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. ⊚ ⊚
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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?
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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?
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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
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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.
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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?
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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?
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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?
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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
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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).
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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.
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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. ⊚ ⊚
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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.
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⊚ ⊚
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:
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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:
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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?
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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?
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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?
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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
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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:
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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
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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?
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