchical and egalitarian pay structures?

56) What are some examples of benchmarking and when should organizations use benchmarking?

Version 1

13

Answer Key Test name: Chap 03_6ce 1) FALSE 2) FALSE 3) FALSE 4) FALSE 5) TRUE 6) TRUE 7) FALSE 8) FALSE 9) FALSE 10) TRUE 11) FALSE 12) TRUE 13) TRUE 14) FALSE 15) TRUE 16) FALSE 17) FALSE 18) C 19) B 20) A 21) D 22) D 23) C 24) B 25) B 26) A Version 1

14

27) D 28) C 29) E 30) E 31) A 32) A 33) C 34) A 35) E 36) A 37) D 38) E 39) E 40) C 41) B 42) C 43) C 44) Internal pay structures influence employees' behaviour by providing pay increases for promotions, more challenging work, and greater responsibility as employees move up in the structure.

45) Internal pay structures influence employees' behaviour by providing pay increases for promotions, more challenging work, and greater responsibility as employees move up in the structure. The criteria or rationale on which the structure is based should make clear the relationship between each job and the organization's objectives. This is an example of line-of-sight. Employees should be able to "see" or understand links between their work, the work of others, and the organization's objectives. Internal alignment in pay structures helps create that line-of-sight.

Version 1

15

46) An internal pay structure is defined by (1) the number of levels of work, (2) the pay differentials between the levels, and (3) the criteria used to determine those levels and differentials.

47) A person-based structure focuses on the employee: the skills, knowledge, or competencies the employee possesses, whether they are used on the job the employee is doing.

48) Content refers to the work performed in a job and how it gets done (tasks, behaviours, knowledge required, and so on). Value refers to the worth of the work: its relative contribution to the organization's objectives.

A structure based on content typically ranks jobs based on skills required, complexity of tasks, and/or responsibility. By contrast, a structure based on the value of the work focuses on the relative contribution of the skills, tasks, and responsibilities of a job to the organization's goals.

49) In Canada, human rights legislation forbids pay systems that discriminate on the basis of gender, race, religion, sexual orientation, national origin, and many other grounds. For example, a benefit plan that provides benefits only to males over the age of 35 is illegal. And pay equity legislation requires "equal pay for work of equal value" in male- and female-dominated jobs based on a job evaluation process that considers the skill, effort, responsibility, and working conditions required for the jobs. An internal structure may contain any number of levels, with differentials of any sizes, if the criteria for setting them do not include gender, race, religion, or national origin.

Version 1

16

50) Unions, stockholders, and even political groups have a stake in establishing internal pay structures. Unions are the most obvious case.

Most unions seek smaller pay differences among jobs as well as seniority-based promotions in order to promote solidarity among members. At a minimum, unions seek to ensure that the interests of their members are well represented in decisions about structures.

51) Procedural justice refers to the process by which a decision is reached. Distributive justice refers to the fairness of the decision outcome.

Applied to internal structures, procedural justice addresses how design and administration decisions are made and whether procedures are applied in a consistent manner. Distributive justice addresses whether the actual pay differences among employees are acceptable.

52) Pay procedures are more likely to be perceived as fair if (1) they are consistently applied to all employees, (2) employees participate in the process (although recent research suggests an exception when wages are very low), (3) appeals procedures are included, and (4) the data used are accurate.

53) A low-cost, customer-focused business strategy such as that followed by Walmart or McDonald's may be supported by a closely tailored structure. Jobs are well defined, with detailed tasks or steps to follow. Differences in pay among jobs are relatively small.

54) A loosely coupled structure is a more flexible pay structure.

Companies facing a competitive and unpredictable environment need to be very agile, constantly innovating and adapting. Their business strategy requires constant product innovation and short product designto-market cycle times.

Version 1

17

55) Hierarchical structures have many structures with large differentials.

They focus on individual performers and opportunities for promotion.

Fairness is based on performance and they have a close fit.

Egalitarian have fewer structures with small differentials. They focus on teams and cooperation. Fairness is based on equal treatment and they have a loose fit.

56) Some examples of "benchmarking" include outsourcing, emphasizing teams, deemphasizing individual performance, and shifting to competency-based pay systems.

For an organization that is performing worse than its competitors, learning from other organizations, which may involve some imitation, may be quite useful in achieving competitive parity and may represent a significant improvement for that organization.

Version 1

18

Chapter 4 Job Analysis TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.

1) Job analysis provides the underlying information for preparing job descriptions and evaluating jobs. ⊚ ⊚

2)

true false

Job analysis is the process of establishing a job-based pay structure in an organization. ⊚ ⊚

true false

3) In the second tour of the work site, it is recommended to use a different first-level supervisor. ⊚ ⊚

4)

true false

A group of tasks performed by one person makes up a position. ⊚ ⊚

true false

5) The most common way to collect job information is to ask the people who are doing a job to fill out a questionnaire. ⊚ ⊚

6)

true false

Quantitative approaches lead to more data being collected while taking more time. ⊚ ⊚

Version 1

true false

1

7) The number of incumbents per job from which to collect data remains the same irrespective of the job's stability. ⊚ ⊚

8)

A job specification is a short paragraph that provides an overview of the nature of the job. ⊚ ⊚

9)

true false

Validity examines convergence of results among different sources of data and methods. ⊚ ⊚

13)

true false

Reliability is a measure of the rightness of a job analysis. ⊚ ⊚

12)

true false

A sign off on the job analysis results ensures validity. ⊚ ⊚

11)

true false

Discrepancies arise when too much data is collected. ⊚ ⊚

10)

true false

true false

Information collected through one-on-one interviews is free of subjectivity. ⊚ ⊚

Version 1

true false

2

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.

14) Which of the following is an example of job evaluation?

A) comparison of tasks within a job B) ordering of tasks within a job C) ordering of jobs based on their content D) ordering jobs based on their value E) comparison of jobs within an organization

15)

Which of the following is true of job analysis?

A) It is the process of determining the specific number of jobs to fill.

B) It is the process of collecting information needed to prepare job description.

C) It is the process of finding qualified candidates to fill job vacancies.

D) It is the process of dividing tasks into specific jobs.

E) It is the process of evaluating an employee's job performance and productivity.

16) The systematic process of collecting relevant information related to the nature of a specific job refers to:

A) job content B) job evaluation C) job structure D) job analysis E) job description.

17)

Which of the following is one of the main uses of job analysis in job compensation?

Version 1

3

A) It eliminates the want for higher pays in relation with skills.

B) It creates a misaligned job structure.

C) It establishes similarities and differences in the content of jobs.

D) It reinforces the inducements for performance with regard to compensation.

E) It reconnects the insignificance of skills with the emphasis on equal pay.

18)

Job evaluation is the process of:

A) finding qualified candidates to fill job vacancies B) evaluating employee performance in order to establish a rational pay structure C) summarizing reports that describe the job as it is actually performed D) comparing jobs within an organization E) providing information needed to prepare job description

19)

A job description refers to:

A) the systematic process of collecting information about the nature of specific jobs B) the summary report that identifies, defines, and describes the job as it is actually performed C) the comparison of jobs within an organization D) ordering of jobs based on their content or relative value E) a collection of the works an employee has handled and completed over the years of employment

20)

When job analysis is done for compensation purposes, data collected must focus on:

A) providing training to job incumbents B) establishing job similarities and differences C) increasing the number of different tasks an employee performs D) monitoring performance of the job incumbent E) reviewing task inventories

Version 1

4

21) Which of the following is a source of data used during the consolidation phase of the job study?

A) exit interviews B) trainers C) manages D) supervisors E) subject matter experts

22)

Job analysis usually collects information about:

A) specific tasks or behaviours B) tentative agreements C) standing policy D) standing plans E) performance appraisal

23)

Which of the following does the consolidation phase of job study involve?

A) clarifying, confirming, and refining the information developed in the interviews B) familiarizing the job analyst with the work layout and the mechanics associated with the end-to-end performance of major duties C) bringing all the interviewees together for the purpose of determining if the consolidated job description is accurate and complete D) piecing together into one coherent and comprehensive job description the data obtained from several sources E) reviewing existing documents in order to develop an initial "big-picture" familiarity with the job

24) Which of the following involves the elemental tasks or units of work, with emphasis on the purpose of each task?

Version 1

5

A) task analyzability data B) task variety data C) task identity data D) job design data E) job content data

25) Which of the following cultures is likely to be established, if the number of levels in an organizational structure is reduced?

A) egalitarian B) inert C) totalitarian D) despotic E) autocratic

26) Which of the following is an advantage of conventional questionnaires and interviews used for job analysis?

A) The process is both systematic as well as objective.

B) The process is virtually free of faulty results.

C) The process takes lesser time than quantitative methods.

D) The process involves employees, which increases their understanding.

E) The entire process is free from bias and favouritism.

27)

Which of the following is true of conventional methods of job analyses?

A) They are more subjective than quantitative methods.

B) They are more equitable than quantitative methods.

C) They are relatively faster than quantitative methods.

D) They are more unbiased than quantitative methods.

E) They are more systematic than quantitative methods.

Version 1

6

28)

Which of the following is true of quantitative methods of job analyses?

A) They are more open to favouritism than conventional methods.

B) They are more subjective than conventional methods.

C) They are less accurate than conventional methods.

D) They allow for statistical analysis of the results.

E) They are less systematic than conventional methods.

29)

The principal sources of the data used in job analysis are:

A) jobholders and supervisors B) job applicants C) consultant analysts D) independent contractors E) freelancers

30) Which of the following should a manager do if employees and their supervisors do not agree on what is part of the job?

A) file a grievance B) reengineer the job C) collect more data D) revise organization structure E) write job analysis

31) As part of quantitative job analysis, skill can be further subcategorized into all the following EXCEPT:

Version 1

7

A) education B) experience C) management skills D) occupational skills E) task identity

32)

Which of the following is true about job description?

A) It includes the integrating mechanism associated with job.

B) It includes the organization's rules, norms, and SOPs. C) It includes the task analyzability associated with the job.

D) It includes the task significance associated with the job.

E) It includes the reporting relationships associated with the job.

33) The knowledge, skills, and abilities required to adequately perform the tasks are referred to as:

A) job analyses B) job evaluations C) performance appraisals D) positions analyses E) job specifications

34)

One of the challenges of preparing managerial job descriptions is that they:

A) may have content influenced by the manager B) often include more detailed information about the nature of the job, its scope, and accountability.

C) must predict what the manager brings to the job D) don't capture the relationships between the job and the person performing it E) don't have access to organizational objectives

Version 1

8

35) The extent to which the job analysis results represent the entire range of activities and responsibilities required by the job is called:

A) reliability B) accuracy C) consistency D) validity E) currency

36)

Obtaining consistent results regardless of the job analysis method used is a measure of:

A) validity B) flexibility C) acceptability D) reliability E) administration

37)

Involving both supervisors as well as their subordinates in the process should lead to:

A) validity B) flexibility C) acceptability D) reliability E) administration

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

38) What is the purpose of job analysis?

Version 1

9

39)

List the major decisions in designing a job analysis.

40)

Why do employers conduct job analysis?

41)

Describe the steps in the verification phase.

42)

Distinguish between a job and a task.

43)

What information is collected about employee characteristics during job analysis?

44)

Who is best suited for collecting information for job analysis?

Version 1

10

45)

What is the role of top management and unions in job analysis?

46)

What are the main components of a job description?

47)

What are some of the challenges with reliability of job analysis information?

48)

List six ways to judge job analysis.

Version 1

11

Answer Key Test name: Chap 04_6ce 1) TRUE 2) FALSE 3) FALSE 4) TRUE 5) TRUE 6) FALSE 7) FALSE 8) FALSE 9) FALSE 10) FALSE 11) FALSE 12) TRUE 13) FALSE 14) E 15) B 16) D 17) C 18) D 19) B 20) B 21) D 22) A 23) D 24) E 25) A 26) D Version 1

12

27) A 28) D 29) A 30) C 31) E 32) E 33) E 34) A 35) D 36) D 37) C 38) The purpose of job analysis is to (1) collect and summarize work content information that identifies similarities and differences in jobs, (2) determine what to value, (3) assess the relative value, and (4) translate the relative value into an internal structure.

39) The major decisions in designing a job analysis are: (1) Why are we collecting job information? (2) What information do we need? (3) How should we collect it? (4) Who should be involved? (5) How useful are the results?

40) Job analysis provides managers a work-related rationale for pay differences. Employees who understand the rationale can better direct their behaviour toward organization objectives. Job analysis data also help managers defend their decisions when they are challenged. Job analysis is useful for most functions of human resources such as recruitment, selection, and training.

Version 1

13

41) The verification phases involves bringing all the interviewees together to determine whether the consolidated job description is accurate and complete. Copies are provided to the first-level supervisor and the incumbent interviewees.

The process is conducted in a group setting wherein the analyst goes line by line through the entire job description to note any omissions, ambiguities, or needed clarification.

42) A job is a group of tasks performed by one person that make up the total work assignment of that person. A task is the smallest unit of analysis, a specific statement of what a person does.

43) In addition to professional and technical knowledge, job analysis also seeks to collect data on the following skills: manual, verbal, written, quantitative, mechanical, conceptual, managerial, leadership, and interpersonal.

44) Collecting job analysis information through one-on-one interviews can be a thankless task. No matter how good a job you do, not everyone will be happy with the resulting job descriptions. Although organizations frequently assign the task to a new employee (often justifying the assignment on the grounds that it will help the new employee become familiar with the company's jobs), the analysis is better done by someone thoroughly familiar with the organization and its jobs, and trained in how to do the analysis properly.

Version 1

14

45) In addition to involvement by analysts, job holders, and their supervisors, support of top management and unions is essential. They must be alerted to the cost of a thorough job analysis, its timeconsuming nature, and the fact that changes may result after it is completed. For example, jobs may be combined or pay rates adjusted. If top management and unions are not willing to carry through, or at least to seriously weigh, any changes suggested by the job analysis, the process probably will not be worth the bother and expense.

46) The job is identified by title and its relationships to other jobs. The relationships demonstrate where the job fits into the organization—who is supervised by this jobholder, who supervises this jobholder, and the nature of any internal and external relationships. A job summary consists of a short paragraph that provides an overview of the job. The section on essential responsibilities elaborates on the summary. It includes the tasks. Related tasks may be grouped into task dimensions.

The job description also includes specific standards for judging whether an essential responsibility has been met. A final section lists the qualifications necessary to be hired for the job.

47) Research findings on employee and supervisor agreement on the reliability of job analysis information are mixed. For instance, experience may change an employee's perceptions of a job—he or she may have found new ways to do it or may have added new tasks to it.

The supervisor may not realize the extent of the change. In such cases, the job the employee is doing may not be the same as the job originally assigned by the supervisor. Research also finds that reliability is lower for jobs that are more interdependent with other jobs. have more autonomy or are less routine.

48) The six ways to judge job analysis are reliability, validity, acceptability, currency, usefulness and a judgement call.

Version 1

15

Version 1

16

Chapter 5 Job-Based Pay Structures and Job Evaluation TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.

1) A structure based on job content orders jobs based on the skills required for the job, and the associated duties and responsibilities. ⊚ ⊚

2)

Job descriptions are an output of job evaluation. ⊚ ⊚

3)

true false

true false

Typically, employers evaluate all jobs in the organization at one time. ⊚ ⊚

true false

4) To be sure that all relevant aspects of work are included in the evaluation, an organization may start with a sample of benchmark jobs. ⊚ ⊚

5)

true false

The contents of a benchmark job are not stable; they vary frequently. ⊚ ⊚

true false

6) In the point method of evaluation, compensable factors do not communicate what is valued. ⊚ ⊚

Version 1

true false

1

7)

Ranking tells employees specifically what in their jobs is important. ⊚ ⊚

true false

8) Alternation ranking and paired comparison methods are more reliable than simple ranking. ⊚ ⊚

true false

9) Writing class descriptions is easiest when jobs from several job families are covered by a single plan. ⊚ ⊚

10)

Compensable factors must be consistent with the organization's strategy and values. ⊚ ⊚

11)

true false

Value is one of the four universal compensable factors. ⊚ ⊚

12)

true false

true false

Point plans have become less popular due to pay equity legislation requirements. ⊚ ⊚

true false

13) The last step involved in the point method of job evaluation is determining the compensable factors. ⊚ ⊚ Version 1

true false 2

14) The same job evaluation plan that has been developed using benchmark jobs must be applied to non-benchmark jobs. ⊚ ⊚

true false

15) Organizations commonly have a single structure derived through multiple approaches that apply to different functional groups or units. ⊚ ⊚

true false

16) The final result of the job analysis-job description-job evaluation process is a job structure, a hierarchy of work. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.

17) is the process of determining and quantifying the relative values of jobs in an organization

A) Job processing B) Job structuring C) Job evaluation D) Factor weighting E) Job description

18)

Job value may include all the following EXCEPT:

Version 1

. and/or, or i (minimum wage).

3

A) its value in the external market B) external market rates C) its relationship to some other set of rates that have been agreed upon through collective bargaining D) its relationship to government legislation E) its relationship to a set of rates that have been agreed upon through a negotiation process

19) An internal job structure based on duties, and its responsibilities.

refers to the skills required for the job, its

A) job content B) job value C) external market rates D) compensable factors E) point methods

20) An internal job structure based on refers to the relative contribution of the skills, duties, and responsibilities of a job to the organization's goals.

A) compensable factors B) point methods C) external market rates D) job content E) job value

21) Which of the following would NOT be considered a way to make job value rigorous and systematic?

Version 1

4

A) documentation B) objectivity C) generalizability D) acceptability E) reliability

22)

Which of the following is true about job evaluation?

A) Typically, an employer evaluates all jobs in the organization at the same time.

B) It is used to establish an internally aligned pay structure.

C) Employers design a single evaluation plan for all types of work.

D) It isolates each job's pay from its relative contribution to the organization.

E) It is seldom developed using benchmark jobs.

23)

Which of the following is a characteristic of a benchmark job?

A) Its contents are little known.

B) Its contents fluctuate frequently.

C) It is unique to a particular employer.

D) It employs a reasonable proportion of the workforce.

E) It is the highest paid job in the industry.

24) Selecting benchmark jobs from each level ensures coverage of the entire work domain, thus helping to ensure the of the decisions based on the job evaluation

A) validity B) objectivity C) accuracy D) credibility E) acceptability

Version 1

5

25)

Which of the following is a disadvantage of point method of job evaluation?

A) Compensable factors do not communicate what is valued.

B) Basis for comparisons is not called out.

C) It can become bureaucratic and rule-bound.

D) It cannot be applied to non-benchmark jobs.

E) It compensable factors are not aligned with the organization's strategy.

26)

Which of the following is an advantage of the ranking method of evaluation?

A) It is fast, simple, and easy to explain.

B) It is best suited for a rapidly growing organization.

C) It makes the criteria for evaluating jobs explicit.

D) It frees the process of evaluation from subjectivity.

E) It does not require the evaluator to know about all jobs under study.

27) Which of the following methods of job evaluation is the fastest, simplest, and easiest to explain to employees?

A) classification B) ranking C) point method D) benchmarking E) absolution

28) grades the highest- and lowest-valued jobs first, then the next highest- and lowestvalued jobs, repeating the process until all jobs have been graded.

Version 1

6

A) Paired comparison method B) Classification method C) Point method D) Simple ranking method E) Alternation ranking method

29) Which of the following job evaluation methods is based on job class descriptions into which jobs are categorized?

A) point method B) simple ranking method C) paired comparison method D) classification method E) alternation ranking method

30) are defined based on the strategic direction of the business and how the work contributes to that strategy.

A) Factor weights B) Factor degrees C) Compensable factors D) Job benchmarks E) Pursuable features

31)

Which of the following is the first step in the design of a point plan for job evaluation?

A) determine compensable factors B) determine factor weights C) prepare a communication manual D) conduct job analysis E) establish plan for non-benchmark jobs

Version 1

7

32) Which of the following is the final step involved in the design of a point plan for job evaluation?

A) determine compensable factors B) communicate the plan and train users C) prepare a communication manual D) conduct job analysis E) apply plan to non-benchmark jobs

33) that:

Point plans represent a significant change from ranking and classification methods in

A) they make explicit the criteria for evaluating jobs B) they assign the task of evaluation to a single employee C) they list jobs from highest to lowest based on a global definition of value D) they do not involve conducting job analysis E) they cannot be applied to non-benchmark jobs

34)

To select compensable factors, an organization:

A) completes a cultural assessment B) asks what it is about the work that adds value C) conducts a gap analysis D) interviews all staff to determine what is important to them E) requires that all staff conduct a self-evaluation

35)

To be useful, compensable factors should be:

Version 1

8

A) based on the strategy of the organization's competitors B) based on the strategy but not the values of the organization C) acceptable to the stakeholders affected by the resulting pay structure D) standardized across all employers E) constant during major shifts in business strategies

36)

Which of the following is true about compensable factors?

A) They should remain constant during major shifts in business strategies.

B) Documentation supporting the choice of factors for different jobs provides the rationale why work is paid differently or the same.

C) Differences in factors that are not based on the work itself diminishes the likelihood of challenges arising.

D) The compensable factors used to slot jobs into the pay structure should be acceptable by employees; not stakeholders.

E) The compensable factors used to slot jobs into the pay structure should not be differentiated based on their importance.

37)

Which of the following is a criterion used in scaling factors?

A) use sophisticated terminology in order to be perceived as important B) have no more than five degrees per factor C) limit degrees to those necessary to distinguish between jobs D) ensure the degree is separated from the job E) ensure the use of more than five degrees per factor

38)

Version 1

reflect differences in importance attached to each factor by the employer.

9

A) Factor degrees B) Factor levels C) Factor scales D) Factor weights E) Value chains

39) is a job evaluation method that assigns a number to each job, based on compensable factors that are numerically scaled and weighted.

A) Point method B) Simple ranking method C) Paired comparison method D) Classification method E) Alternation ranking method

40) Which of the following job evaluation methods has compensable factors, weights reflecting the relative importance of each factor, and factor degrees numerically scaled?

A) classification B) point method C) ranking D) competency-based plan E) paired comparison method

41) Employee and management commitment, trust, and acceptance of the results is likely to come from which of the following?

A) Focusing solely on the results B) The internal pay structure C) The fairness of the design process D) The job value E) Stakeholder consultation

Version 1

10

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

42) List the major decisions in job evaluation.

43) Establish the difference between a job structure based on job content and one based on job value.

44)

What are the characteristics of an internally aligned pay structure?

45)

What are the characteristics of a benchmark job?

46) What are the advantages and disadvantages of the three most common job evaluation methods?

47)

Describe the two common ways of ranking.

Version 1

11

48)

List the steps involved in the design of a point plan.

49)

Describe the role of a union in the job evaluation process.

50) Describe the four universal compensable factors required in pay equity legislation across Canada.

51)

What are the aspects that determine the usefulness of compensable factors?

52)

Who should be involved in job evaluation?

Version 1

12

Answer Key Test name: Chap 05_6ce 1) TRUE 2) FALSE 3) FALSE 4) TRUE 5) FALSE 6) FALSE 7) FALSE 8) TRUE 9) FALSE 10) TRUE 11) FALSE 12) FALSE 13) FALSE 14) TRUE 15) FALSE 16) TRUE 17) C 18) B 19) A 20) E 21) D 22) B 23) D 24) C 25) C 26) A Version 1

13

27) B 28) E 29) D 30) C 31) D 32) E 33) A 34) B 35) C 36) B 37) C 38) D 39) A 40) B 41) C 42) The major decisions in job evaluation are: - Establishing purpose of evaluation - Deciding whether to use single or multiple plans - Choosing among alternative approaches - Obtaining involvement of relevant stakeholders - Evaluating plan's usefulness 43) A structure based on job content refers to the skills required for the job, its duties, and its responsibilities. A structure based on job value refers to the relative contribution of the skills, duties, and responsibilities of a job to the organization's goals.

44) An internally aligned pay structure supports organizational strategy, supports the workflow, is fair to employees, and directs their behaviourtoward organization objectives.

Version 1

14

45) A benchmark job has the following characteristics: - Its contents are well known and relatively stable over time.

- The job is common to a number of employers; i.e., it is not unique to a particular employer.

- A reasonable proportion of the workforce is employed in this job.

46) Ranking is fast, simple, and easy to explain, but it becomes cumbersome as the number of jobs increases.

Classification allows for a wide range of work to be grouped together in one system, but descriptions may leave too much room for interpretation.

With the point method, compensable factors call out the basis for comparisons and communicate what is valued, but it can become bureaucratic and rule-bound.

47) Two ways of ranking are common: alternation ranking and paired comparison. The alternation ranking method orders job descriptions alternately at each extreme. Agreement is reached among evaluators on which jobs are the most and least valuable, then the next most and least valuable, and so on, until all jobs have been ordered. The paired comparison method uses a matrix to compare all possible pairs of jobs.

The higher-ranked job is entered in the cell of the matrix. When all comparisons have been completed, the job most frequently judged "more valuable" becomes the highest-ranked job, and so on.

Version 1

15

48) The six steps involved in the design of a point plan are: 1. Conduct job analysis.

2. Determine compensable factors.

3. Scale the factors.

4. Weight the factors according to importance.

5. Communicate the plan and train users; prepare manual.

6. Apply to non-benchmark jobs.

49) Organizations with unions often find it advantageous to include union representation as a source of ideas and to help promote acceptance of the results. However, some union leaders believe that philosophical differences prevent their active participation. They take the position that collective bargaining yields more equitable results. As a result, the extent of union participation varies.

Version 1

16

50) Skill refers to the experience, training, ability, and education required to perform a job. Subfactors indicative of skill may include educational levels, years of experience required, technical knowledge, specialized knowledge or training, interpersonal skills, and many others.

Effort refers to the physical, mental, or emotional exertion needed to do a job. Common subfactors include diversity of tasks, complexity of tasks, creativity of thinking, analytical problem solving, physical strength requirements, degree of assistance available, amount of emotion regulation required etc. Responsibility refers to the extent to which an employer depends on the employee to perform the job as expected, with emphasis on the importance of job obligation. Subfactors may include decision-making authority, degree of integration of work with others, ability to perform tasks without supervision, responsibility for financial (budgets) and human (number of employees reporting directly and indirectly to the position) resources, impact of failure or risk in the job, and others. The working conditions factor is intended to ensure that value is attached to the difficult or unhealthy aspects of the conditions in which the work is done.

51) To be useful, compensable factors should be: • Based on the strategy and values of the organization.

• Based on the work performed.

• Acceptable to the stakeholders affected by the resulting pay structure.

Version 1

17

52) If the internal structure's purpose is to aid managers, and if ensuring high involvement and commitment from employees is important, all those managers and employees with a stake in the results should be involved in the process of designing it. A common approach is to use committees, task forces, or teams that include representatives from key operating functions, including non-managerial employees. Organizations with unions often find it advantageous to include union representation as a source of ideas and to help promote acceptance of the results.

Version 1

18

Chapter 6 Person-Based Pay Structures TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.

1) A job-based plan pays employees for the job to which they are assigned, regardless of the skills they possess. ⊚ ⊚

true false

2) Skill-based pay structure does not allow people to be deployed in a way that matches the flow of work. ⊚ ⊚

true false

3) One of the main advantages of a skill-based plan is that it can match people to a changing workflow more easily. ⊚ ⊚

true false

4) The skills on which a structure is based should be directly related to the organization's objectives and strategy. ⊚ ⊚

5)

Employees like the control over their work lives that comes with the skill-based structure. ⊚ ⊚

6)

true false

true false

One of the advantages of skill-based pay is continuous learning. ⊚ ⊚

Version 1

true false

1

7) Skill-based plans are generally not well accepted by employees because it is difficult to see the connection between the plan, the work, and the size of the paycheque. ⊚ ⊚

8)

true false

Behavioural descriptors translate the core competencies into specific actions. ⊚ ⊚

true false

9) Advocates of competencies say that they can empower employees to take charge of their own development. ⊚ ⊚

true false

10) Visionary characteristics are the lowest level competencies that can be used to collect information about competencies. ⊚ ⊚

true false

11) The heart of the person-based plan is that employees get paid for the specific skills they use in their jobs, not for the relevant skills or competencies they possess. ⊚ ⊚

true false

12) Employee acceptance is crucial for person-based plans because it is the key to employees' perceptions of fairness regarding the pay structure. ⊚ ⊚

Version 1

true false

2

13) Using evaluators who are familiar with the jobs they are evaluating enhances reliability of the evaluation. ⊚ ⊚

14)

Reliability refers to the degree to which the evaluation achieves the desired results. ⊚ ⊚

15)

true false

true false

A limitation of a competency-based structure is that it requires cost controls. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.

16) Pay structures that link pay to the depth or breadth of the abilities and knowledge a person acquires, which are relevant to work are known as pay structures.

A) job-based B) task-based C) opportunity-based D) skill-based E) mission-based

17) A pay structure in which employees are paid based on the work knowledge that they acquire is known as:

Version 1

3

A) skill-based pay structure B) task-based pay structure C) assignment-based pay structure D) work-based pay structure E) duty-based pay structure

18)

A(n)

system is one where pay increases come with certification of new abilities.

A) assignment-based B) work-based C) multiskill-based D) task-based E) job-based

19)

Employees and managers are the sources of information for all the following EXCEPT:

A) defining the skills B) assessing the skills C) arranging skills into a hierarchy D) bundling skills into skill blocks E) certifying whether a person possesses the skills

20)

Which of the following is true about certification methods?

A) Certification cannot be accomplished through peer review.

B) Certification cannot be accomplished through on-the-job demonstrations.

C) Newer certification procedures are moving away from on-demand review and towards scheduling fixed-review points.

D) Scheduling makes it more difficult to budget and control payroll increases.

E) Recertification has been replaced with one-time certification.

Version 1

4

21) The higher labour costs under skill-based pay indicate that it may be a better fit to companies where .

A) labour costs are a small share of total costs B) labour costs are a large share of total costs C) employees lack motivation to increase their skills D) employees focus on seeking promotions to earn more pay E) the focus is on average performance rather than optimum performance

22)

Competency-based pay plans are different from skill-based plans in that:

A) competency-based plans are not very specific; they are more general, paying for underlying, broadly applicable knowledge, skills and behaviour B) competency-based plans are applied only to blue-collar jobs C) competency-based plans eliminate the need to control costs D) competency-based plans do not allow for lateral movement E) competency-based plans are a type of job-based pay structures

23) Observable behaviours that indicate the level of competency within each competency set are known as:

A) cognitive patterns B) competence builders C) core competencies D) behavioural descriptors E) core mnemonics

24)

Which of the following is true about competencies?

Version 1

5

A) They focus on average performance rather than optimum performance.

B) They discourage employees from assuming leadership roles.

C) They fail to provide a common basis for working together.

D) They create risks that need to be managed due to inferred proficiencies.

E) They make people lose their focus.

25)

The most important decision in competency analysis is:

.

A) deciding what information to collect B) clarifying the objective of the plan C) deciding who to involve D) establishing certification methods E) conducting research

26)

Which of the following individuals possesses "personal characteristics" competency?

A) Jake demonstrates an uncompromising integrity toward company values.

B) Eric works respectfully in multicultural environments.

C) Lisa shows interest in developing others.

D) Joshua possesses leadership skills.

E) Katie works constantly to improve customer interaction.

27)

Which of the following can be classified under visionary competency?

A) respect for others B) loyalty C) flexibility D) personal integrity E) global perspective

28)

The purpose of job-based and person-based procedures is to:

Version 1

6

A) use outside consultants for internal decisions B) understand the level of competition with other organizations C) design and manage an internal pay structure that facilitates an organization's success D) to match pay levels in competing markets E) to exceed the pay levels in competing markets

29)

Lack of reliability with evaluators:

A) is common when evaluators work in similar jobs to those being evaluated B) can be reduced by training C) has little effect on results D) increases when employees are unionized E) is a greater problem in quantitative job evaluation than conventional job evaluation

30)

Determining the relative worth of jobs to the organization is an example of:

A) validity B) consistency C) acceptability D) reliability E) subjectivity

31)

Reliability of job evaluation can be measured by:

A) determining if different evaluators produce the same results B) the degree of agreement between rankings that resulted from the job evaluation C) determining the degree to which the job evaluation achieved the desired results D) determining the degree to which the job evaluation method is accepted by employees E) hit rates—the degree to which the job evaluation plan matches an agreed-upon ranking

Version 1

7

32) If a job evaluation method consistently yields the same results under different evaluators it can be said that the method is:

A) valid B) reliable C) systematic D) random E) unpredictable

33)

In the context of job evaluation, validity is defined as:

A) the degree to which different evaluators produce the same results B) the ability of employees to request a re-evaluation of skills C) the underlying, broadly applicable knowledge needed to perform a job effectively D) a skill-based approach for determining pay E) the degree to which the evaluation achieves the desired results

34)

A key benefit of an appeal process for job evaluation results is to:

A) reduce employee involvement in the job evaluation process B) provide employees' with the opportunity to request skills re-evaluation C) set pay level of the employees below that of the competitors D) ensure that different evaluators produce the same results after job evaluation E) reduce employee interest in unionization

35)

Which of the following is an advantage of the job-based pay structure?

A) flexibility B) sense of progress C) continuous learning D) lateral movement E) reduced workforce

Version 1

8

36)

Which of the following is true about job evaluation?

A) It is not susceptible to gender bias.

B) It perpetuates any bias that exists in current wages when structured to mirror existing pay rates.

C) It is free of subjectivity.

D) It does not bear any influence on skill-based pay structure.

E) It involves identifying an employee's visionary competency.

37)

In a skill-based structure, managers' focus is on:

A) linking employees to the job done.

B) promotion and placement.

C) providing training.

D) controlling costs solely via budget increase.

E) controlling costs solely via pay for job.

38)

In a skill-based structure:

A) employees are paid for their assigned jobs, regardless of the knowledge they possess B) individuals are paid only for those certified skills that are required to perform their job C) employees seek promotions to earn more pay rather than enhancing their knowledge D) managers focus on providing training rather than promoting E) managers control costs via pay for job rather than certification

39)

Which of the following is an advantage of competency-based systems?

Version 1

9

A) They are free of perceptual biases.

B) They eliminate the need to control costs.

C) They are free of potential bureaucracy.

D) They are more flexible than job-based pay systems.

E) They are free of vagueness and subjectivity.

40)

Which of the following is true of competency-based plans?

A) Results of these plans are always reliable and valid.

B) These plans are free of biases and judgments.

C) These plans eliminate the need to control costs.

D) These plans maximize flexibility.

E) Managers who use these plans focus on placing the right people in the right job.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

41) What are the two types of skill plans?

42)

What is the purpose of a skill-based structure?

43)

List the basic decisions involved in determining a skill-based structure.

Version 1

10

44)

What are the three key elements of a competency-based approach?

45)

How do competencies motivate behaviour toward organization objectives?

46) Compare and contrast earlier schools of thought concerning competencies with more recent conceptions.

47) How are "personal characteristics" competencies different from "visionary" competencies?

48)

How is the validity of job evaluation measured?

49) In the context of job evaluation, how can an organization improve employee acceptability?

Version 1

11

50)

What are the recommendations that can ensure that job evaluation plans are bias-free?

Version 1

12

Answer Key Test name: Chap 06_6ce 1) TRUE 2) FALSE 3) TRUE 4) TRUE 5) TRUE 6) TRUE 7) FALSE 8) FALSE 9) TRUE 10) FALSE 11) FALSE 12) TRUE 13) TRUE 14) FALSE 15) TRUE 16) D 17) A 18) C 19) B 20) C 21) A 22) A 23) D 24) D 25) B 26) A Version 1

13

27) E 28) C 29) B 30) A 31) A 32) B 33) E 34) B 35) B 36) B 37) C 38) D 39) D 40) D 41) Skill plans can focus on depth (e.g., specialists in corporate law, finance, or welding and hydraulic maintenance) or breadth (generalists with knowledge in all phases of operations including marketing, manufacturing, finance, and human resources).

42) It supports the strategy and objectives of the organization, supports workflow, is fair to employees, and motivates behaviour toward organization objectives.

43) The five main decisions are: What is the objective of the plan?

What information should be collected?

What methods should be used to determine and certify skills?

Who should be involved?

How useful are the results for pay purposes?

Version 1

14

44) Core competencies are those that form the foundation for successful performance at all jobs in the organization. They are often linked to mission statements that express an organization's philosophy, values, business strategies, and plans.

Competency sets begin to translate each core competency into action.

For the core competency of "business awareness," for example, competency sets might be related to organizational understanding, cost management, third-party relationships, and ability to identify business opportunities.

Behavioural descriptors are the observable behaviours that indicate the level of competency within each set. These indicators may be used for staffing and evaluation as well as for pay purposes.

45) Competencies provide guidelines for behaviour and keep people focused. They can also provide a common basis for communicating and working together. This latter possibility has become increasingly important as organizations go global, and as employees with widely differing viewpoints and experiences fill leadership positions in these global organizations.

Version 1

15

46) Because competencies are trying to get at what underlies work behaviours, there is a lot of fuzziness in defining them. Early conceptions of competencies focused on five areas: Skills (demonstration of expertise) Knowledge (accumulated information) Self-concepts (attitudes, values, self-image) Traits (general disposition to behave in a certain way) Motives (recurrent thoughts that drive behaviours) As experience with competencies has grown, organizations seem to be moving away from the vagueness of self-concepts, traits, and motives.

Instead, they are putting greater emphasis on business-related descriptions of behaviours that excellent performers exhibit much more consistently than average performers. Competencies are becoming "a collection of observable behaviours (not a single behaviour) that require no inference, assumption, or interpretation."

47) Personal characteristics have the aura of the Boy Scouts about them: trustworthy, loyal, courteous. In business settings, the relevant characteristics might be personal integrity, maturity of judgment, flexibility, and respect for others. Employees are expected to come in the door with these characteristics and then develop and demonstrate them in increasingly complex and ambiguous job situations.

Visionary are the highest-level competencies. They might be expressed as possessing a global perspective, taking the initiative in moving the organization in new directions, and being able to articulate the implications for the organization of trends in the marketplace, in world events, and in the local community.

Version 1

16

48) Validity refers to the degree to which an evaluation achieves the desired results. Validity of job evaluation has been measured in two ways: (1) by agreement, i.e., the degree of agreement between rankings that resulted from the job evaluation compared to an agreed-upon rank of benchmarks used as the criterion; and (2) by "hit rates," i.e., the degree to which the job evaluation plan matches (hits) an agreed-upon ranking or pay structure for benchmark jobs. In both cases, the predetermined, agreed-upon ranking or pay structure is for benchmark jobs. It can be established by organization leadership or be based on external market data, union negotiations, or the market rates for jobs held predominantly by men (to try to eliminate any general discrimination reflected in the market), or a combination of these.

49) Several devices are used to assess and improve employee acceptability. An obvious one is to include a formal appeals process.

Employees who believe their jobs are evaluated incorrectly should be able to request re-analysis and/or skills re-evaluation. Most firms respond to such requests from managers, but few extend the process to all employees, unless those employees are represented by unions who have negotiated a grievance process. Another approach is to use employee attitude surveys to assess their perceptions of acceptability.

Version 1

17

50) Several recommendations seek to ensure that job evaluation plans are bias-free, including the following: 1. Define the compensable factors and scales to include the content of jobs held predominantly by women. For example, working conditions should include the noise and stress of office machines and the repetitive movements associated with the use of computers.

2. Ensure that factor weights are not consistently biased against jobs held predominantly by women. Are factors usually associated with these jobs always given less weight?

3. Apply the plan in as bias-free a manner as feasible. Ensure that the job descriptions are bias-free, exclude incumbent names from the job evaluation process, and train diverse evaluators.

Version 1

18

Chapter 7 Defining External Competitiveness TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.

1) Pay level is the average of the array of rates paid by an employer. ⊚ ⊚

true false

2) Both pay level and pay forms focus on two objectives: to control costs and to reduce the need for employees. ⊚ ⊚

3)

Pay forms refer to the pay relationships among organizations. ⊚ ⊚

4)

true false

true false

Organizations that pay less than market leaders do so because they are "market driven." ⊚ ⊚

true false

5) The nature of labour demand suggests that employers cannot change any factor of production in the short-term. ⊚ ⊚

true false

6) The marginal product of labour is the additional output associated with the employment of one additional human resources unit, with other production factors held constant. ⊚ ⊚

Version 1

true false

1

7) The marginal revenue of labour is the additional output associated with the employment of one additional human resources unit. ⊚ ⊚

8)

true false

Marginal product and marginal revenue are directly measurable. ⊚ ⊚

true false

9) Efficiency wage theory says that if a job has negative characteristics, then employers must offer higher wages to compensate for these negative features. ⊚ ⊚

true false

10) Signalling theory assumes that an employer who combines lower base with high bonuses may be signalling that it wants employees who are risk takers. ⊚ ⊚

11)

true false

The supply of labour is not affected by the degree of risk involved. ⊚ ⊚

true false

12) The human capital theory assumes that people are paid at the value of their reservation wage. ⊚ ⊚

true false

13) Labour-intensive industries tend to pay higher wages than technology-intensive industries.

Version 1

2

⊚ ⊚

true false

14) Given the choice to match, lead, or lag, the most common competitive pay policy is to match rates paid by competitors. ⊚ ⊚

15)

true false

An externally competitive should help contain labour costs. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.

16) Which of the following statements about external competitiveness is true?

A) External competitiveness refers to the competitiveness between employees of an organization.

B) External competitiveness refers to the budget allocation for a department relative to other departments in an organization.

C) External competitiveness refers to an organization's pay relative to other organizations.

D) External competitiveness refers to the total compensation paid by an employer to an employee.

E) External competitiveness refers to pay relationships among employees of an organization.

17)

External competitiveness is expressed in practice by:

Version 1

3

A) setting a pay level that is above, below, or equal to competitors' B) increasing the compensation differences between employees in an organization C) equalizing pay for all employees within the organization, irrespective of seniority D) encouraging the competitiveness of employees within an organization E) comparing the performance of departments within an organization

18)

The mix of the various types of payments that make up total compensation is known as:

A) pay level B) wage grade C) pay forms D) average wage E) pay back

19) The average of the array of rates paid by an employer—i.e., the sum of base, bonuses, benefits, and options—is referred to as:

A) pay level B) pay matrix C) variance D) pay forms E) executive pay

20)

Which of the following is an assumption of economic theories of labour markets?

A) Employers are not always interested in maximizing profits.

B) People are homogenous and therefore interchangeable.

C) Pay rates reflect only the base wage associated with employment.

D) There is a huge advantage for a single employer to pay above the market rate.

E) There is a huge advantage for a single employer to pay below the market rate.

Version 1

4

21)

The marginal revenue of labour refers to:

A) the difference in technology across industries and new technology within the same industry B) the level of demand for a product C) the technology employed by organizations D) the additional output from the employment of one additional person E) the low-wage, no-mix strategy employed by organizations

22)

Diminishing marginal productivity is associated with which of the following?

A) manual review of labour B) labour expenditure C) marginal product of labour D) cost of labour E) marginal revenue of labour

23)

Which of the following decreases as the number of new hires is increased?

A) marginal review of labour B) marginal product of labour C) future price D) marginal cost of labour E) net profit margin

24)

Compensating differentials theory states that:

Version 1

5

A) job seekers have a reservation wage level below which they will not accept a job offer B) pay levels and pay mix are designed to signal desired employee behaviours C) high wages will increase efficiency and lower labour costs if they lower turnover D) higher wages must be offered to employees when chances of success are high E) higher wages must be offered to employees to compensate for any negative features of jobs

25)

Efficiency wage theory says that sometimes high wages may:

A) increase efficiency if they increase turnover B) increase efficiency if they reduce worker effort C) increase efficiency if they reduce "shirking" D) lower labour costs if they increase the need to supervise employees E) lower labour costs if they attract low-quality applicants

26)

Pay policies indicate the kinds of behaviour an employer seeks. This is a prediction of labour demand theory.

A) compensating differentials B) efficiency wage C) human capital D) signalling E) reservation wage

27)

Research has shown that pay level is most important to people who are:

A) risk averse B) individualistic C) confident D) entering the workforce E) materialistic

Version 1

6

28)

The wage level below which an employee declines a job offer is known as a:

A) prevailing wage level B) reservation wage level C) living wage level D) market wage level E) competitive wage level

29) Which of the following supply-side theories is based on the premise that higher earnings flow to those who improve their potential productivity by investing in themselves?

A) reservation wage theory B) efficiency wage theory C) human capital theory D) signalling theory E) compensating differentials theory

30)

Human capital theory assumes that people are paid at the value of their:

A) gross profit margin B) marginal product C) reservation wage D) minimum capacity for work E) current life situation

31)

Which of the following is true about human capital theory?

Version 1

7

A) It assumes that high wages lower labour costs if they reduce the need to supervise employees.

B) It assumes that job seekers have a reservation wage level below which they will not accept a job offer.

C) It assumes that people are paid at the value of their reservation wage, not marginal product.

D) It assumes that improving productivity by investing in training will increase one's marginal product.

E) It assumes employers deliberately design pay levels to signal desired employee behaviours.

32)

Which of the following is a prediction of human capital theory?

A) Job seekers will not accept jobs when pay is below a certain wage.

B) The value of an individual's skills and abilities is a function of the time and expense required to acquire them.

C) Pay policies signal the kinds of behaviour an employer seeks from employees.

D) Jobs with negative characteristics require higher pay to attract workers.

E) Higher wages improve efficiency by attracting workers who will perform better.

33) What are two key product market factors that affect the ability of the organization to change what it charges for its products and services?

A) reservation wage and human capital B) efficiency wage and reservation wage C) product demand and the degree of competition D) industry and product technology E) marginal product of labour and marginal revenue of labour

34) Although labour market conditions and legal requirements put a floor on the pay level required to attract sufficient employees, the puts a lid on the maximum pay level that an employer can set.

Version 1

8

A) labour demand B) product market C) labour supply D) job market E) employee turnover

35) Evidence suggests that organizations pay higher wages when making greater use of which of the following?

A) job rotation B) research and development C) relying on individuals instead of teams D) hiring lower skilled workers E) personality testing

36)

The data from product market competitors are likely to receive greater weight when:

A) employee skills are not specific to the product market B) labour costs are a small share of total costs C) product demand is not related to price changes D) the supply of labour is not responsive to changes in pay E) the level of skill needed to perform the job is high

37)

A flexible policy that mimics the pay mix competitors are paying is known as a:

A) market mix policy B) market match pay with competition (match) policy C) performance driven policy D) work/life balance policy E) security policy

Version 1

9

38) A(n) policy maximizes the ability to attract and retain quality employees and minimizes employee dissatisfaction with pay.

A) employment equity B) lead C) high-turnover D) gap E) lag

39)

Which of the following is true about a lead policy?

A) It offsets the negative job attributes that contribute to high turnover later on.

B) It minimizes the ability to retain quality employees.

C) It increases employee dissatisfaction.

D) It pays below market rates and may hinder a firm's ability to attract potential employees.

E) It believes that high turnover is likely to be a compensation problem rather than a managerial problem.

40)

A policy to pay below market rates is known as a(n)

policy.

A) lead B) market match C) lag D) payroll deduction E) edge

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

41) Discuss two ways of expressing external competitiveness in practice.

Version 1

10

42) What is the difference between the marginal product of labour and the marginal revenue of labour?

43)

What are the basic assumptions of economic theories of labour markets?

44)

What is the prediction of efficiency wage theory?

45)

Discuss the predictions of the compensating differentials theory.

46)

Discuss the predictions of reservation wage theory and human capital theory.

47)

How do product market conditions determine what an organization can afford to pay?

Version 1

11

48)

Discuss competitive pay policies.

49)

What is a lag policy and how does it affect an organization's ability to attract employees?

50)

What are the main consequences of an externally competitive pay policy?

Version 1

12

Answer Key Test name: Chap 07_6ce 1) TRUE 2) FALSE 3) FALSE 4) FALSE 5) TRUE 6) TRUE 7) FALSE 8) FALSE 9) FALSE 10) TRUE 11) FALSE 12) FALSE 13) FALSE 14) TRUE 15) TRUE 16) C 17) A 18) C 19) A 20) B 21) D 22) C 23) B 24) E 25) C 26) D Version 1

13

27) E 28) B 29) C 30) B 31) D 32) B 33) C 34) B 35) A 36) D 37) B 38) B 39) A 40) C 41) External competitiveness refers to the pay relationships among organizations—the organization's pay relative to its competitors. It is expressed in practice by (1) setting a pay level that is above, below, or equal to competitors; and (2) by considering the mix of pay forms relative to those of competitors. Both pay level and pay forms focus on two objectives: (1) to control costs and (2) to attract and retain employees.

42) The marginal product of labour is the additional output associated with the employment of one additional human resources unit, with other production factors held constant.

The marginal revenue of labour is the money generated by the sale of the marginal product—the additional output from the employment of one additional person.

Version 1

14

43) Economic theories of labour markets usually begin with four basic assumptions: 1. Employers always seek to maximize profits.

2. People are homogeneous and therefore interchangeable; for example, a business school graduate is a business school graduate is a business school graduate.

3. The pay rates reflect all costs associated with employment (base wage, bonuses, holidays, benefits, even training).

4. The markets faced by employers are competitive, so there is no advantage for a single employer to pay above or below the market rate.

44) The prediction of efficiency wage theory is that above-market wages will improve efficiency by attracting workers who will perform better and be less willing to leave. So, staffing programs must have the capability of selecting the best employees; work must be structured to take advantage of employees' greater efforts.

45) Compensating differentials theory says that if a job has negative characteristics, that is, if the necessary training is very expensive, job security is tenuous, working conditions are disagreeable, or chances of success are low, then employers must offer higher wages to compensate for these negative features. It predicts that work with negative characteristics requires higher pay to attract workers.

Version 1

15

46) Reservation wage theory says that job seekers have a reservation wage level below which they will not accept a job offer, no matter how attractive the other job attributes. This theory predicts that job seekers will not accept jobs when pay is below a certain wage, no matter how attractive other job aspects are. Human capital theory is based on the premise that higher earnings flow to those who improve their potential productivity by investing in themselves. The prediction of this theory is that the value of an individual's skills and abilities is a function of the time and expense required to acquire them.

47) Product market conditions determine to a large extent what an organization can afford to pay. Product demand and the degree of competition are the two key product market factors. Both affect the ability of the organization to change what it charges for its products and services. If prices cannot be changed without decreasing sales, then the ability of the employer to set a higher pay level is constrained.

Version 1

16

48) Given the choice to match, lead, or lag, the most common policy is to match rates paid by competitors. Managers historically justify this policy by saying that failure to match competitors' rates would cause dissatisfaction among present employees and limit the organization's ability to recruit. Many non-unionized companies tend to match or even lead competition to head off unions. A pay-with-competition policy tries to ensure that an organization's wage costs are approximately equal to those of its product competitors and that its ability to attract applicants will be approximately equal to its labour market competitors. Although this policy avoids placing an employer at a disadvantage in pricing products, it may not provide an employer with a competitive advantage in its labour markets. Classical economic models predict that employers will meet competitive wages.

A lead policy maximizes the ability to attract and retain quality employees and minimizes employee dissatisfaction with pay. A lead policy can have negative effects, too. It may force the employer to increase the wages of current employees to avoid internal misalignment and murmuring against the employer. Additionally, a lead policy may mask negative job attributes that contribute to high turnover later on (e.g., lack of challenging assignments or hostile colleagues). Remember the managers' view that high turnover was likely to be a managerial problem rather than a compensation problem.

A policy to pay below market rates may hinder a firm's ability to attract potential employees. However, if pay level is lagged in return for the promise of higher future returns (e.g., stock ownership in a high-tech startup firm), such a promise may increase employee commitment and foster teamwork, which may increase productivity. Additionally, it is possible to lag competition on pay level but to lead on other returns from work.

Version 1

17

49) A lag policy is a policy to pay below market rates. It may hinder a firm's ability to attract potential employees. However, if pay level is lagged in return for the promise of higher future returns, such a promise may increase employee commitment and foster teamwork, which may increase productivity. Additionally, it is possible to lag competition on pay level but to lead on other returns from work.

50) An externally competitive pay policy should lead to the following consequences: containment of labour costs, an increased pool of qualified applicants, increased quality and experience, reduced voluntary turnover, reduced pay-related work stoppages, and a higher likelihood of union-free status.

Version 1

18

Chapter 8 Designing Pay Levels, Pay Mix, and Pay Structures TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.

1) Compensation surveys provide the data for translating a policy into pay levels, pay mix, and structures. ⊚ ⊚

true false

2) A compensation survey is the systematic process of collecting and making judgments about the compensation paid by other employers. ⊚ ⊚

true false

3) The first major decision in designing pay structures pertains to determining the pay policy line. ⊚ ⊚

true false

4) Adjustments to the different forms of pay competitors use (base, bonus, incentives, benefits) occur more frequently than adjustments to overall pay level. ⊚ ⊚

true false

5) One of the important questions asked while designing a compensation survey is: "Who should be involved in the survey design?" ⊚ ⊚

true false

6) Trending is a process by which jobs considered substantially equal for pay purposes are grouped together.

Version 1

1

⊚ ⊚

true false

7) A market pay line is a way to set the external competitive position by adjusting the pay policy line. ⊚ ⊚

true false

8) Grades and ranges offer managers the flexibility to deal with pressures from external markets and within the organization. ⊚ ⊚

true false

9) A high degree of overlap among job ranges makes it more difficult to move employees from one range to another. ⊚ ⊚

10)

Pay ranges fail to recognize individual differences in performance. ⊚ ⊚

11)

true false

A pay range includes a minimum, a midpoint, and a maximum. ⊚ ⊚

12)

true false

true false

Skill-based plans use grades but not ranges. ⊚ ⊚

Version 1

true false

2

13)

Broadbanding has guidelines and controls designed right into the pay system. ⊚ ⊚

14)

true false

Companies that adopt a market pricing strategy emphasize internal alignment. ⊚ ⊚

true false

15) The market pricing approach sets pay structures by relying almost exclusively on rates paid by competitors in the external market. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.

16) Which of the following is the first important decision involved in determining pay levels and designing pay structures?

A) determining the pay policy line B) choosing relevant market competitors to survey C) designing the survey D) specifying the employer's competitive pay policy E) constructing an internal pay policy line that reflects competitive pay policy

17) Which of the following is the final decision involved in determining pay levels and designing pay structures?

Version 1

3

A) determining the pay level policy B) defining the relevant market C) designing and conducting the survey D) balancing competitiveness with internal alignment E) designing grades, ranges, or bands

18) Which of the following steps involved in determining pay levels and designing pay structures immediately follows designing and conducting a compensation survey?

A) determining the pay policy line B) selecting relevant market competitors to survey C) setting a competitive pay policy D) designing grades, ranges, or bands E) analyzing data statistically

19) Which of the following is a systematic process of collecting and making judgments about payments made by other employers?

A) compensation survey B) recruitment questionnaire C) archival research D) competency analysis E) performance appraisal

20)

The mix of forms of pay and their relative importance makes up the

.

A) pay package B) base pay C) pay level D) pay band E) pay grade

Version 1

4

21) When new organizations and jobs fuse together diverse knowledge and experience, relevant markets appear more like .

A) equity firms B) monopolies C) fuzzy markets D) defined markets E) knowledge markets

22) Which of the following is true of hiring a third-party consultant instead of managing the survey internally?

A) It makes the process inefficient due to the lack of expertise.

B) It may trade off some power over the decisions that determine the quality of the data.

C) It reduces the company's expenses.

D) It introduces subjectivity into the process.

E) It helps the company gain a greater control in assessing the usefulness of the data.

23)

Apart from base pay and bonus,

includes stock-based incentives too.

A) nominal compensation B) total cash C) benefit D) total compensation E) fringe

24) reflects the cash value of the job plus bonuses paid to incumbents; it excludes stock options.

Version 1

5

A) Base cash B) Total compensation C) Total cash D) Incentive E) Benefit

25)

The amount of cash that competitors decide each job is worth is called:

A) piece rate B) an incentive C) a bonus D) base pay E) a fringe benefit

26) In a survey report, when an employer's data is substantially out of line from other employers, it is called a(n):

A) anomaly B) normality C) conformity D) congruity E) synchronicity

27) Multiplying survey data by some numerical factor that corresponds to the analyst's judgment of the differences between the company and the survey job is called:

A) survey lagging B) survey levelling C) survey banding D) survey trending E) survey forecasting

Version 1

6

28)

A data point that falls outside the majority of data points is known as a(n):

A) mean B) median C) outlier D) range E) variance

29)

Variation is:

A) the grouping of jobs considered substantially equal for pay purposes.

B) the distribution of rates around a measure of central tendency.

C) a data point that falls outside the majority of the data points.

D) the value obtained by adding the base wages of all employees in a survey.

E) expressed as a percentage above the minimum of a pay range.

30) When data from a survey is adjusted to represent pay at the current or future date when the pay decisions will be implemented, it is known as:

A) survey levelling B) frequency distributing C) aging/trending survey data D) survey normalizing E) survey restructuring

31) Updating the market data to represent pay at the current or future date when the pay decisions will be implemented is called:

Version 1

7

A) survey levelling B) broadbanding C) compensating D) aging/trending survey data E) matching

32) provides a statistical summary of the distribution of going rates paid by competitors in the market.

A) Dispersion B) Regression C) Progression D) Accession E) Accretion

33) Which of the following links a company's benchmark jobs on the horizontal axis with market rates paid by competitors on the vertical axis?

A) a pay range line B) a market pay line C) a quartile line D) a pay policy line E) a percentile line

34)

Which of the following statements is true of market pay line?

A) A market pay line reflects a firm's competitive position in the market.

B) A market pay line is a line of consumers in a market.

C) A market pay line is constructed by adjusting pay policy line.

D) A market pay line links a company's benchmark jobs on the vertical axis with market rates paid by competitors on the horizontal axis.

E) A market pay line is adjusted in order to construct a pay policy line.

Version 1

8

35)

Which of the following is true about pay grades?

A) Jobs within a single pay grade may have different pay ranges.

B) Pay grades are easy to design.

C) Pay grades makes the pay structure inflexible.

D) Pay grades are created by grouping jobs considered substantially equal.

E) Pay grades restrict an organization's ability to move people between jobs.

36)

Pay ranges:

A) fix a single rate to be paid to all employees performing the same job B) do not use pay to recognize individual performance differences C) exist whenever two or more rates are paid to employees performing the same job D) may vary for jobs within a single pay grade E) reduce managers' flexibility to deal with pressures from external markets

37)

Which of the following represents the relationship between pay ranges and pay grades?

A) The competitive pay level for each range becomes the midpoint of the pay grade for that range.

B) A pay grade is expressed as a percentage above the midpoint of the pay range.

C) The midpoints for each pay grade usually correspond to the points where the pay policy line crosses the centre of the grade.

D) Grades set the ceiling and floor on what the employer is willing to pay for the work; ranges refer to grouping of jobs.

E) Pay ranges set an upper and lower limit between which all wages for all jobs in a particular grade are expected to fall.

38)

Broadbanding:

Version 1

9

A) fails to provide flexibility in defining job responsibilities B) does not support boundaryless organizations that have eliminated layers of managerial jobs C) does not allow cross-functional growth D) allows lateral movement of employees E) makes mergers and acquisitions an elaborate and a difficult process

39)

Which of the following applies to pay grades instead of pay bands?

A) controls designed into system B) shadow ranges C) global organizations D) lateral progression E) freedom to manage

40)

Market pricing refers to:

A) adjusting the price of products according to the prices of competitors B) relying on external market rates to set the internal pay structure C) the point where supply and demand curves cross D) combining jobs into a broader market band E) paying rates that reflect product market conditions

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

41) What are the main reasons for participating in a compensation survey?

42)

What are the three most commonly used survey measures for compensation surveys?

Version 1

10

43)

What needs to be considered before designing a survey?

44)

What are the main approaches to selecting jobs for inclusion?

45)

What do the four elements of central tendency tell us?

46)

Discuss the process of trending survey data.

47)

Discuss how the market pay line and the pay policy line are used.

48)

What opportunities do pay ranges provide managers?

Version 1

11

49)

What are the advantages and disadvantages of using broadbanding?

50)

Describe the steps involved in market pricing.

Version 1

12

Answer Key Test name: Chap 08_6ce 1) TRUE 2) TRUE 3) FALSE 4) FALSE 5) TRUE 6) FALSE 7) FALSE 8) TRUE 9) FALSE 10) FALSE 11) TRUE 12) FALSE 13) FALSE 14) FALSE 15) TRUE 16) D 17) D 18) B 19) A 20) A 21) C 22) B 23) D 24) C 25) D 26) A Version 1

13

27) B 28) C 29) B 30) C 31) D 32) B 33) B 34) E 35) D 36) C 37) E 38) D 39) A 40) B 41) An employer conducts or participates in a compensation survey for a number of reasons: (1) to adjust internal pay level in response to changing competitor pay rates, (2) to set the internal mix of pay forms relative to those provided by competitors, (3) to establish or "price" the internal pay structure, (4) to analyze pay-related problems, or (5) to estimate the labour costs of product market competitors.

42) (1) base pay, (2) total cash (base, profit sharing, bonuses), and (3) total compensation (total cash plus benefits and stock-based incentives)—are the most commonly used survey measures.

43) Designing a compensation survey requires answering the following questions: (1) Who should be involved in the survey design? (2) How many employers should be included? (3) Which jobs should be included? and (4) What information should be collected?

Version 1

14

44) The benchmark-job approach selects benchmark jobs to include the entire job structure (e.g. all key functions and all levels). To ensure the right information is obtained, the degree of match between the survey's benchmark jobs and each company's benchmark jobs needs to be accessed.

The low-high approach converts job-based market data to fit the skill or competency structure. The simplest approach is to identify the lowestand highest-paid benchmark jobs for the relevant skills in the relevant market and to use the wages for these jobs as anchors for the skill-based structures. Work at various levels within the structure can then be slotted between the anchors.

The benchmark conversion / survey levelling approach applies the job evaluation plan to the survey jobs using the description provided. The magnitude of difference between job evaluation points for internal jobs and survey jobs provides guidance for adjusting the market data.

45) Mode is the most commonly occurring rate.

Mean is the sum of all rates divide by the number of rates.

Median is the point in the middle of a range of data points ordered from highest to lowest.

Weighted mean uses company-wide measures and multiplies the rate for each company by the number of employees in that company. The total of all rates is divided by the total number of employees.

Version 1

15

46) Competitors' pay rates are constantly changing because pay reflects decisions of employers, employees, unions, and government agencies.

Even though these changes do not occur smoothly and uniformly throughout the year, as a practical matter it is common practice to assume that they do. Therefore, a survey that requires three months to collect, code, and analyze is probably outdated before it becomes available. Consequently, the pay data usually are updated in a process often called aging/trending survey data to adjust the data to represent pay at the current or future date when the pay decisions will be implemented. The amount to adjust is based on several factors, including historical trends in market economic forecasts, prospects for the economy in which the employer operates, and the manager's judgment, among others.

47) A market pay line links a company's benchmark jobs on the horizontal axis (internal structure) with market rates paid by competitors (market survey), which are on the vertical axis. A market line may be drawn freehand by connecting the data points or statistical techniques such as regression analysis may be used. Regression generates a straight line that best fits the data by minimizing the variance around the line.

Regression provides a statistical summary of the distribution of going rates paid by competitors in the market—in this case, the market pay line. The next major decision is to set the external competitive position by adjusting the market pay line in order to construct a pay policy line.

This line reflects the firm's competitive position in the market.

Version 1

16

48) Pay ranges permit managers to recognize differences such as: 1. Differences in quality ( skills, abilities, experience) between individuals applying for work 2. Differences in the productivity or value of these quality variations 3. Differences in the mix of pay forms In addition, an organization may desire differences in rates paid to employees performing the same job.

Pay ranges also provide managers the opportunity to: 1. Recognize individual performance differences with pay.

2. Meet employees' expectations that their pay will increase over time, even while holding the same job.

3. Encourage employee commitment to remain with the organization.

49) Broadbanding encourages employees to move cross-functionally (e.g., purchasing to finance, between development and systems design) to increase the cross-fertilization of ideas. Hence, a career move is more likely within a band and less likely between bands. According to supporters, the principal payoff of broadbanding is flexibility. Flexibility is one side of the coin; chaos and favouritism the other. Banding presumes that managers will manage employee pay to accomplish the organization's objectives (and not their own) and will treat employees fairly. Historically, this is not the first time greater flexibility has been given to managers and employees. Indeed, the rationale underlying the use of ranges and grades was to reduce the inconsistencies and favouritism that were destructive to employee relations in previous generations. The challenge today is to take advantage of flexibility without increasing labour costs or leaving the organization vulnerable to charges of favouritism and inconsistent or illegal practices.

Version 1

17

50) Market pricing approach sets pay structures by relying almost exclusively on rates paid by competitors in the external market.. Market pricers match a large percentage of their jobs with market data and collect as much market data as possible. They rank to market to determine the pay for jobs unique to their firms. The competitive rates for positions for which external market data are available are first calculated, then the remaining (non-benchmark) jobs are blended into the pay hierarchy created, based on external rates. These are immediately followed by labour market analysis and market pricing for as many jobs as possible. After that, the remaining jobs are blended in and the internal job relationships are reviewed to be sure they are "reasonable in light of organization workflow and other uniqueness."

The final step is pricing those jobs not priced directly in the market. This is done by comparing the value of these jobs to the jobs already priced in the market

Version 1

18

Chapter 9 Employee Benefits TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.

1) Employees perceive benefits as being dependent on how well they perform. ⊚ ⊚

2)

true false

Most employee benefits are not taxable and thus offer a cost advantage. ⊚ ⊚

true false

3) A flexible benefit plan increases employee awareness of the true costs of benefits and therefore can decrease employee recognition of the value of the benefits the company offer ⊚ ⊚

4)

true false

Contributory costs feature the employee paying the full costs. ⊚ ⊚

true false

5) Because future cost estimates may be difficult to project, it is imperative that benefits administrators reduce uncertainty. ⊚ ⊚

6)

true false

Benefits need not be externally equitable. ⊚ ⊚

Version 1

true false

1

7) Any evaluation of employee benefits must be placed in the context of total compensation costs. ⊚ ⊚

8)

Claims processing determines whether an employee is eligible for the benefit. ⊚ ⊚

9)

true false

Disability income payments cannot be limited to some maximum percentage of income. ⊚ ⊚

10)

true false

true false

A TFSA is a form of income security. ⊚ ⊚

true false

11) Supplementary unemployment benefit plans and work-sharing programs are mandatory benefits. ⊚ ⊚

true false

12) In defined benefit plan, employees assume the risks associated with changes in inflation and interest rates. ⊚ ⊚

true false

13) Long-term disability plans provide income protection due to long-term illness or injury that is not work-related.

Version 1

2

⊚ ⊚

14)

Flexible benefits do not include required core benefits ⊚ ⊚

15)

true false

true false

Flexible plans make introduction of new benefits more costly. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.

16) Which of the following statements about employee benefits is true?

A) Employee benefits of all types are mandated by law and are not discretionary.

B) Employee benefits are not part of a company's total compensation package.

C) Employee benefits are funded either by the government or the employer; not the employee.

D) Employee benefits of all types are discretionary and are not mandated by law.

E) Most employee benefits are not taxable.

17) Which method of financing benefit plans allows costs to be shared between employer and employee?

A) non-contributory B) ESOPs C) employee financed D) contributory E) income-security

Version 1

3

18) Which of the following factors relate to employee preferences in determining desirable components of a benefits package?

A) competitor offerings B) legal requirements C) perceived fairness D) costs relative to benefits E) relationship to total compensation costs

19)

What is vesting of pension benefits?

A) It is the exclusion of new employees from benefits coverage until some term of employment is completed.

B) It is the reduction of benefits by any amount paid under a spouse's plan.

C) It is the negotiation some employers have with employees about wage concessions to reduce employer contributions to selected benefits.

D) It is a general strategy used to control medical benefit costs by promoting preventive health programs.

E) It occurs when employees become entitled to the employer-paid portion of pension benefits upon termination of employment.

20) Benefits administration involves three main functions: (1) communicating the benefits program, (2) claims processing, and (3) .

A) legal compliance B) competitor assessment C) cost containment D) tracking employee usage E) revising benefits

21) Under which of the following cost containment strategies are the benefits of an employee reduced by any benefits payable under his or her spouse's plan?

Version 1

4

A) deductibles B) coinsurance C) benefit maximums D) coordination of benefits E) administrative cost containment

22) refers to a specified dollar amount of claims paid by the employee each year before insurance benefits begin.

A) Coinsurance B) Wage concession C) Deductible D) Benefit cutback E) Vesting

23)

Which of the following employee benefits is NOT legally required?

A) Quebec Pension Plan B) Employment Insurance C) Workers' Compensation D) employee assistance plan E) breaks, vacation, and leaves

24)

Which of the following is an employee benefit required by law?

A) breaks, vacation, and leaves B) employee assistance plan C) payments for vacation D) employee stock ownership plan E) severance pay plan

Version 1

5

25)

Which of the following is true of Workers' Compensation?

A) Employees are not eligible for cover if their actions caused the injury.

B) They cover injuries and diseases that are not work-related.

C) They provide benefits for loss of earnings due to permanent disability; not temporary.

D) The contributions made to the plan are subject to tax.

E) The complete cost of administering and paying out for the plan is borne by the employer.

26)

Which of the following is true of Employment Insurance program?

A) It provides temporary income to employees during adoption leave period.

B) It is payable even if an employee quits without good reason.

C) It applies to workers who are self-employed.

D) It is funded entirely by contributions from the employer.

E) It is not included in taxable income.

27) Which of the following provides temporary income replacement for employed Canadians who face employment interruptions due to shortage of work or sickness?

A) Old age Security Program B) Workers' Compensation C) Supplementary Unemployment Benefit Plans D) Quebec Pension Plan E) Employment Insurance

28) are an arrangement by which employees work a reduced workweek and receive Employment Insurance benefits for the remainder of the week.

Version 1

6

A) Supplementary unemployment benefit plans B) Employee assistance programs C) Workers' compensation plans D) Vesting programs E) Work-sharing programs

29)

Which of the following plans is funded by the employer alone?

A) Quebec pension plan B) defined contribution pension plans C) defined benefit pension plans D) Employment Insurance E) coinsurance

30)

Portability refers to

.

A) moving life insurance benefits between spouses B) reaching the service time necessary to be entitled to the employer's contributions to the pension plan C) moving from short-term disability to long-term disability D) moving from a defined benefit plan to a defined contribution plan E) transferring one's pension from one employer to another

31)

Which of the following is true of defined contribution plan?

A) It is more favourable to long-service employees.

B) It does not require managing of surplus or deficit in pension fund.

C) It makes the employer accountable for the risks associated with changes in inflation and interest rates.

D) It provides an explicit benefit which is easily communicated.

E) It does not make employer costs known.

Version 1

7

32)

Which of the following is true of defined benefit plan?

A) It is more favourable to short-term employees.

B) It does not require managing of surplus or deficit in pension fund.

C) It makes the employee bear the risks associated with changes in inflation and interest rates.

D) It provides an explicit benefit which is easily communicated.

E) It allows employer costs to be known up front.

33)

Which one of the following is offered at the discretion of the employer?

A) Employment Insurance B) life Insurance C) Workers' Compensation D) Canada Pension Plan E) Quebec Pension Plan

34)

Which of the following is a strategy used by managers to control the costs of health care?

A) offering wellness programs B) offering defined benefit pension plans C) offering a short vesting period on pension plans D) offering workers' compensation insurance E) offering long-term disability plans

35)

Which of the following is one of the main reasons for increases in healthcare costs?

Version 1

8

A) more new workers entering the workforce B) increasing occurrence of repetitive stress injuries C) the popularity of flexible benefit plans D) the increasing number of retiring employees E) rising drug utilization by an aging population

36)

Which of the following is true of long-term disability plans?

A) They provide a fixed annual income to all retired employees.

B) The payments typically begin after 48 weeks of disability.

C) They are taxable if the employee pays the full cost of the plan.

D) They provide protection only if the disability was caused due to the nature of work.

E) They usually provide 50 percent to 75 percent of the employee's base pay.

37) Employer-sponsored plans that provide pay to an employee when he/she is unable to work because of a non-work-related illness or injury are termed as plans.

A) sick leave B) salary continuation C) employee assistance D) defined benefit E) defined contribution

38)

Which of the following is a feature of a salary continuation plan?

A) It provides income protection due to long-term illness or injury.

B) It covers only work-related illness or injury.

C) It grants a specified number of paid sick days per month or per year.

D) It typically provides full pay for some period of time, often two or three weeks.

E) It typically begins paying after 26 weeks of disability and continues to age 65 or for life.

Version 1

9

39)

Which of the following is a proactive way to reduce absenteeism and disability costs?

A) life insurance B) medical insurance C) flexible benefits D) employee assistance programs E) child care services and elder care

40)

Which of the following is a disadvantage of flexible benefit plans?

A) Flexible plans fail to equip firms to meet the changing needs of employees.

B) Flexible plans make introduction of new benefits more costly.

C) Flexible plans increase administrative burdens and expenses.

D) Flexible plans decrease the value of benefits as perceived by employees.

E) Flexible plans are not suited for companies with diverse workforce.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

41) What can be attributed to the growth in employee benefits?

42)

List the key issues in benefits planning and design.

43) Discuss the four major administration issues that arise when setting up a benefits package.

Version 1

10

44)

What are the elements of an effective benefits communication package?

45)

List the various cost-containment strategies available to employers.

46)

What is the purpose of Workers' Compensation?

47)

Who contributes to the Employment Insurance (EI)?

48)

What is the purpose of Canada Pension Plan?

49) What is the reason behind defined-contribution plans gaining popularity over definedbenefit plans?

Version 1

11

50)

How can medical benefit costs be controlled?

51) Describe the three types of disability plans: short-term disability, sick leave, and longterm disability plans.

52)

List three disadvantages of a flexible benefit program.

Version 1

12

Answer Key Test name: Chap 09_6ce 1) FALSE 2) TRUE 3) FALSE 4) FALSE 5) TRUE 6) FALSE 7) TRUE 8) TRUE 9) FALSE 10) FALSE 11) FALSE 12) FALSE 13) TRUE 14) FALSE 15) FALSE 16) E 17) D 18) C 19) E 20) C 21) D 22) C 23) D 24) A 25) E 26) A Version 1

13

27) E 28) E 29) C 30) E 31) B 32) D 33) B 34) A 35) E 36) E 37) B 38) D 39) D 40) C

Version 1

14

41) The government has played a key role in the growth of employee benefits. There are three government-mandated employment-related benefits: Workers' Compensation (provincial), Employment Insurance (federal), and Canada/Quebec Pension Plan (federal and Quebec).

Additionally, such laws as the Income Tax Act, impacts most other employee benefits such as pension benefits acts. Mandatory retirement at age 65 has been outlawed in most provinces. Many pension and benefit plans have been revised to permit continued pension accrual and continuing benefits coverage for those working past age 65.

Unions have fought for the introduction of new benefits and the improvement of existing benefits.

Many of the benefits in existence today were provided at employer initiative. Many employer-initiated benefits (such as rest breaks) were designed to create a climate in which employees perceived that management was genuinely concerned for their welfare.

Another important and sound reason for the growth of employee benefits is their cost-effectiveness in three situations. The first, is that most employee benefits are not taxable. Provision of a benefit instead of an equivalent increase in wages avoids payment of personal income tax.

The second component arises because many group-based benefits (e.g., life and health insurance) can be obtained at a lower rate than could be obtained by employees acting on their own. Third, benefit premiums and pension contributions are tax deductible up to limits specified in the Income Tax Act.

Version 1

15

42) The key issues in benefits planning and design are: (i) the relative role of benefits in a compensation package, (ii) strategies for external competitiveness, (iii) benefits adequacy and cost justification, (iv) who should be included in these plans, (v) level of choice for employees, and (vi) employee-employer cost sharing.

43) (1) Who should be protected or benefited?

Employees, of course. But every organization has a variety of employees with different employment statuses. Should these individuals be treated equally with respect to benefits coverage?

(2) How much choice should employees have among an array of benefits?

A package can be designed with the average employee in mind, and any deviation in needs simply goes unsatisfied. The other extreme is represented by flexible benefit plans. Under this concept, employees are permitted great flexibility in choosing the benefit options of greatest value to them.

(3) How should benefits be financed?

Alternatives include the following: Non-contributory (employer pays total costs); Contributory (costs shared between employer and employee); or Employee-financed (employee pays total costs for some benefits).

(4) Are the benefits plans in compliance with the legislation?

Finally, companies need to make sure that their benefits plans and programs are in compliance with the requirements of the legislation and regulations where it operates.

Version 1

16

44) An effective communications package must have three elements.

First, an organization must spell out its benefit objectives and ensure that any communications achieve these objectives. Second, the message must be matched with the appropriate medium. In today's corporations, many benefits administrators are providing total rewards statements summarizing the total cost of benefits provided to employees. With the advent of self-service capabilities in employee information systems, these statements have expanded from an annual offering to timely, online statements with each payroll, providing an almost up-to-theminute value statement of compensation and benefits.

And the third element: The content of the communications package must be complete, clear, and free of complex jargon. The amount of time/space devoted to each issue should vary with both the perceived importance of the benefit to employees and the expected difficulty in communicating option alternatives.

Version 1

17

45) The most prevalent practices are: 1. Probationary periods: New employees are excluded from benefits coverage until some term of employment (e.g., three months) is completed.

2. Benefit maximums: It is not uncommon to limit disability income payments to some maximum percentage of income, and to limit medical/dental coverage for specific procedures to a certain fixed amount. Lifetime maximum payouts are sometimes used.

3. Coinsurance: Employees are required to pay a fixed amount or a percentage of the amount.

4. Deductible: A specified dollar amount of claims must be paid each year by the employee before the insurance plan begins paying (e.g., $25 deductible means that the employee pays the first $25 in claims submitted each year).

5. Coordination of benefits: When two spouses both have employee benefits coverage, benefits are reduced by any benefits payable under the spouse's plan (i.e., both spouses cannot receive benefits to cover the same expenses).

6. Administrative cost containment: Seek competitive bids for program delivery, for example.

7. Denying coverage for pre-existing conditions.

8. Programs that encourage wellness: Establish a smoking cessation program, for example.

Outsource benefits administration.

46) Workers' Compensation provides non-taxable compensation for injuries and diseases that arise out of, and while in the course of, employment. The complete cost is borne by employers under a collective liability fund.

Version 1

18

47) The EI program is funded entirely by contributions from employees and employers. The employee contribution is made on earnings up to the maximum insurable earnings and varies over time, and employers contribute 1.4 times their employees' contributions.

48) The Canada Pension Plan is a mandatory, government-sponsored pension plan for all employed Canadians. Employers and employees each contribute 5.25 percent of pensionable earnings to the plan. The retirement pension benefit beginning at age 65 is 25 percent of average pensionable earnings over the retiree's working life, adjusted for inflation up to the average inflation rate during the last five years prior to retirement. Benefits are reduced upon retirement prior to age 65 and increased upon retirement after age 65. Disability benefits are payable to contributors who sustain a severe, prolonged mental or physical disability and are payable until age 65 when the retirement pension begins. If a plan member dies, a lump sum death benefit is payable to the survivor, and a survivor pension benefit is payable to the surviving spouse/partner. An additional death benefit in the form of a pension is also payable to any dependent children until they reach the age of 18.

All benefits are indexed to the Consumer Price Index and are taxable.

49) Defined contribution plans have known costs from year one. The employer agrees to a specific level of payment that only changes through negotiation or through some voluntary action. This allows for quite realistic cost projections. In contrast, defined-benefit plans commit the employer to a specific level of benefit. Variations from actuarial projections can add or reduce costs over the years and make the budgeting process much more uncertain. Perhaps for this reason, defined-contribution plans have been more popular for the past 15 years or more.

Version 1

19

50) There are two general strategies available to benefit managers for controlling the rapidly escalating costs of health care. One strategy to control medical benefit costs involves motivating employees to change their demand for health care through changes in the design or administration of the plan. The second cost strategy involves promotion of preventive health or wellness programs.

51) Short-term disability plans or salary continuation plans are employer-sponsored plans that provide a continuation of all or part of an employee's earnings when the employee is absent from work due to an illness or injury that is not work-related. The benefits cease when the employee returns to work or when the employee qualifies for long-term disability.

Sick leave plans are employer-sponsored plans that grant full pay for a specified number of paid sick days per month or per year.

Long-term disability plans provide income protection due to long-term illness or injury that is not work related. The payments typically begin after 26 weeks of short-term disability and continue to age 65 or for life.

Benefits usually range from 50% to 75% of the employee's base pay and are not taxable if the employee pays the full cost of the plan.

52) Flexible benefit programs have the following disadvantages: 1. Employees make bad choices and find themselves not covered for predictable emergencies.

2. Administrative burdens and expenses increase.

3. Adverse selection. Employees pick only benefits they will use. The subsequent high benefit utilization increases costs.

Version 1

20

Chapter 11 Pay-for-Performance Plans TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.

1) A low incentive component is appropriate in organizations with highly variable annual performance. ⊚ ⊚

true false

2) According to Maslow's Hierarchy of Needs theory, higher-order needs motivate even if lower-order needs are not met. ⊚ ⊚

true false

3) According to the reinforcement theory of motivation, regular and specific feedback on performance goal attainment is important. ⊚ ⊚

4)

true false

Lump-sum bonus is granted to all employees irrespective of performance. ⊚ ⊚

true false

5) A behaviourally anchored rating scale (BARS) is a performance rating scale that uses behavioural descriptions as anchors for different levels of performance on the scale. ⊚ ⊚

6)

true false

Evaluation forms that produce numerical ratings cause administrative inconveniences. ⊚ ⊚

Version 1

true false

1

7) A 360-degree feedback assesses employee performance from five points of view: supervisor, peer, self, customer, and subordinate. ⊚ ⊚

true false

8) One compromise in the use of self-ratings is to use them for administrative rather than developmental purposes. ⊚ ⊚

true false

9) One of the major drawbacks of using peers as raters is that they have a distorted perspective of typical performance. ⊚ ⊚

true false

10) Raters should notice only performance-related factors when they observe employee behaviour. ⊚ ⊚

true false

11) The actual appraisal process should provide coaching and suggestions for improving future performance. ⊚ ⊚

true false

12) Operationally, the key to designing a pay-for-performance plan rests in setting performance standards. ⊚ ⊚

Version 1

true false

2

13)

Distributive justice refers to perceived fairness of pay or other work outcomes received. ⊚ ⊚

14)

true false

Seniority increases relate pay increases to performance improvements on the job. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.

15) In which of the following situations are larger incentive components appropriate?

A) organizations have a highly variable annual performance and employees have jobs that are fairly stable B) when organizations have a stable annual performance and employees have jobs that are fairly stable C) when organizations have low variability in corporate performance D) when organizations have a highly variable annual performance and employees have jobs that fluctuate greatly in terms of what's expected of them E) when organizations work in an unstable external environment and employees have stable jobs with little fluctuations

16) is a process involving the determination of what is important to a person and offering it in exchange for desired behaviour.

A) Procedural justice B) Motivation C) Workflow D) Evaluation E) Socialization

Version 1

3

17) According to Herzberg's Two-Factor theory, not motivate performance or cause satisfaction.

factors prevent dissatisfaction, but do

A) expectancy B) satisfaction C) hygiene D) valence E) instrumentality

18) Which of the following factors cannot motivate performance according to Herzberg's Two-Factor theory?

A) recognition B) promotion C) achievement D) security E) empowerment

19)

Which of the following is an essential feature of Maslow's theory?

A) Employees are motivated when perceived outputs are equal to perceived inputs.

B) Motivation is the product of three perceptions: expectancy, instrumentality, and valence.

C) Employees will react negatively if they perceive that others are paid more for the same effort.

D) Pay for performance works best when focused on unmet needs.

E) Challenging performance goals influence greater intensity and duration in employee performance.

20) According to the theory of motivation, challenging and specific performance goals generate higher employee effort.

Version 1

4

A) Herzberg's Two-Factor B) expectancy C) equity D) goal setting E) Maslow's Hierarchy of Needs

21) Which of the following theories focuses more on content and less on the nature of the exchange?

A) expectancy theory B) equity theory C) agency theory D) reinforcement theory E) Maslow's Hierarchy of Needs theory

22) theory of motivation states that people behave as though they cognitively evaluate what behaviours are possible.

A) Expectancy B) Equity C) Agency D) Two-factor E) Reinforcement

23) theory of motivation states that people are concerned about fairness of the reward outcomes exchanged for employee inputs.

A) Expectancy B) Equity C) Agency D) Two-factor E) Reinforcement

Version 1

5

24) theory of motivation states that employees and management/owners both will act opportunistically to obtain the most favourable exchange possible.

A) Expectancy B) Equity C) Agency D) Two-factor E) Reinforcement

25)

Which total reward component allows employees to control their own destiny?

A) security B) work conditions C) work importance D) autonomy E) development opportunity

26)

Which of the following wage components is most risky to the employee?

A) merit pay B) a-the-board increase C) lump-sum bonus D) profit-sharing E) g-sharing

27) Which of the following wage components refers to wage increase granted regardless of performance?

Version 1

6

A) cost-of-living increase B) lump-sum bonus C) individual incentive D) group incentive E) profit-sharing increase

28)

Turnover is much higher for poor performers:

A) when pay is based on individual performance B) when pay is based on group incentive plans C) when pay is based on relational returns D) when pay is based on company profits E) when pay is based on industry standards

29)

Which of the following might appeal to scarce talent?

A) team-based incentives B) stable rewards C) fixed pay linked to organizational performance D) variable pay linked to peer ratings E) skill-based pay

30)

Which ranking process makes it easier to identify the extremes?

A) Behaviourally anchored ranking B) Alternation ranking C) Performance ranking D) Straight ranking E) Paired comparison ranking

31)

Which method is both a planning tool and an appraisal tool?

Version 1

7

A) Simple ranking B) Alternation ranking C) Behaviourally anchored paired rating D) Paired comparison performance ranking E) Management by objectives

32)

is a performance rating method that has suspect content validity.

A) Ranking B) Behaviourally anchored objectives C) Paired comparison performance objectives D) Standard rating scales E) Behaviour rating scales

33) Which of the following is true of a performance appraisal method where peers act as raters?

A) This is the most reliable of all methods.

B) Leniency errors in this method are absent.

C) Scope for group tensions is absent in this method.

D) In situations where teamwork is promoted, this method is ideal.

E) An undistorted perspective of typical performance can be obtained by this method.

34) Which of the following errors means consistently rating someone higher than is deserved?

A) halo error B) spillover error C) leniency error D) central tendency error E) recency error

Version 1

8

35) An appraiser giving favourable ratings to all job duties based on impressive performance in just one job function is committing a error.

A) leniency B) first impression C) spillover D) halo E) recency

36)

error in the performance appraisal process rates all employees as average.

A) Central tendency B) Halo error C) Spillover error D) Recency error E) Strictness error

37) Which of the following is a key element essential for a good outcome in the appraisal process?

A) Performance dimensions should be isolated from the strategic plan of the company.

B) Employees should only be involved in developing performance dimensions.

C) Raters should be discouraged from maintaining a diary of employee performance.

D) Raters should not attempt to diagnose the reason for performance problems in advance.

E) Employees should be involved in developing performance dimensions and building scales.

38)

Perceived fairness of pay or other work outcomes received is called:

Version 1

9

A) objective justice.

B) distributive justice.

C) procedural justice.

D) qualitative justice.

E) haloed justice.

39)

Seniority increases tie pay increases to a preset progression pattern based on:

A) age of the organization B) seniority C) how long after 65 years of age that an employee stays with the company D) incentives E) pay range

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

40) What should the compensation strategy be for companies with high variability with performance?

41)

What are the three general factors on which employee performance depend on?

42)

What do the motivation theories tell us about base pay?

Version 1

10

43)

What is merit pay's level of risk to an employee?

44)

What are the different strategies to better understand and measure job performance?

45)

What dimensions can be used to evaluate appraisal formats?

46)

What are the two common elements in the various rating formats?

47)

Describe the steps in management by objectives (MBO).

48)

List some common errors in the appraisal process.

Version 1

11

49)

Identify seven items that a successful appraisal process should provide.

50)

Describe the areas of concern with efficiency?

51)

Discuss the central issue involving merit pay and employee performance.

Version 1

12

Answer Key Test name: Chap 10_6ce 1) TRUE 2) FALSE 3) FALSE 4) FALSE 5) TRUE 6) FALSE 7) TRUE 8) FALSE 9) FALSE 10) TRUE 11) TRUE 12) TRUE 13) TRUE 14) FALSE 15) C 16) B 17) C 18) D 19) D 20) D 21) E 22) A 23) B 24) C 25) D 26) D Version 1

13

27) A 28) A 29) D 30) B 31) E 32) D 33) E 34) C 35) D 36) A 37) E 38) B 39) B 40) If they have unstable and unclear performance measures, they should provide a wide array of awards beyond just money. Emphasize base pay with a low incentive portion.

If they have stable and clear performance measures, they should emphasize monetary rewards, using a large base pay with a low incentive portion.

41) Employee performance depends on the following: A = Ability M = Motivation to perform E = Supportive environment

Version 1

14

42) Maslow's theory indicates that base pay must be set high enough to provide individuals with the economic means to meet their basic living needs.

Herzberg's theory indicates that base pay must be set high enough to provide individuals with the economic means to meet hygiene needs, but it alone cannot motivate performance. Pay level must meet minimum requirements before performance-based pay can operate as motivator.

Expectancy theory indicates that pay must be clearly linked to performance and this link must be perceived as strong.

Equity theory indicates that employees evaluate the adequacy of their pay via comparisons with other employees.

43) There are two types of risk faced by employees. Size of total merit pool is at the discretion of employer (risk element), and individual portion of pool depends on performance, which also is not totally predictable.

44) Efforts to improve the performance rating process have taken several forms. First, researchers and compensation people traditionally focused on evaluation formats—the methods used to rank or rate performance.

Second, more recent attention has focused less on the rating format and more on the raters themselves. Several possible categories of raters (supervisor, peers, subordinates, customers, self) have been studied to determine whether a given category leads to more or less accurate ratings. Third, attempts are being made to identify how raters process information about job performance and translate it into performance ratings. Fourth, research results also suggest that raters can be trained to increase the accuracy of their ratings.

Version 1

15

45) Appraisal formats can be evaluated on five different dimensions: (1) employee development potential (amount of feedback about performance that the format offers), (2) administrative value, (3) research potential, (4) cost, and (5) validity. Different organizations will attach different weights to these criteria.

46) The various rating formats have two elements in common. First, in contrast to ranking formats, rating formats require raters to evaluate employees on some absolute standard rather than relative to other employees. Second, each performance standard is measured on a scale on which appraisers can check the point that best represents the employee's performance. In this way, performance variation is described along a continuum from good to bad. The types of descriptors used in anchoring this continuum provide the major difference in rating scales.

These descriptors may be adjectives, behaviours, or outcomes.

47) MBO is performance rating method based on meeting objectives set at the beginning of the performance review period. As a first step, organization objectives are identified from the strategic plan of the company. Each successively lower level in the organizational hierarchy is charged with identifying work objectives that will support attainment of organizational goals. At the beginning of a performance review period, the employee and supervisor discuss performance objectives. At the end of the review period, the two meet again to record results formally (of course, multiple informal discussions should have occurred before this time). Results are then compared to objectives, and a performance rating is then determined based on how well objectives were met.

48) Halo error, negative halo error, first impression error, recency error, leniency error, strictness error, central tendency error, similar-to-me error, and spillover error.

Version 1

16

49) A successful appraisal process should provide: 1. A clear sense of direction 2. An opportunity for employees to participate in setting the goals and standards for performance 3. Prompt, honest, and meaningful feedback 4. Immediate and sincere reinforcement 5. Coaching and suggestions for improving future performance 6. Fair and respectful treatment 7. An opportunity for employees to understand and influence decisions that affect them 50) Efficiency involves three general areas of concern—strategy, structure, and standards.

Does the pay-for-performance plan support corporate objectives? The plan should also link well with HR strategy and objectives. If other elements of the total HR plan are geared to select, reinforce, and nurture risk-taking behaviour, then the compensation component must not reward the status quo.

Is the structure of the organization sufficiently decentralized to allow different operating units to create flexible variations on a general payfor-performance plan? Different operating units may have different competencies and different competitive advantages. It is not advisable to have a rigid pay-for-performance system that detracts from these advantages, all in the name of consistency across divisions.

Operationally, the key to designing a pay-for-performance plan is to set performance standards. Specifically, performance objectives must be specific, yet flexible. Can employees see how their behaviour influences their ability to achieve company objectives (called the "line of sight" issue in the industry)?

Version 1

17

51) Organizations frequently grant increases that are not designed or communicated to be related to performance. Perhaps the biggest reason for this is that many companies view raises not as motivational tools to shape behaviour, but as budgetary line items to control costs. Frequently, this results in pay increase guidelines with little motivational impact.

Version 1

18

Chapter 11 Pay-for-Performance Plans TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.

1) Over the long run for employers, merit pay is an inexpensive and efficient method of compensation. ⊚ ⊚

2) pay.

With lump-sum bonuses, employees receive an end-of year bonus that builds into base

⊚ ⊚

3)

true false

Spot awards are examples of group incentive plans. ⊚ ⊚

4)

true false

true false

The most frequently implemented individual incentive system is a standard hour plan. ⊚ ⊚

true false

5) One disadvantage of individual incentive plans is that more direct supervision is required to ensure productivity increases. ⊚ ⊚

6)

true false

The "free rider" problem is an issue associated with individual incentive plans. ⊚ ⊚

Version 1

true false

1

7) A good gain-sharing plan ensures that environmental influences on performance, not controllable by plan participants, are factored out when identifying incentive levels. ⊚ ⊚

8)

true false

Improshare is a profit-sharing plan that is easy to administer and to communicate. ⊚ ⊚

true false

9) Stock options are valuable when they have exercise prices higher than the current market value. ⊚ ⊚

true false

10) Broad-based option plans create an ownership culture based on a strong emphasis on performance. ⊚ ⊚

true false

11) To align the interest of the directors and the organizations, publicly traded companies are moving away from mandatory or recommended share ownership guidelines. ⊚ ⊚

12)

true false

Deferred share units are stock awards earned when specific performance goals achieved. ⊚ ⊚

true false

13) Companies are now placing more and more emphasis on incentives at the expense of base salary.

Version 1

2

⊚ ⊚

true false

14) Maturity curves reflect the relationship between scientist/engineer compensation and years of experience in the labour market. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.

15) What is the primary focus of a merit pay system?

A) to reward employees for exceptional performance on special projects B) to reward employees for not being fired C) to link increases in base pay to how employees are rated on a subjective performance evaluation D) to offer a uniform merit increase to all employees across performance levels E) to provide end-of-year bonuses that do not build into base pay

16)

Lump-sum bonuses are:

A) end-of-year bonuses that do not build into base pay B) focused on providing consistent increments in base pay through the year C) viewed more as an entitlement than merit pay D) more expensive than merit pay over the long run E) awarded for exceptional performance on special projects

17)

The major focus of individual spot awards is on:

Version 1

3

A) linking increases in base pay to employee ratings on performance evaluations B) rewarding group or team performance C) promising pay for some objective, pre-established level of performance D) awarding employees for performance that exceeds expectations E) rewarding employees with monthly increments to keep up their motivation

18)

An individual incentive payment plan can be described as:

A) a pay increase given to employees for unexpected exceptional performance on a special project B) a pay for some objective, pre-established level of performance C) a lump sum payment to an employee based on organizational performance D) an increase in base pay based on an employee's seniority E) a form of pay determined by group level performance

19)

Which of the following is true of a straight piecework system?

A) It is the least frequently implemented incentive system.

B) It is a system where standards are based on time per unit.

C) It is a system where rate determination is based on units of production per time period.

D) It is a complex system and hence is not readily accepted by employees.

E) It is based on providing end-of-year bonuses when the organization performs well.

20)

Which of the following is a disadvantage of individualized incentive plans?

A) more direct supervision is required to maintain reasonable levels of output B) levels of mistrust between managers and workers are elevated C) costing and budgetary control are impeded D) production costs are raised E) earnings of workers are reduced

Version 1

4

21)

Which of the following is a customer-focused performance measure?

A) economic value added B) cycle time C) distribution systems D) return on sales E) service / quality index

22)

Which of the following is one of the three Cs that are problems with team compensation?

A) control B) conflict C) coordination D) culture E) confidentiality

23)

Which of the following is a problem with group compensation systems?

A) At least one person in the group does not carry his or her share of the load.

B) There is very little room for variation in designing group incentive plans.

C) Group incentive plans are often too simplistic and do not accurately reflect the efforts of the group.

D) If teams are defined at a very narrow level, much of the motivational impact of incentives is lost.

E) Team membership constantly changes as teams are eager to share their star performers and take on new employees.

24)

Which of the following is a key element in designing a gain-sharing plan?

Version 1

5

A) ensuring that all profits or savings generated are paid only to the management B) limiting employee involvement in the implementation of the plan in order to avoid complications C) ensuring that administration involves complex calculations which tend to be more accurate D) factoring in environmental influences on performance which are not controllable by plan participants E) Using a historical standard to calculate whether employees will receive an incentive payout

25)

What is the main difference between a Scanlon plan and a Rucker plan?

A) A Scanlon plan requires worker committees while a Rucker plan does not.

B) A Scanlon plan is dependent on productivity norms while a Rucker plan works better without them.

C) A Scanlon plan is a gain-sharing plan while a Rucker plan is an individualized incentive plan.

D) A Scanlon plan focuses on reducing labour costs, while a Rucker plan focuses on increasing labour costs.

E) A Scanlon plan involves a less complex formula than a Rucker plan for determining worker incentive bonuses.

26)

Which of the following is a disadvantage of profit sharing?

A) Most profit sharing plans are highly sophisticated and hence not easily understood by employees.

B) Most employees are not concerned about the profitability of their organizations.

C) Most employees are unwilling to learn about financial measures and the business factors that influence them.

D) There is no guarantee that profits will increase.

E) Most profit sharing plans involve high administrative costs.

Version 1

6

27) A(n) years.

is an incentive plan that includes reductions in base pay in unsuccessful

A) gain-sharing plan B) earnings-at-risk plan C) profit-sharing plan D) broad-based option plan E) Scanlon plan

28)

A disadvantage of group incentive plans is that:

A) it is difficult to set equitable targets for all teams B) they deemphasize cohesiveness and team identity C) they are ineffective in stimulating ideas and problem-solving D) they maximize distinctions between team members E) they are often too simplistic in design

29) Which of the following plans would an organization use if they had a highly uncertain future?

A) gain sharing B) team incentives C) quality incentives D) stock ownership or options E) cash profit sharing

30)

Which of the following is true about broad-based option plans?

Version 1

7

A) They are applicable only to senior executives.

B) They are unable to inspire commitment and retention.

C) They are capable of reinforcing either performance or retention and commitment.

D) They maximize distinctions between employee groups.

E) They have only short-term effects on employee performance.

31)

Employee stock ownership plans:

A) provide employees with the right to purchase stock at a specified (exercise) price for a fixed time period B) grant stock options to employees at all levels rather than just senior executives C) offer employees the opportunity to purchase company stock, often partially or fully matched by employer-paid stock for the employee D) provide employees with end-of-year bonuses that do not build into their base pay E) link increases in base pay to how highly employees are rated on a subjective performance evaluation

32)

According to the agency theory approach to understanding CEO compensation:

A) executive salaries bear a consistent relative relationship to the compensation of lower-level employees B) the worth of a CEO should correspond closely to some measure of company success, such as profitability or sales C) executives should not be allowed to own stock options D) executive compensation should be designed to ensure that executives have the best interests of stockholders in mind when they make decisions E) executive compensation should be regulated and monitored by government agencies

33) Which of the following is an example of a long-term incentive in an executive compensation package?

Version 1

8

A) pension plans B) base pay C) stock grants D) low-cost loans E) bonuses

34) Which of the following is an example of an employee benefit in an executive compensation package?

A) pension plans B) special parking C) stock options D) low-cost loans E) bonuses

35)

Which of the following is an example of a perquisite for executives?

A) Low-cost loans B) Life insurance C) Executive stock options D) Bonuses E) Pension plans

36) A provides two different ways of progressing in an organization, each reflecting different types of contributions to an organization's mission.

A) maturity curve B) dual career track C) broad-based option plan D) technical career ladder E) learning curve

Version 1

9

37) Which of the following is true about the compensation strategies for scientists and engineers?

A) The knowledge and skills of engineers and scientists never become obsolete and hence their salaries continue to rise during the course of their careers.

B) Due to the volatile nature of jobs and salaries in these occupations, organizations rely heavily on external market data in determining the base pay for scientists and engineers.

C) Organizations generally do not provide perks to scientists and engineers, such as flexible work schedules, large offices, and lavish athletic facilities.

D) Most scientists and engineers are not entitled to performance-based incentives such as profit sharing and stock ownership incentives.

E) Scientists and engineers generally advance their careers along the scientific track as they have few opportunities to pursue management responsibilities.

38)

A contingent worker sacrifices

in exchange for

.

A) benefits, flexibility B) income, skills C) stability, benefits D) knowledge acquisition, flexibility E) loyalty, stability

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

39) What are lump-sum bonuses? What advantages do they have when compared to merit pay?

40)

Describe the three types of incentive plans based on time.

Version 1

10

41)

Explain the "free-rider" problem associated with group compensation systems.

42)

Describe the difficulties in designing team compensation plans.

43)

Discuss the key elements in designing a gain-sharing plan.

44)

What are the advantages and disadvantages of group incentive plans?

45)

What is the purpose behind each of the four variable pay plans?

46)

Discuss the five basic elements of executive compensation packages.

Version 1

11

47)

What are dual career tracks?

48)

List the major factors that influence the design of sales compensation plans?

Version 1

12

Answer Key Test name: Chap 11_6ce 1) FALSE 2) FALSE 3) FALSE 4) FALSE 5) FALSE 6) FALSE 7) TRUE 8) FALSE 9) FALSE 10) FALSE 11) FALSE 12) FALSE 13) TRUE 14) TRUE 15) C 16) A 17) D 18) B 19) C 20) B 21) B 22) A 23) A 24) E 25) E 26) D Version 1

13

27) B 28) A 29) D 30) C 31) C 32) D 33) C 34) A 35) A 36) B 37) B 38) A 39) In the case of lump-sum bonuses, based on employee or company performance, employees receive an end-of-year bonus that does not build into base pay. Because employees must earn this increase every year, it is viewed less as an entitlement than is merit pay. Lump-sum bonuses also can be considerably less expensive than merit pay over the long run. Employees aren't particularly fond of lump-sum bonuses. After all, the intent of lump-sum bonuses is to cause shock waves in an entitlement culture. By giving lump-sum bonuses for several years, a company is essentially freezing base pay. Gradually this results in a repositioning relative to competitors.

Version 1

14

40) Incentive plans that provide for variable incentives linked to a standard expressed as time period per unit of production. One example is the Halsey 50-50 method. This plan features a split between worker and employer of any savings in direct cost. An allowed time for a task is determined via time study. The savings resulting from completion of a task in less than the standard time are allocated 50-50 (the most frequent division) between the worker and the company.

Under the Rowan plan, an employer and employee share in savings resulting from work completed in less than the standard time. The worker's incentive increases as the time require to complete the task decreases. For example, if the standard time to complete a certain task is ten hours and the worker completed it in seven hours, the worker receives a 130% of his/her hourly wage. Completion of the same task in six hours would result in a 40% increase above the hourly wage for each of the hours spent on the task.

Under the Gantt plan, the standard time for a task is purposely set a level requiring a very high level of effort to complete. Any worker who fails to complete the task in the standard time is guaranteed a preestablished wage. However, for any task completed in the standard time or less, wages are pegged at 120% of the time saved. Consequently workers' wages increase faster than production whenever standard time is met or exceeded.

41) Group compensation systems suffer from what is called the "freerider" problem where at least one person doesn't carry his or her share of the load. Top-performing employees quickly grow disenchanted with having to carry free riders and leave.

Version 1

15

42) er: These are the difficulties in designing team compensation plans: (1) Variety of teams makes it difficult to determine one consistent type of compensation plan. (2) Defining teams at too broad a level dilutes the motivational impact of incentives, yet too small a team definition encourages negative behaviours. (3) Some plans simply get too complex.

(4) Teams may not have control over all factors that go into their pay.

(5) Plans are frequently not well communicated.

Version 1

16

43) The following issues are key elements in designing a gain-sharing plan: Strength of reinforcement: Incentive pay tends to encourage only those behaviours that are rewarded.

Productivity standards: Almost all group incentive plans use a historical standard that involves the choice of a prior year's performance to use for comparison with current performance. Sharing the gains-split between management and workers: Part of the plan must address the relative share paid to management and workers of any profit or savings generated.

Scope of the formula: These can vary in the scope of inclusions for both the labour inputs in the numerator and the productivity outcomes in the denominator. Performance measures have expanded beyond traditional financial measures.

Perceived fairness of the formula: One way to ensure the plan is perceived as fair is to let employees vote on whether implementation should go forward. This and union participation in program design are two elements in plan success.

Ease of administration: Sophisticated plans with involved calculations of profits or costs can become too complex for existing company information systems.

Production variability: One of the major sources of problems in group incentive plans is failure to set targets properly. A good plan ensures that environmental influences on performance, not controllable by plan participants, should be factored out when identifying incentive levels.

Version 1

17

44) Advantages: Positive impact on organization and individual performance of about 5% to 10% per year.

Easier to develop performance measures than for individual plans.

Signal that cooperation, both within and across groups, is a desired behaviour.

Teamwork meets with enthusiastic support from most employees.

May increase participation of employees in decision-making process.

Disadvantages: Line of sight may be lessened; that is, employees may find it more difficult to see how their individual performance affects their incentive payouts.

May lead to increased turnover among top individual performers who are discouraged because they must share with lesser contributors.

Increases compensation risk to employees because of lower income stability.

45) Cash profit sharing: To educate employees about business operations and foster a "one for all" environment.

Stock ownership / options: to address employee retention concerns and recruit top-quality candidates.

Productivity / gain sharing: to support productivity and quality initiatives, to foster teamwork, and to reward employees for improvements in activities that they control.

Team/group incentives: to demonstrate organizational commitment to teams and to reinforce the need for employees to work together to achieve results.

Version 1

18

46) There are five basic elements of most executive compensation packages: (1) Base salary: Being competitive is a very important factor in the determination of executive base pay. Although formalized job evaluation still plays an occasional role in determining executive base pay, other sources are much more important. Particularly important is the opinion of a compensation committee of the company's board of directors.

(2) Bonuses: Annual bonuses play a major role in executive compensation and are primarily designed to motivate better performance. Today, bonuses are given to 90 percent of executives. The types of organizations relying almost exclusively on base salary for total direct compensation typically have one or more of the following characteristics: (1) tight control of stock ownership, (2) not-for-profit institutions, or (3) firms operating in regulated industries.

Long term incentives: By far the most common long-term incentive remains the executive stock option.

Employee benefits: Because many benefits are tied to income level, executives typically receive higher benefits than most other exempt employees. Beyond the typical benefits, however, many executives also receive additional life insurance, exclusions from deductibles for health care costs, and supplementary pension income exceeding the maximum limits permissible under legal guidelines for registered (eligible for tax deductions) pension plans.

Perquisites: Perquisites, or "perks," are designed to satisfy several types of executive needs. One type of perk could be classified as internal, providing a little something extra while the executive is inside the company: luxury offices, executive dining rooms, special parking. A second category also is designed to be company-related, but for business conducted externally: company-paid membership in clubs/associations, payment of hotel, resort, airplane, and auto expenses. The final category Version 1

19

of perquisites, called personal perks, includes such things as low-cost loans, personal and legal counselling, free home repairs and improvements, personal use of company property, and expenses for vacation homes.

47) Dual career tracks provide two different ways of progressing in an organization, each reflecting different types of contributions to the organization's mission. The first, or managerial track, ascends through increasing responsibility for supervision or direction of people. The professional track ascends through increasing contributions of a professional nature, which do not mainly entail the supervision of employees.

48) (1) the nature of people who enter the sales profession (2) organizational strategy (3) market maturity (4) competitor practices (5) economic environment (6) the product to be sold

Version 1

20

Chapter 12 The Roles of Governments and Unions in Compensation TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.

1) Government is a key stakeholder in compensation decision making. ⊚ ⊚

2)

true false

A higher minimum wage can hurt low wage workers. ⊚ ⊚

true false

3) If employees work on a statutory holiday, they may choose to take a substitute day off with pay or be paid at a premium rate for the hours worked on that day. ⊚ ⊚

4)

Meal breaks and rest periods are required during working hours, and have to be paid. ⊚ ⊚

5)

true false

true false

Just cause does not include performance issues. ⊚ ⊚

true false

6) If the difference between the work of a male orderly assistant and a female nursing assistant is that the orderly occasionally does heavy lifting, then the work is considered to be substantially different. ⊚ ⊚

Version 1

true false

1

7)

Enforcement of human rights legislation is complaint-based. ⊚ ⊚

true false

8) Employers must ensure that their compensation systems treat all groups neutrally, compensating for membership in a particular group rather than for merit. ⊚ ⊚

true false

9) Occupational segregation is the historical segregation of women into a small number of roles such as clerical, sales, nursing, and teaching. ⊚ ⊚

10)

The size of a firm is related systematically to differences in wages. ⊚ ⊚

11)

true false

true false

The wage gaps in unionized work environments tend to be larger. ⊚ ⊚

true false

12) Unions make a positive difference in wage levels, and this difference is greatest during recessionary periods and least during inflationary periods. ⊚ ⊚

13)

true false

Single-rate agreements differentiate wages on the basis of either seniority or merit. ⊚ ⊚

Version 1

true false 2

14) A COLA clause involves periodic adjustments based typically on changes in the consumer price index. ⊚ ⊚

true false

15) Lump sum awards are one-time cash payments to employees that are added to an employee's base wages. ⊚ ⊚

true false

16) Unions have become much more receptive in recent years to alternative reward systems that link pay to performance. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.

17) Which of the following statements about the role of the government in compensation is true?

A) Legislation says that overtime is paid on time compensated, not on time worked.

B) Legislation aims at protecting specific groups and also tends to expand that group's participation in the labour market.

C) Lowering interest rates by the government generally lowers manufacturing and this decreased business activity translates into decreased demand for labour.

D) Legislation excludes administrative rules regarding record keeping and statement of wages.

E) Legislation ensures that the employees are protected from exploitation and given a fair pay.

Version 1

3

18) The laws that are intended to provide an income floor for workers in society's least productive jobs are known as:

A) overtime wage laws B) disability laws C) minimum wage laws D) human rights laws E) standard hours of work laws

19) Which of the following is an employer required to provide under the Canadian employment standards acts?

A) pricing controls B) market policy C) maximum age of employment D) paid vacation E) voting rights

20)

The August holiday is not an official holiday in which of the following jurisdictions?

A) BC B) Ontario C) Yukon D) Saskatchewan E) New Brunswick

21)

Which of the following statements about overtime pay legislation is true?

Version 1

4

A) It forces pay rates at the lowest end of the scale to move up.

B) It limits the number of hours per week for certain age groups.

C) It specifies the wages paid for time worked in excess of the standard hours.

D) It limits the size of wage increases.

E) It specifies the number of mandatory paid holidays.

22) The amount by which the average pay for female workers is less than the average pay for male workers is known as the:

A) relational return B) benchmark wage C) sex ratio D) gender wage gap E) gender pay

23) Employment equity legislation requires employers to report annually to the government, for each of the four designated groups, on which of the following?

A) demographic data B) earning levels C) education D) unionization E) religion

24)

The gender wage gap:

Version 1

5

A) is not related to differences in the number of hours worked B) refers to the difference in the wage that one expects from a company and the actual wage that one receives C) issue is addressed by the pay equity legislation which is a complaint-based legislation D) refers to the amount by which the average pay for female workers is less than the average pay for male workers E) leads to the spillover effect

25)

Which of the following statements about wage gap is true?

A) Wage gap can be accounted for by the firm's compensation policies to some extent.

B) Wages of men in small firms are 54 percent higher than wages of men in large firms.

C) Women's employment is equally distributed across diverse occupations.

D) Wage gap and pay equity are interchangeable terms.

E) Wage gap is found primarily among those with higher levels of education.

26) Which of the following is intended to proactively address the effects of occupational segregation?

A) minimum wage laws B) overtime pay legislation C) differential wage legislation D) child labour laws E) pay equity legislation

27) the:

Each female job class is compared to each male job class of equal or comparable value in

Version 1

6

A) proxy comparison method B) compensation adjustment method C) job-to-job method D) proportional value method E) wage line method

28)

The four universal compensable factors are used as part of

.

A) reducing gender wage gaps B) pay equity C) job evaluation D) occupational segregation E) termination pay

29)

Which of the following is a compensable factor used in job evaluation?

A) quality B) effort C) education D) authority E) ability

30) A compensation plan where the experienced employees are paid more than the new employees is known as a:

A) two-tier pay plan B) merit differential plan C) occupation differential plan D) wage gap plan E) deferred wage plan

Version 1

7

31)

Which of the following statements about two-tier plans is true?

A) In a two-tier plan, newer employees receive higher wages than their higher seniority peers working on the same or similar jobs.

B) This plan is in accordance with the most basic precept of unionization.

C) This wage structure leads to employee satisfaction in the workplace.

D) Two-tiered wage systems can lead to hostility within the organization.

E) Two-tiered wage system increases solidarity in the union.

32) Employers seek to avoid unionization by offering workers the wages, benefits, and working conditions won in rival unionized firms in what is termed as the:

A) primary effect B) pay equity legislation C) differential wages D) tertiary effect E) spillover effect

33) Which of the following statements best describes the role of unions in wage determination?

A) During periods of higher unemployment, the impact of unions is lesser.

B) When labour is scarce, the balance of power tilts toward the employers.

C) It is the supply and demand for labour that determines wages and not the union.

D) The union insists on individual merit-based performance measures when the organization faces external competition pressure.

E) The role of unions in administering compensation is outlined primarily in the contract.

34) Non-union firms that offer similar wages, benefits, and working conditions as rival, unionized firms are benefitting from which of the following?

Version 1

8

A) merit-based pay B) spillover effect C) job evaluation D) seniority-based pay E) employment equity

35)

Which of the following is true about single-rate agreements?

A) They differentiate only on the basis of seniority.

B) They differentiate only on the basis of merit.

C) They may specify wage ranges.

D) They are usually specified for workers across all job classifications.

E) They are a phenomenon of the union sector in which a contract is negotiated which specifies that all employees hired after a given target date will receive one single lower wage than their higher seniority peers working on the same or similar jobs.

36)

Wage adjustment provisions include:

A) fringe benefits clauses B) minimum wage clauses C) reopener clauses D) severance pay plans E) wage floor clauses

37)

Unions minimize bias by using which of the following performance measures?

A) time study B) engineering standard C) team-based ratings D) past performance E) education

Version 1

9

38) Which of the following is used for wage adjustments and is negotiated at the time of initial contract negotiations, with the timing and amount specified in the contract?

A) deferred wage B) minimum wage C) opportunity wage D) living wage E) subsistence wage

39)

An alternative reward systems include:

A) relational return B) wage differential C) merit pay system D) gain-sharing E) spillover system

40)

Which of the following is true about unions and alternate reward systems?

A) International competition is very beneficial for unions.

B) Unions are becoming less receptive to alternate reward systems.

C) Gain sharing and profit sharing are types of alternate reward systems.

D) Willingness to try alternate rewards is lesser when the firm faces extreme competitive pressure.

E) The drawback of alternate rewards is that they tend to be subjective in unionized companies.

41) When employers face extreme competitive pressures, unions are perceptive to gainsharing and profit sharing which are:

Version 1

10

A) cost-of-living adjustments B) collective bargaining agreements C) spillover mechanisms D) alternative reward systems E) equity pay mechanisms

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

42) What is the role of the government in compensation?

43)

What are the provisions for paid holidays under the Canadian employee standards acts?

44) Give one reason why overtime pay is often the least costly option for contemporary employers?

45) Identify the historically disadvantaged groups whose situation is being relieved by the development of programs under the Charter of Rights and Freedoms.

46)

What are the main reasons for the wage gap?

Version 1

11

47) How do differences in occupations contribute to the gender wage gap? What do pay equity laws intend to accomplish?

48) What are the different ways in which male and female job classes are compared in the pay equity process?

49)

What are the steps in the pay equity process?

50)

What are the factors affecting wages in unionized firms?

51)

What is the impact of unions on wage and benefit levels?

Version 1

12

52)

What are the main wage adjustment provisions in collective agreements?

Version 1

13

Answer Key Test name: Chap 12_6ce 1) TRUE 2) TRUE 3) TRUE 4) FALSE 5) FALSE 6) FALSE 7) TRUE 8) FALSE 9) TRUE 10) TRUE 11) FALSE 12) TRUE 13) FALSE 14) TRUE 15) FALSE 16) TRUE 17) E 18) C 19) D 20) B 21) C 22) D 23) B 24) D 25) A 26) E Version 1

14

27) C 28) C 29) B 30) A 31) D 32) E 33) E 34) B 35) C 36) C 37) D 38) A 39) D 40) C 41) D

Version 1

15

42) Government is a key stakeholder in compensation decision making.

Governments' usual interests are whether procedures for determining pay are fair (e.g., pay equity), safety nets for the unemployed and disadvantaged are sufficient (e.g., minimum wage, unemployment compensation), and employees are protected from exploitation (e.g., overtime pay, child labour). Government policy decisions also affect compensation by affecting the supply and demand for labour.

Legislation aimed at protecting specific groups also tends to restrict that group's participation in the labour market. Government affects demand for labour most directly as a major employer. A government also indirectly affects labour demand through its purchases (military aircraft, computer systems, paper clips) as well as its public policy decisions.

Each of the 14 jurisdictions regulating employment across Canada has enacted legislation, usually named "employment standards acts," specifying minimum terms and conditions of employment. Although there are differences in specific requirements, these laws all specify a minimum hourly wage, paid vacations, paid holidays, standard hours of work and overtime pay, pay for employees who are terminated by the company, minimum age of employment, and equal pay for equal work by men and women. Administrative rules regarding record keeping, statement of wages, and deductions from wages are also prescribed.

43) The number of paid holidays varies from five to nine across the country, but all jurisdictions include New Year's Day, Good Friday, Canada Day, Labour Day, and Christmas Day. 44) Contemporary employers face an increasingly skilled workforce with higher training costs per employee and higher benefits costs. This makes overtime pay a more viable option than training more employees.

45) The disadvantaged groups are women, visible minorities, people with disabilities and Aboriginal people.

Version 1

16

46) There are 6 main reasons: Differences in qualifications and experience; Differences in work or occupation; Differences in industries and firms; Differences in work-related behaviours, including hours of work and career/life tradeoffs; Differences in union membership; and Presence of discrimination.

47) The gender pay gap is the difference between men's and women's pay, based on hourly earnings across the economy. Traditionally, female workers were segregated in occupations such as clerical, sales, nursing, and teaching. Women tend to be concentrated in the lower paid jobs and the lower grades within an organization. Gender stereotyping, undervaluing of roles that are considered to be women's work, and lack of flexible options for women with children contribute to this barrier preventing women from maximizing their full potential. Over the last 20 years, not that much has changed, other than an increase in women holding managerial jobs.

Pay equity legislation is intended to address the effects of occupational segregation and the historical undervaluing of work done by women by requiring that female-dominated jobs be compensated in the same way as male-dominated jobs of the same value. Thus, pay equity legislation is proactive, rather than complaint-based.

Version 1

17

48) In the proportional value or wage line method—for female job classes with no appropriate male comparators under the job-to-job system—the wage line for male job classes is applied when setting pay for female classes. In the job-to-job method, each female job class is compared to each male job class of equal or comparable value. In the proxy comparison method—when pay equity cannot be achieved through job-to-job or proportional value methods—female job classes are compared to similar female job classes that have achieved pay equity with another employer.

49) The steps are: Identify the unit for which the pay equity plan will be developed.

Identify job classes with similar duties and responsibilities.

Identify male and female job classes.

Assess the value of jobs using a gender-neutral (free of gender bias) job evaluation system based on the criteria of: Compare male and female job classes using one of the following (varies by jurisdiction): Identify where compensation adjustments are required due to disparities in compensation between male and female job classes of equal value.

Develop a pay equity plan that sets out how the differences in compensation that were discovered through the pay equity process will be remedied, containing: Make compensation adjustments, up to limits prescribed in the legislation.

Version 1

18

50) The general factors affecting wages in unionized firms include the impact of the union on: (1) general wage and benefit levels, (2) the structure of wages, (3) non-union firms (also known as spillover effect), and (4) wage and salary policies and practices in unionized firms.

51) Union workers earn approximately 10% more than their non-union counterparts. The union-non-union wage differential is higher for bluecollar and less-skilled workers than for white-collar and more-skilled workers, and higher for women than for men.

The size of the gap varies from year to year. During periods of higher unemployment, the impact of unions is greater. During strong economies, the union-non-union gap is smaller. Part of the explanation for this phenomenon is related to union resistance to wage cuts during recessions and the relatively slow response of unions to wages increases due to multiyear collective agreements.

Employees in unionized settings also enjoy better benefits, as the goal of a union is to continually strive for a better total compensation package for their members, which includes not only better wages but also better benefits such as health, leave, and pension. Research indicates that the presence of a union adds about 20% to 30% to employee benefits. https://habitat.inkling.com/api/files/sn_328d/trunk/head/s9ml/chapter012 /%5bremark:0e107f52b78e47ccbeaae6a4c42e5068%5d

Version 1

19

52) Frequently, in multiyear contracts, some provision is made for a wage adjustment during the term of the contract. There are three major ways these adjustments might be specified: (1) deferred wage increases, (2) reopener clauses, and (3) cost-of-living adjustments (COLAs), or escalator clauses. A deferred wage increase is negotiated at the time of initial contract negotiations, with the timing and amount specified in the contract. A reopener clause specifies that wages, and sometimes such non-wage items as pension and benefits, will be renegotiated at a specified time or under certain conditions. Finally, a COLA clause, as noted earlier, involves periodic adjustments based typically on changes in the consumer price index.

Version 1

20

Chapter 13 Compensation Budgets and Administration TRUE/FALSE - Write 'T' if the statement is true and 'F' if the statement is false.

1) Announcements of layoffs and plant closings always have negative effects on stock prices as investors anticipate poor cash flow and increased costs. ⊚ ⊚

2)

true false

Using contingent employees makes it more difficult to control labour costs. ⊚ ⊚

true false

3) A planned level rise is the percentage increase in average pay that is planned for a budget period. ⊚ ⊚

true false

4) A Consumer Price Index (CPI) of 120 in Ontario and 160 in Toronto means that it costs more to live in Toronto. ⊚ ⊚

true false

5) Changes in the CPI only indicate whether prices have increased more or less rapidly in an area since the base period. ⊚ ⊚

6)

true false

The CPI does not necessarily reflect an individual employee's cost of living. ⊚ ⊚

Version 1

true false

1

7)

Merit grids make it difficult to control costs because of the varied increases to employees. ⊚ ⊚

8)

Range minimums and maximums reflect the market value of output produced. ⊚ ⊚

9)

true false

Green circle rates pay rates above the range maximum. ⊚ ⊚

12)

true false

Red circle rates are pay rates below the range minimum. ⊚ ⊚

11)

true false

A compa-ratio of below 1.00 indicates lower turnover. ⊚ ⊚

10)

true false

true false

Costing out wage proposals is commonly done prior to recommending pay increases. ⊚ ⊚

true false

13) If the pay system is not based on work-related or business-related logic, then the wisest course is probably to avoid formal communication until the system is put in order. ⊚ ⊚ Version 1

true false 2

14)

Decentralized pay structures are generally easier to administer. ⊚ ⊚

true false

15) Competency-based plans provide more flexibility for manager to assign employees to a wider variety of work. ⊚ ⊚

true false

16) Employee sell-service allows access to choices about healthcare coverage and compensation recommendations. ⊚ ⊚

true false

MULTIPLE CHOICE - Choose the one alternative that best completes the statement or answers the question.

17) Which of the following factors helps in the reduction of labour costs?

A) Increasing the number of employees B) Making early retirement less attractive C) Expanding the core workforce D) Paying more benefits and less cash E) Paying the same wages to fewer employees

18)

The most common approach to managing labour costs during a recession involves:

Version 1

3

A) reducing employees' variable pay B) using competitive market rates C) reducing the workforce D) using a top-down budgeting E) hiring only core employees

19)

A group of employees with whom a strong and long-term relationship is desired is:

A) part-time employees B) temporary workers C) contingent workers D) core employees E) contract employees

20)

Which of the following is true about core employees?

A) They are employees whose employment agreements cover only short, specific time periods.

B) They help achieve flexibility and control labour costs.

C) They have many varied compensation packages.

D) They bring about an increase in the fixed portion of labour costs.

E) They can be contracted and expanded more easily than the contingent workers.

21)

Employers achieve flexibility and control labour costs by:

A) expanding the permanent workforce B) hiring only full-time employees C) basing employee payment decisions on manager preferences D) forming strong and long-term relationships with all employees E) expanding or contracting the contingent workforce

Version 1

4

22)

Which of the following factors influences decisions made using the top-down approach?

A) estimating the pay increase budget B) providing consultation to managers C) analyzing forecasts D) monitoring budget versus actual increases E) reviewing and revising forecasts and budgets with management

23)

An index that measures changes in prices over time is known as the:

A) Consumer Price Index B) Producer Price Index C) Cost of Living Index D) Manufacturer Price Index E) Cost Price Index

24) The budgeting approach that requires senior management of each unit to estimate the pay increase for the entire organization unit is known as the:

A) top-down budgeting approach B) decentralized budgeting approach C) bottom-up budgeting approach D) employee-participation budgeting approach E) peer budgeting approach

25) To help ensure that different managers grant consistent increases to employees with similar performance ratings and in the same position in their ranges one should utilize:

Version 1

5

A) outsourcing techniques B) merit grids C) job security measures D) management by objectives E) ad hoc reshuffling

26)

Which of the following is a step in the bottom-up approach to controlling salary level?

A) examining the current year's rise in average wages B) managers to forecast pay increase recommendations C) determining the company's ability to pay D) analyzing the impact of cost-of-living increases on wages E) instructing managers in compensation policies and techniques

27)

Which budgeting method places most responsibility on individual managers?

A) the bottom-up budgeting method B) the control to compa-ratio budgeting method C) the planned level rise budgeting method D) the top-down budgeting method E) the unit-level budgeting method

28)

Range minimums and maximums reflect:

A) the value placed on work B) the market value of an employee's skills and abilities C) market fluctuations in wage rates D) the market value of the output produced E) government regulations of wages

29)

A compa-ratio greater than 1.00 typically occurs because:

Version 1

6

A) promotion rates are low B) majority of employees are new hires C) majority of workers are poor performers D) most workers are high in seniority E) turnover is high

30)

The compa-ratio reflects the relationship of:

A) rates paid for satisfactory performance to rates paid for exceptional performance B) average rates actually paid to the midpoint of the range C) company profits of the present year to those of the previous year D) red circle rates to green circle rates E) range maximums to range minimums

31) pay?

Which of the following depends on performance and is not added to employees' base

A) overtime pay B) provident fund C) variable pay D) merit pay E) across-the-board increase

32) Which of the following statements is true about analyzing the value added of pay decisions?

A) It is a practice followed by all organizations regularly.

B) It encourages looking at compensation as an investment as well as an expense.

C) It increases the focus of employees as individuals and not as human capital.

D) It focuses on increasing the turnover of top employees.

E) It restricts thinking to treating compensation as only an expense.

Version 1

7

33)

The marketing approach focuses on which of the following?

A) increase guides B) range maximums C) bottom-up budgeting D) strategy E) merit pay

34) Which of the six steps in the communication compensation process involves letting employees know the benefits of overall pay policies but not specific details?

A) developing a communication strategy that will accomplish the original objectives B) collecting information from executives, managers, employees concerning their understanding of the existing compensation programs C) defining the objectives of the compensation program D) the compensation program E) determining the most effective media in light of the message and the audience

35) A management strategy that gives separate organization units the responsibility to design and administer their own systems is known as:

A) centralization B) outsourcing C) tactical planning D) decentralization E) authoritarianism

36)

A possible side effect of a decentralized pay structure is that:

Version 1

8

A) there is decreased opportunity for the inconsistent treatment of employees B) organizations require larger compensation staffs C) pushing responsibilities and expenses close to the units, managers, and employees affected by them may cause doubt that decisions are business related D) it may be difficult to transfer employees from one business unit to another E) there is decreased potential for pay discrimination

37) Which of the following processes is a change agent in restructuring compensation policies?

A) reemployment B) reverse engineering C) benchmarking D) reengineering E) broadbanding

38)

Which of the following is an advantage of outsourcing?

A) It brings about greater responsiveness to unique and specific employee problems.

B) It enables more control over decisions that are often critical to all employees.

C) It results in the preservation of information from rivals and competitors.

D) It ensures short-term cost savings to the business.

E) It reshapes the compensation function to make it less client focused and more promotion focused.

39) Beta Systems decided to outsource some of its operations. Which of the following will be a short-term advantage for the company?

Version 1

9

A) increased ability to focus on activities that do not directly contribute to the strategic objectives of the company B) more responsiveness to employee-manager problems C) cost savings D) more control over decisions E) less risk of information being leaked to rivals

40) Which of the following would increase the controls and guidelines inherent in any pay plan?

A) broadbanding B) replacing bonuses with merit grids C) using skill-based plans instead of job evaluation D) reducing the impact of range minimum and maximums E) green circling

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

41) Labour costs are a function of which three factors?

42) Which are the two groups of employees that employers establish different relationships with?

43)

What are the main issues with workforce reductions?

Version 1

10

44)

What is the difference between bottom-up and top-down budgeting?

45)

Describe the steps within the compensation forecasting cycle of bottom-up budgeting.

46)

What can employers do with red circled and green circled employees?

47)

What are the six stages in the compensation communication cycle?

48) Discuss how centralization and decentralization affect the structuring of the compensation function.

49)

How do organizations deal with the issues that arise from decentralization?

Version 1

11

50)

What balance is required in order to manage compensation?

Version 1

12

Answer Key Test name: Chap 13_6ce 1) FALSE 2) FALSE 3) TRUE 4) FALSE 5) TRUE 6) TRUE 7) FALSE 8) FALSE 9) FALSE 10) FALSE 11) FALSE 12) TRUE 13) TRUE 14) FALSE 15) TRUE 16) FALSE 17) E 18) C 19) D 20) D 21) E 22) A 23) A 24) A 25) B 26) E Version 1

13

27) A 28) A 29) A 30) B 31) C 32) B 33) D 34) A 35) D 36) D 37) D 38) D 39) C 40) B 41) There are three main factors to control in order to manage labour costs: employment (e.g., number of employees and the hours they work), average cash compensation (e.g., wages, bonuses), and average benefit costs (e.g., health and life insurance, pensions).

42) The two groups are commonly referred to as core employees, with whom a strong and long-term relationship is desired, and contingent workers, whose employment agreements may cover only short, specific time periods. Rather than expand or contract the core workforce, many employers achieve flexibility and control labour costs by expanding or contracting the contingent workforce. Hence, the fixed portion of labour costs becomes smaller and the variable portion larger. And the contingent labour force can be expanded or contracted more easily than the core.

Version 1

14

43) First, if exit incentives cannot be effectively targeted and all employees are eligible, those who are most employable and most able to find another good job may be most likely to leave, with the result that the company has paid its top performers to leave. Second, workforce reductions can harm employee relations, particularly if they are perceived as unfair. Third, organizations that make large workforce cuts also experience greater voluntary turnover. Fourth, workforce reductions are expensive in terms of administrative costs, disruption of work processes and customer service, severance pay, and exit incentives (if used). Fifth, some companies are so "lean" in their staffing that there may be little room to cut the workforce without reducing production or service levels. Finally, if cuts are made too deep, the organization will be poorly positioned to increase revenue when business picks up again.

44) Bottom-up budgeting is a method of salary control that requires managers to forecast the pay increases they will recommend during the upcoming plan year.

Top-down budgeting requires top management of each organizational unit to estimate the pay increase budget for that unit. Once the total budget is determined, it is then allocated to each manager, who plans how to distribute it among their employees.

Version 1

15

45) 1. Instruct managers in compensation policies and techniques. Train managers in the concepts of a sound pay-for-performance policy and in standard company compensation techniques such as the use of pay increase guidelines and budgeting techniques. Also communicate the salary ranges and market data. 2. Distribute forecasting instructions and worksheets. Furnish managers with the forms and instructions necessary to pre-plan increases. Each employee's performance rating history, past raises, training background, and past incentives are all included.

Guidelines for increases based on merit, promotion, and equity adjustments are provided, and all the worksheets are linked so that the manager can model pay adjustments for each employee and see the budgetary effects of those adjustments immediately. Some argue that providing such detailed data and recommendations to operating managers makes the system too mechanical. Pay histories ensure that managers are at least aware of this information and that pay increases for any one period are part of a continuing message to individual employees, not some ad hoc response to short-term changes. Provide consultation to managers. Offer advice and salary information services to managers upon request. An online approach makes it much easier to request and apply such guidance. 4. Check data and compile reports.

Audit the increases forecasted to ensure that they do not exceed the pay guidelines and are consistent with appropriate ranges. Then use the data to feed back the outcomes of pay forecasts and budgets. 5. Analyze forecasts. Examine each manager's forecast and recommend changes based on noted inequities between different managers. 6. Review and revise forecasts and budgets with management. Consult with managers regarding the analysis and recommended changes. Obtain topmanagement approval of forecasts. 7. Conduct feedback with management. Present statistical summaries of the forecasting data by department and establish unit goals. 8. Monitor budgeted versus actual Version 1

16

increases. Control the forecasted increases versus the actual increases by tracking and reporting periodic status to management.

46) Most employers "freeze" red circle rates until the ranges are shifted upward by market update adjustments so that the rate is back within the range again. An organization also has the option to combine a salary freeze with the use of merit bonuses, which, unlike merit increases, do not become part of base salary.

Where green circles occur, they are usually swiftly increased to the range minimum. If red and/or green circle rates become common throughout an organization, the design of the ranges and the evaluation of the jobs should be reexamined.

47) The six stages in the compensation communication cycle are: defining the objectives and goals of the communication program, obtaining information on the current compensation program, developing the strategy for the best overall communication approach, determining the media and tools that are most appropriate, conducting communication sessions and evaluating the success of the program.

Version 1

17

48) An important issue related to structuring the function revolves around the degree of decentralization (or centralization) in the overall organization structure. Decentralized refers to a management strategy of giving separate organization units the responsibility to design and administer their own systems. This contrasts with a centralized strategy, which locates the design and administration responsibility in a single corporate unit. More decentralized organizations have relatively small corporate compensation staffs (three or four professionals). Their primary responsibility is to manage the systems by which executives and the corporate staff are paid. These professionals operate in a purely advisory capacity to other organization subunits. The subunits, in turn, may employ compensation specialists. Or the subunits may choose to employ only human resources generalists rather than compensation specialists, and may turn to outside compensation consultants to purchase the expertise required on specific compensation issues.

Decentralizing certain aspects of pay design and administration has considerable appeal. Pushing these responsibilities (and expenses) close to the units, managers, and employees affected by them may help to ensure that decisions are business related.

49) The answer to issues arising from decentralization can be found in developing a set of corporate-wide principles or guidelines that all must meet. These principles may differ for each major pay technique. For example, GE's business units worldwide have the flexibility to design incentive plans tailored to each unique business unit's strategies and cultures. The only guidance is to ensure that the plans adhere to GE's basic beliefs, improve financial and business objectives, and maintain or enhance GE's reputation.

Version 1

18

50) Some balance between strict controls and chaos is required to ensure that pay decisions are directed at the organization's goals yet permit sufficient flexibility for managers and employees to respond to unique situations.

Version 1

19