Deck 10: Managing Compensation

Question 1

In order for a compensation system to work well,it must:

A) enable the firm to achieve its objectives.
B) guarantee low employee turnover.
C) follow an egalitarian strategy.
D) meet federal guidelines.

Answer 1

A

Question 2

The perceived fairness of what an employer pays,relative to what other employers pay for the same type of labor,is known as:

A) distributive justice.
B) egalitarianism.
C) internal equity.
D) external equity.

Answer 2

D

Question 3

The package of quantifiable rewards an employee receives for his/her labors is called ________.

Answer 3

total compensation

Question 4

A company using a labor market model holds the philosophy that:

A) the wage rate for any given job is set at the point where the supply of labor equals the demand for that labor in the marketplace.
B) internal equity is more important than external equity in a balanced labor market.
C) egalitarian pay policies are more effective than elitist policies when labor demand is high.
D) nonmonetary rewards are more effective motivators than monetary rewards.

Question 5

Indirect compensation in a pay mix typically includes:

A) hourly wages for overtime.
B) health insurance and vacation time.
C) special perks based on status in the company.
D) incentives and bonuses periodically paid to an employee.

Question 6

Employee earnings:

A) correlate directly with employee job satisfaction.
B) are the most important factor in job acceptance.
C) are relatively easy for organizations to manage.
D) affect employees economically and psychologically.

Question 7

A company designs its compensation system around the philosophy that employees exchange their skills and contributions for pay.As a consequence,employees feel fairly compensated when the ratio of their inputs and outputs is equivalent to those of other employees whose job demands are similar to their own.This company's compensation system is based on a ________ compensation model.

A) balanced equity
B) labor market
C) free market
D) distributive justice

Question 8

________ is a program designed to reward employees for good performance.

Question 9

In the opening case in Chapter 10,a secretary complains that janitors make more money than she does.Her complaints and Dr.Smith's response show that Sigma's compensation system:

A) may lack internal equity.
B) is a decentralized pay system.
C) relies on individual-based pay.
D) uses variable pay to induce performance.

Question 10

In the opening case in Chapter 10,an experienced computer programmer complains that the starting salary for new hires at Sigma,Inc.is 15% more than his current salary.Dr.Smith's answer reveals that Sigma's compensation system is built on a(n)________ compensation model.

A) balanced equity
B) labor market
C) free market
D) egalitarian

Question 11

You are trying to convince the management of Marcelle,Inc.to pay its employees the "going rate," no more,no less.You are trying to:

A) reach external equity.
B) reach internal equity.
C) reduce Marcelle's work force.
D) increase Marcelle's work force.

Question 12

Pay incentives make up the greatest percentage of total compensation for employees.

Question 13

Employees' total compensation consists of which of the following?

A) Base compensation, personnel costs, payroll
B) Benefits, pay incentives, personnel costs
C) Base compensation, pay incentives, indirect compensation
D) Payroll, pay incentives, base compensation

Question 14

Job compensation directly affects how much labor costs detract from or contribute to business profitability.

Question 15

Perquisites,also called "perks" are best described as:

A) special benefits reserved for upper-level managers.
B) stock options available to long-term employees.
C) indirect compensation, such as vacation.
D) fixed pay rewarded regularly.

Question 16

The distributive justice model is based on the idea that:

A) employees prefer keeping salary issues private.
B) employers pay what employees deserve to receive.
C) employees make input/output comparisons to their co-workers.
D) employers will never pay above-market wages unless external equity occurs.

Question 17

The benefits portion of an employee's pay averages 42% of the total compensation package.

Question 18

Base compensation refers to:

A) health insurance and time off.
B) fixed pay received on a regular basis.
C) perks determined by status within the company.
D) bonuses that underpin the employee's total compensation.

Question 19

According to your text,which of the following questions is LEAST relevant to developing an effective compensation plan?

A) Will compensation link pay with group performance?
B) Will the compensation plan be developed by HR managers?
C) Will compensation decisions be made by unit managers?
D) Will the compensation plan emphasize nonmonetary rewards?

Question 20

Cornilia and Janice have similar jobs at different firms.Janice is compensated with higher pay and better benefits than Cornilia,which bothers Cornilia.Cornilia's concern reflects the compensation issue of:

A) job versus individual pay.
B) external equity.
C) internal equity.
D) fixed versus variable pay.

Question 21

The distributive justice model of pay equity holds that the wage rate for a given occupation is set at a point where the labor supply and labor demand are equally distributed.

Question 22

A performance-contingent compensation system bases pay upon:

A) employee status.
B) specified hours.
C) required skills.
D) units produced.

Question 23

Variable compensation takes a variety of forms,including:

A) base salary.
B) hourly wages.
C) profit sharing.
D) disability insurance.

Question 24

Membership-contingent compensation provides a similar wage to every employee in a given group,so long as they perform their job satisfactorily.

Question 25

The perceived fairness of an employee's pay relative to what other employees are being paid for the same labor describes the concept of internal equity.

Question 26

Additional Case 10.1
Brighton Manufacturing is reviewing its compensation system. The CEO wants employees to be paid wages and benefits comparable to Brighton's competitors. He wants a system that allows for maximum flexibility in reassigning workers to different jobs without requiring compensation adjustments each time. The Finance VP suggests that the company link compensation costs more closely to productivity and profit. When profits are down, compensation costs should be reduced as well. The Finance VP also believes that employees should be paid for what they produce, not for their time, and the compensation program should apply to all employees equally. The VP of HR suggests that the key to the company's success is their employees and advocates an individual-based compensation plan. People should be paid for their skills or knowledge, not just because they are fulfilling certain jobs. The VP of HR also feels that it would be simpler to implement a compensation system by level rather than by job.
Refer to Additional Case 10.1.The Finance VP would most likely favor a(n):

A) variable pay system.
B) membership-based system.
C) individual-centered system.
D) egalitarian compensation system.

Question 27

Rose works for a home interiors company.She hostesses several parties a week and sells various kinds of home decorations.She receives a commission on all that she sells.Rose receives:

A) fixed compensation.
B) membership-contingent compensation.
C) performance-contingent compensation.
D) risk sharing rewards.

Question 28

Balancing equity ensures that employees with seniority will receive greater compensation than more recent hires.

Question 29

Balancing equity is most likely difficult because:

A) EEOC regulations are extensive and complicated.
B) internal and external equity often oppose one another.
C) open pay employers strive primarily for internal equity.
D) managers prefer focusing on establishing external equity.

Question 30

________ is the perceived fairness of the pay structure within a firm.

Question 31

On average,________ of a U.S.employee's pay is variable.

A) 5%
B) 10%
C) 15%
D) 20%

Question 32

Additional Case 10.1
Brighton Manufacturing is reviewing its compensation system. The CEO wants employees to be paid wages and benefits comparable to Brighton's competitors. He wants a system that allows for maximum flexibility in reassigning workers to different jobs without requiring compensation adjustments each time. The Finance VP suggests that the company link compensation costs more closely to productivity and profit. When profits are down, compensation costs should be reduced as well. The Finance VP also believes that employees should be paid for what they produce, not for their time, and the compensation program should apply to all employees equally. The VP of HR suggests that the key to the company's success is their employees and advocates an individual-based compensation plan. People should be paid for their skills or knowledge, not just because they are fulfilling certain jobs. The VP of HR also feels that it would be simpler to implement a compensation system by level rather than by job.
Refer to Additional Case 10.1.The CEO is primarily concerned about:

A) external equity.
B) skill-based pay.
C) distributive justice.
D) internal equity.

Question 33

A membership-contingent compensation system pays employees:

A) for the number of hours during which they perform their assigned jobs.
B) on the basis of the value of the job they perform.
C) on the basis of the skills used to perform their jobs.
D) for how well they do their particular job.

Question 34

Companies using performance-based compensation systems tend to be:

A) publicly-held corporations in competitive markets.
B) smaller, rapidly growing companies that face strong competitive pressures.
C) larger firms with several layers of management that operate in relatively stable markets.
D) large firms that desire to break out of the "pack" and distinguish themselves from competitors.

Question 35

An emphasis on external equity is most important for:

A) large, global corporations.
B) established firms in highly stable markets.
C) newer, smaller firms in quickly changing markets.
D) privately owned firms in highly competitive industries.

Question 36

The primary reason variable pay is the norm in U.S.industry is because it correlates labor costs with production costs and enhances a company's competitive position.

Question 37

As an employee's base pay increases,it is likely that the percentage of variable pay that he or she receives will decrease.

Question 38

Variable compensation systems work best:

A) with smaller, less well-established firms with younger employees.
B) in difficult economies with high rates of inflation.
C) when the job market is flooded with qualified workers.
D) in larger, established companies that need significant productivity improvement.

Question 39

According to your text,as employees' base pay increases,their:

A) variable pay decreases.
B) overall compensation stabilizes.
C) nonmonetary compensation decreases.
D) overall compensation is more subject to risk.

Question 40

The relative emphasis placed on performance versus membership depends largely on the organization's culture and beliefs of top management.

Question 41

Egalitarian compensation systems are:

A) problematic because of increased tensions between co-workers.
B) more common in older businesses with mature products.
C) important to developing a more stable work force.
D) becoming common in competitive environments.

Question 42

Garden of the Gods' (GOTG)employees are compensated according to their organizational level,with upper-level managers receiving more compensation than lower-level managers.GOTG uses a(n)________ pay system.

A) elitist
B) egalitarian
C) internally equitable
D) knowledge-based

Question 43

A compensation system that assumes that the tasks being performed and the contribution of those tasks to the company are the best criteria for setting the wage is a(n)________-centered compensation system.

A) performance
B) individual
C) equity
D) job

Question 44

Firms that use nonmonetary rewards are most likely trying to:

A) reinforce achievement and sales growth.
B) foster an internally competitive climate.
C) develop responsibility among employees.
D) emphasize customer service and loyalty.

Question 45

________ is the perceived fairness of individual pay decisions.

Question 46

An individual-centered compensation system:

A) focuses on employees' contribution and increases compensation based on the employee's ability to perform more duties successfully.
B) assumes that the tasks being performed, and the contribution of those tasks to the company, provide the best criteria for setting the wage pay system.
C) pays based on the number of hours during which the employees perform their assigned job.
D) stresses the value and prestige of the job being performed.

Question 47

Companies that emphasize monetary rewards are primarily associated with:

A) volatile markets.
B) high customer service demands.
C) high job security.
D) cross-functional teams.

Question 48

An individual-based pay policy works best in which of the following situations?

A) Employees may have many opportunities to learn new skills.
B) Employees are expected to move up "through the ranks."
C) Employee turnover is low and jobs don't change often.
D) Jobs are standardized within the industry.

Question 49

Which of the following is NOT a criticism of skill-based compensation systems?

A) Too much labor specialization
B) Unspecific job qualifications
C) Higher labor costs
D) Workplace chaos

Question 50

Advocates of skill-based pay argue that it:

A) diminishes the need for changing technology.
B) improves employee specialization.
C) reduces absenteeism.
D) enhances recruitment.

Question 51

The stockholders are concerned about the cost of perquisites.Management wants maximum flexibility to move people among jobs without having to adjust their compensation.Management also wants more joint-task accomplishment and better cooperation among employees.A(n)________ compensation system will reinforce all these goals.

A) elitist
B) variable
C) egalitarian
D) job-centered

Question 52

A company designing a compensation plan needs to make several decisions.Explain a company's pay options in terms of: fixed versus variable pay,performance versus membership,and individual versus job-based system.

Question 53

Define the concepts of internal and external equity,describing two basic models a company may use,and explain how the objectives of internal and external equity can conflict.

Question 54

An emphasis on monetary rewards will generally reward a company with:

A) more achievement and responsibility among employees.
B) an internal climate of cooperation among employees.
C) long-term employee commitment.
D) increased employee diversity.

Question 55

Above-market compensation policies are more likely to:

A) create an impression of innovation and success.
B) improve employee morale and reduce employee turnover.
C) affect employee cooperation more than any other business policy.
D) reduce barriers between people who need to work closely together.

Question 56

Elitist compensation systems are most likely:

A) beneficial to firms trying to expand market share.
B) implemented by newer, smaller businesses.
C) established in very competitive environments.
D) used by older firms with mature products.

Question 57

A compensation system that assumes that employees should be compensated based upon their abilities,potential,and flexibility to perform multiple tasks is a(n)________ compensation system.

A) traditional-oriented
B) knowledge-based
C) equity-based
D) job-centered

Question 58

Companies that pay employees at rates above the market are generally:

A) small start-up companies.
B) involved in global expansion.
C) companies that struggle financially.
D) larger companies in less competitive industries.

Question 59

Job-based pay policies work best in which of the following situations?

A) Employees require little training for a job.
B) Employees' jobs don't change often.
C) Technology changes rapidly.
D) Turnover is fairly high.

Question 60

If management wants the compensation system to reinforce a traditional organizational structure and stability within the company,a(n)________ compensation system is the best choice.

A) egalitarian
B) elitist
C) individual-centered
D) labor market-based

Question 61

Which of the following is most likely true regarding compensation systems?

A) Nonmonetary rewards tend to predominate in companies concerned with external equity.
B) External equity is easier to manage in decentralized pay systems.
C) The nine issues discussed in the text regarding compensation are interdependent with minimal influence on one another.
D) Centralized pay systems work best in large, diverse organizations.

Question 62

A job-based pay system works best where jobs don't change often,when a great deal of training is required to learn a job,and when employees expect to move up through the system over time.

Question 63

Additional Case 10.1
Brighton Manufacturing is reviewing its compensation system. The CEO wants employees to be paid wages and benefits comparable to Brighton's competitors. He wants a system that allows for maximum flexibility in reassigning workers to different jobs without requiring compensation adjustments each time. The Finance VP suggests that the company link compensation costs more closely to productivity and profit. When profits are down, compensation costs should be reduced as well. The Finance VP also believes that employees should be paid for what they produce, not for their time, and the compensation program should apply to all employees equally. The VP of HR suggests that the key to the company's success is their employees and advocates an individual-based compensation plan. People should be paid for their skills or knowledge, not just because they are fulfilling certain jobs. The VP of HR also feels that it would be simpler to implement a compensation system by level rather than by job.
Refer to Additional Case 10.1.Which of the following,if true,best supports the compensation plan advocated by the VP of HR?

A) Turnover at Brighton is relatively low.
B) Most jobs at Brighton require significant employee training.
C) The technology used at Brighton changes frequently.
D) Employees at Brighton rarely need to cover for each other.

Question 64

Pay openness would work best in which of the following situations?

A) Company A - high employee involvement and a culture of trust
B) Company B - high degree of competition and employee turnover
C) Company D - significant pay differences between professionals
D) Company E - significant emphasis on nonmonetary rewards

Question 65

Additional Case 10.1
Brighton Manufacturing is reviewing its compensation system. The CEO wants employees to be paid wages and benefits comparable to Brighton's competitors. He wants a system that allows for maximum flexibility in reassigning workers to different jobs without requiring compensation adjustments each time. The Finance VP suggests that the company link compensation costs more closely to productivity and profit. When profits are down, compensation costs should be reduced as well. The Finance VP also believes that employees should be paid for what they produce, not for their time, and the compensation program should apply to all employees equally. The VP of HR suggests that the key to the company's success is their employees and advocates an individual-based compensation plan. People should be paid for their skills or knowledge, not just because they are fulfilling certain jobs. The VP of HR also feels that it would be simpler to implement a compensation system by level rather than by job.
Refer to Additional Case 10.1.Brighton executives have decided to implement a decentralized pay system.Which of the following,if true,best supports this decision?

A) Brighton is a large, diverse firm that has never faced legal challenges regarding compensation.
B) The Brighton CEO wants pay decisions to be made at the firm's headquarters.
C) Brighton's unit managers have never received compensation training.
D) A large percentage of Brighton's staff is non-exempt.

Question 66

Karen,president of a small restaurant chain,would like to centralize compensation decisions.She asks you about the pitfalls of such a move,and you should most likely respond that:

A) internal equity would not be maintained.
B) it is likely that the company will not be able to defend itself legally.
C) external equity is difficult to maintain.
D) it is only beneficial during great economic prosperity.

Question 67

The practice of openness in a compensation system generally leads to:

A) greater pay dissatisfaction among employees.
B) increased fairness in managerial pay decisions.
C) greater overall compensation costs.
D) increased team building.

Question 68

Organizations that emphasize nonmonetary rewards are often trying to encourage and reinforce individual achievement and responsibility among employees.

Question 69

Decentralizing pay decisions most likely enables a company to:

A) more effectively face legal challenges to compensation decisions.
B) better utilize the expertise of their compensation specialist.
C) build a stronger link between pay and performance.
D) better manage fixed pay-based compensation.

Question 70

Below-market compensation is more prevalent at larger companies in less competitive industries.

Question 71

You have just been hired at Corpus Entertainment,Inc.(CEI)and as part of your contract,you sign an oath that you will not divulge information about your compensation to your co-workers or any other employee of CEI.You realize that the company has a(n)________ pay policy.

A) egalitarian
B) centralized
C) open
D) secret

Question 72

Open pay policies tend to lead to greater dissatisfaction among employees as employees compare compensation with each other.

Question 73

Azzi recently went through company training on using a new computer system,and she has recently received her Associates of Arts degree in Accounting.Her company is raising her salary in response to her new abilities and is giving her new,related responsibilities.The company probably uses a job-based pay system.

Question 74

Most Americans feel that pay is the most important consideration in accepting or staying at a job.

Question 75

Additional Case 10.1
Brighton Manufacturing is reviewing its compensation system. The CEO wants employees to be paid wages and benefits comparable to Brighton's competitors. He wants a system that allows for maximum flexibility in reassigning workers to different jobs without requiring compensation adjustments each time. The Finance VP suggests that the company link compensation costs more closely to productivity and profit. When profits are down, compensation costs should be reduced as well. The Finance VP also believes that employees should be paid for what they produce, not for their time, and the compensation program should apply to all employees equally. The VP of HR suggests that the key to the company's success is their employees and advocates an individual-based compensation plan. People should be paid for their skills or knowledge, not just because they are fulfilling certain jobs. The VP of HR also feels that it would be simpler to implement a compensation system by level rather than by job.
Refer to Additional Case 10.1.The CEO,VP of HRM,and VP of Finance would most likely agree on a(n):

A) elitist pay system.
B) egalitarian pay system.
C) below-market pay system.
D) individual-centered pay system.

Question 76

In a company where pay decisions are decentralized,the managers of each unit often have the responsibility of determining compensation for employees.

Question 77

An egalitarian pay system strives to place most of their employees under the same compensation plan,while elitist pay systems establish different compensation plans based on employees' organizational level.

Question 78

A pay plan in which most employees are part of the same compensation system is referred to as a(n)________.

Question 79

The practice of secret pay in a compensation system generally leads to:

A) managers being more careful in their compensation decisions because they have to defend them.
B) an increase in the cost of mistakes in the pay-making decisions.
C) greater pay dissatisfaction among employees.
D) an egalitarian pay system.

Question 80

When a work force is highly unionized:

A) compensation decisions are based only on performance.
B) managers have more control in compensation decisions.
C) workers are likely to disagree with internal and external equity.
D) pay is typically subject to negotiation and bargaining requirements.