Question 1

Because it makes managers responsible for how they spend company money, a compensation scorecard can cloud the transparency of how people are rewarded.

Accepted Answer

A compensation scorecard is designed to increase transparency by clearly outlining the criteria and metrics used to determine compensation, making it clearer how rewards are allocated based on performance.

Question 2

Which of the following compensation options would not qualify under the term pay-for-performance?

Accepted Answer

Seniority-based pay is not based on individual performance, but rather on length of service within the organization. Pay-for-performance is a compensation strategy that rewards employees based on their achievement of predetermined goals or objectives.

Question 3

When the organization pays wages that are relatively equal to that of other employers for similar work, it is the basis of

Accepted Answer

External equity refers to the principle that an organization compares its pay rates to those of other employers offering similar work to ensure competitive wages.

Question 4

Because management positions are more difficult to evaluate and involve certain demands not found in jobs at the lower levels, some organizations do not attempt to include them in their job evaluation programs for hourly employees.

Accepted Answer

Management positions have different requirements and responsibilities than hourly positions, and therefore may not be adequately evaluated using the same criteria. As a result, some organizations choose not to include them in their job evaluation programs for hourly employees.

Question 5

Pay-for-performance programs

Accepted Answer

Pay-for-performance programs tie rewards to employee effort, often measured by individual or team performance metrics such as sales targets, production output, or customer satisfaction ratings. These programs can increase motivation and productivity, but their success depends heavily on the accuracy and fairness of the metrics chosen and the communication and transparency of the program. Tying rewards to firm profitability (A) may be too indirect and less motivating for employees, while easy implementation and measurement (B) is not necessarily a good thing if it means oversimplifying or neglecting important performance factors. Negligible increases in output (D) would indicate that the program is not effective and should be revised or abandoned.

Question 6

The concept that employees should exert greater work effort if they have reason to expect it will result in a valued reward forms the basis of

Accepted Answer

The concept described in the question is closely related to expectancy theory, which proposes that individuals' motivation to perform a task is based on their belief that their effort will lead to high performance, and high performance will lead to valued rewards. This theory emphasizes the importance of the expected outcomes of behavior in shaping motivation.

Question 7

Indirect compensation includes healthcare benefits and commissions.

Accepted Answer

Indirect compensation refers to non-monetary benefits such as healthcare benefits, retirement plans, and paid time off, but does not include direct financial payments like commissions, which are considered direct compensation.

Question 8

Steve has to submit a timecard every week and his compensation is based upon the amount of time he works, rather than what he accomplishes. Steve is compensated based on

Accepted Answer

Steve's compensation is based on the amount of time he works, which suggests that he is being paid on an hourly basis rather than for the amount of work he produces (piecework), his skill level (skilled labor), or his level of competence.

Question 9

Which of the following is an example of a nonfinancial compensation?

Accepted Answer

Nonfinancial compensation refers to rewards that do not involve money or financial benefits. Employee recognition programs are a type of nonfinancial compensation as they involve acknowledging and praising employees' good work without giving them financial rewards. Bonuses and commissions are financial compensation as they involve monetary benefits, while health insurance is a fringe benefit that is a mix of financial and nonfinancial compensation.

Question 10

Sally is a freelance editor. She is paid by the page for each page that she edits. Sally is an hourly employee.

Accepted Answer

The statement contradicts itself. It states that Sally is paid by the page but also that she is an hourly employee. It cannot be both.

Question 11

__________ encompasses employee wages and salaries, incentives, bonuses, and commissions.

Accepted Answer

Direct compensation includes employee wages and salaries, incentives, bonuses, and commissions, which are paid directly to the employee. Nonfinancial compensation includes benefits such as health insurance, retirement plans, and vacation days. Indirect compensation refers to non-monetary rewards such as flexible work arrangements or a positive work environment. Component compensation is not a commonly used term in compensation management.

Question 12

Because pay rate compression is an external pay equity issue, employees who face it are more likely to seek advancement within the firm.

Accepted Answer

Pay rate compression is an internal equity issue, often caused when new employees are offered pay close to or exceeding that of existing employees in similar roles, which can lead to dissatisfaction among current employees. It does not directly relate to external pay equity issues.

Question 13

The term pay-for-performance can encompass all of the following EXCEPT

Accepted Answer

Pay-for-performance is specifically focused on tying employee compensation to their performance. This can be accomplished through merit pay, cash bonuses, gainsharing plans and other forms of variable compensation that are tied to outcomes. However, base salary is not typically considered a form of pay-for-performance as it is generally determined by factors such as experience, education and market rates rather than individual performance.

Question 14

A company that is facing the challenge of pay rate compression might want to increase the size of pay increases for merit-worthy employees and redesign its pay structure to increase the spread between hourly and supervisory employees.

Accepted Answer

Increasing the size of pay increases for merit-worthy employees and redesigning the pay structure are both effective strategies to address pay rate compression by increasing the difference in pay between different levels of employees within the company.

Question 15

There is reason to believe that pay secrecy can do all of the following EXCEPT

Accepted Answer

The other three options suggest negative effects of pay secrecy, while generating feelings of commitment is not one of them.

Question 16

The fact that people make comparisons to others is central to

Accepted Answer

Equity theory suggests that people compare their outcomes (e.g. pay or rewards) to those of others to determine if they are being treated fairly. Therefore, the fact that people make comparisons to others is central to equity theory. The other options are not directly related to this concept.

Question 17

Instrumentality refers to

Accepted Answer

Instrumentality refers to the relationship between performance and rewards, specifically the belief that performing well will lead to desired rewards. Therefore, the best choice is D - rewards that are valued and motivate employees. Choices A and B are related to pay equity, while choice C refers to exceeding pay range maximums, which is not directly related to instrumentality.

Question 18

Which of the following is NOT a common goal of a strategic compensation policy?

Accepted Answer

The common goals of a strategic compensation policy include rewarding employees' past performance, remaining competitive in the labor market, and attracting new employees. Meshing employees' past performance with organizational goals is not typically a goal of compensation policy; instead, compensation aims to motivate future performance and align it with organizational objectives.

Question 19

Elaine sometimes checks work-related e-mail from home on the weekend and follow up on it, even when her supervisor does not specifically ask her to. Under the Fair Labor Standards Act (FLSA), her employer must pay her for this work.

Accepted Answer

According to the FLSA, if an employer allows or requires non-exempt employees to perform work at home, they must be compensated for that work just as if they were working on site. Therefore, if Elaine is a non-exempt employee and her employer allows her to work from home on the weekend, she should be paid for that time.

Question 20

__________ includes employee recognition programs, rewarding jobs, organizational support, work environment, and flexible work hours to accommodate personal needs.

Accepted Answer

Nonfinancial compensation includes rewards that are not in the form of money, such as employee recognition programs, rewarding jobs, organizational support, work environment, and flexible work hours. Financial compensation, on the other hand, involves payment of money, such as salary, bonuses, and benefits. Direct compensation refers to payments that are directly received by an employee in exchange for their work, while indirect compensation includes benefits like health insurance, retirement plans, and vacation time.

Quiz 9: Managing Compensation