Deck 4: Components of Compensation Strategy

Question 1

One major advantage of job evaluation programs is that they require the use of comprehensive job descriptions.

Answer 1

False

Question 2

Which of the following is a reason why employees may prefer base pay over performance pay?

A) Performance pay is more predictable.
B) Base pay is directly related to their performance level.
C) They dislike uncertainty about their compensation.
D) Market conditions are always changing.

Answer 2

C

Question 3

Competency-based systems have been proven valid, given the wide body of research associated with this compensation system.

Answer 3

False

Question 4

Johnny is compensated based on a rate of $25.00 per hour worked. Which of the following terms best describes the manner in which Johnny is compensated?

A) commission
B) wage
C) piece rate
D) salary

Question 5

Which of the following is an objective of variable pay?

A) to help retain long-service employees
B) to help link individual performance to individual pay
C) to help promote cost savings initiatives by employees
D) to help keep labour costs down

Question 6

As a human resource consultant, you have been asked to provide some rationale why an organization may decide to use base pay as a cornerstone for a compensation scheme. Which of the following notions would you advance in supporting your argument?

A) It provides an organization with more labour flexibility in the allocation of tasks.
B) It guarantees employee performance and aligns salaries to performance.
C) It is the most popular; hence, the organization should use it.
D) Unions are most likely to agree with management's approach, given this scheme encourages individual performance.

Question 7

As the new owner of a car dealership, you have become concerned with some behaviour being displayed by most of your sales force. You have decided to change the compensation systems. Yet, you are very concerned with your ability to meet payroll if sales decrease. Which of the following pay plans should you consider using?

A) employee stock plans
B) targeted incentives
C) extensive benefits
D) competency-based plan

Question 8

Firms using a human relations strategy tend to embrace indirect pay, often making indirect pay a cornerstone of their compensation strategy.

Question 9

An advantage of base pay is that it directly links pay with output or performance.

Question 10

An advantage of indirect pay is that benefits receive more favourable income tax treatment than direct pay.

Question 11

Which of the following steps is NOT considered part of formulating the compensation strategy?

A) determining actual dollar values for jobs and individual employees
B) determining the total level of compensation to provide
C) determining how each of the mix choices should be structured
D) determining the mix of compensation components

Question 12

Which of the following conditions make it impractical to use output-related pay?

A) Output is easy to measure.
B) Output is very stable.
C) Output cannot be controlled by the individual employee.
D) Output is easy to price in terms of its value to the employer.

Question 13

A particular company wants to make sure employees feel they are appreciated, while at the same time ensuring key employees have a sense of loyalty towards the company. Which of the following systems does this company most likely use?

A) benefits
B) performance pay
C) indirect pay
D) base pay

Question 14

Generally, research supports the notion that employees prefer compensation strategies that have performance pay as the key compensation mechanism.

Question 15

Pay for knowledge systems are beneficial for organizations that require great task flexibility from their labour force.

Question 16

As an employer, you believe it is always a good idea to pay people for their contributions to organizational results. Which of the following plans would likely be the key component of the compensation plan?

A) indirect pay
B) base pay
C) pay for knowledge
D) performance pay

Question 17

A particular organization wants to include in their compensation system some element of organizational performance linkage, while at the same time it wants to encourage employee commitment. In addition to base pay, which of the following would most likely be included in this compensation mix?

A) merit pay
B) piece rates
C) profit sharing
D) targeted incentives

Question 18

The main types of individual performance pay are piece rates, commissions, merit pay, and goal-sharing plans.

Question 19

Performance pay plans are difficult to administer and have a high discontinuation rate.

Question 20

The two key questions that must be addressed in designing any compensation system are: a) What role should each of the three compensation components play in the compensation mix? and b) What total level of compensation should be provided?

Question 21

Which of the following is an example of mandatory indirect pay?

A) major health benefits such as medical coverage
B) registered retirement savings plans (RRSPs) benefits
C) employee services
D) workers' compensation benefits

Question 22

Your executive vice president has asked you to explain the basic notion of "skill blocks" within the context of skill-based pay systems design. What two variables would you emphasize?

A) different skills and depth of each skill
B) skill certification and criterion
C) key competencies and training requirements
D) broad banding and market value

Question 23

Which of the following is the most important potential disadvantage of performance pay?

A) It increases the need for layoffs in poor economic conditions.
B) It does not fit well with high-involvement management.
C) It is mainly effective in small companies.
D) It does not pay off for some employers.

Question 24

A flexible benefits system with cost sharing on individual benefits is a good fit for which type of firm?

A) human relations firm
B) high-involvement firm
C) classical firm
D) firm with no managerial strategy

Question 25

As a general rule, organizations using a high-involvement managerial strategy use indirect pay as a way to encourage which of the following relationships?

A) employer-community relationship
B) employee-task relationship
C) employer-employee relationship
D) employer-union relationship

Question 26

As a human resource specialist, you have been asked by your organization to provide recommendations on which base pay method to use, given that the human resources department has very limited human capital and financial resources. Which of the following methods would be on top of your list of recommendations?

A) job evaluation
B) person-based pay
C) competency-based pay
D) market pricing

Question 27

Which statement best describes the difference between pay for knowledge systems (PKS) and job-based pay systems?

A) Pay for knowledge systems involve basing pay on the capabilities of individuals, and job-based pay is based on the characteristics of the job.
B) Pay for knowledge systems are applied to managerial employees, and job-based pay is applied to operational-level employees.
C) Pay for knowledge systems are more widely used by Canadian firms than job-based pay systems,
D) Pay for knowledge systems involve low training costs and are easier to administer than job-based pay systems,

Question 28

Which of the following is NOT a key issue in competency-based pay systems?

A) identifying competencies that demonstrably affect performance
B) devising methods to measure achievement of each competency
C) providing learning opportunities
D) developing the merit pay grid

Question 29

Which of the following variables offers the most likely explanation for the decrease in popularity of "defined benefit plans" by employers in Canada?

A) They provided poor returns on pension plan investments, and longevity of employees increased.
B) Defined benefit plans are simply not popular among employees.
C) They help organizations plan more accurately; hence, they make it easier to fund these liabilities.
D) Employers believe defined contribution plans are much more unpredictable from a funding perspective.

Question 30

Which of the following refers to job evaluation?

A) determining how well a job is performed
B) surveying the market
C) ranking all jobs according to their value to the firm
D) establishing the skill level of each employee

Question 31

Which of the following statements relating to the notion of pay for knowledge is true?

A) There is little empirical evidence supporting the validity of competency-based pay models.
B) Competency-based pay models are usually associated with operational level roles.
C) Pay for knowledge requires very detailed job descriptions for every role in an organization.
D) Pay for knowledge fits well with classical management styles, requiring employee flexibility in skill sets.

Question 32

As a consultant, you have been asked by an organization to provide a menu of indirect benefits that the employer does not have to provide by law. Which of the following would you NOT include in your menu?

A) employment insurance
B) company pension plan
C) psychological counseling
D) supplemental medical coverage

Question 33

Which methods are used to establish base pay?

A) market pricing, job evaluation, and pay for knowledge
B) job analysis, competency testing, and demographics
C) tenure, job preview, and environmental analysis
D) knowledge, education, and market pricing

Question 34

Peter, a manager at a local manufacturing firm, is perplexed that employees tend to respond to management's request by evoking the dreaded "That is not on my job description," or "That is above my pay grade." From a compensating perspective, which base pay method is normally associated with the aforementioned responses?

A) market pricing
B) job evaluation
C) competency-based pay
D) skill-based pay

Question 35

Which pay type usually makes up a small proportion of total compensation, and may not be used at all by some employers?

A) mandatory benefits
B) wages
C) merit pay
D) salaries

Question 36

Which of the following base pay methods best supports behaviours needed by high-involvement firms?

A) market pricing
B) pay for knowledge
C) job evaluation
D) broad banding

Question 37

Your organization has come to realize that roles occupied by women seem to be concentrated in the lower-wage areas of your organization. Which of the base pay methods is your organization most likely using?

A) job evaluation
B) competency-based
C) market pricing
D) skill-based

Question 38

As the owner of a large hotel, you expect your employees to be flexible, learn a variety of skills, and shift around from one job to another as needed. Which of the following plans will best fit your needs?

A) competency-based pay
B) skill-based pay
C) team-based pay
D) piece rates

Question 39

Your company offers you pay for time not worked, disability benefits, supplemental medical coverage, and a full range of free employee services. These items refer to which component of the compensation mix?

A) direct pay
B) base pay
C) indirect pay
D) performance pay

Question 40

Which of the following best explains why medical and dental coverage can be purchased more cheaply by the employer than the employee?

A) indexation
B) economies of scale
C) utility
D) dividends

Question 41

Briefly describe the three main categories of performance pay, and provide examples for each category.

Question 42

Explain why organizations pursuing a high-involvement management strategy may find the notion of offering indirect pay to employees somewhat problematic and at odds with the principles of high involvement?

Question 43

Identify and briefly describe the issues in developing a skill-based pay system.

Question 44

Briefly explain the three methods for establishing base pay.

Question 45

Briefly discuss the advantages and disadvantages of using indirect pay.

Question 46

According to the text, what are the key conditions for using output-related pay?