Compensation Management Practice Exam
Course Introduction
Compensation Management explores the strategic and operational aspects of designing and administering employee compensation systems within organizations. The course covers fundamental concepts such as job evaluation, pay structures, wage surveys, incentive programs, and benefits administration. Students learn to balance internal equity and external competitiveness, align compensation with organizational goals, comply with legal requirements, and understand the psychological and motivational impacts of pay. Practical tools and methodologies for developing fair and effective compensation plans are emphasized, preparing students to address challenges in attracting, retaining, and motivating employees in diverse work environments.
Recommended Textbook
Strategic Compensation in 6th Canada Edition by Richard Long
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Page 2
Chapter 1: A Road Map to Effective Compensation
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Q1) There is often one so-called best compensation system that applies to a broad spectrum of organizations.
A)True
B)False
Answer: False
Q2) The main similarity between extrinsic rewards and intrinsic rewards is that they both satisfy so-called higher order needs such as survival and security.
A)True
B)False
Answer: False
Q3) Which of the following would be the best choice for a compensation system?
A) A competitive base pay and incentives are offered.
B) Employees share in the organization's profits.
C) Compensation is linked to knowledge.
D) The system is cost effective and achieves company goals.
Answer: D
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Page 3
Chapter 2: A Strategic Framework for Compensation
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Q1) Which term best describes the scope of business operations undertaken by an organization?
A) integration
B) differentiation
C) craft
D) domain
Answer: D
Q2) What are the five contextual variables and why are they important?
Answer: Determined by organizational goals,the five contextual variables are the organization's task environment and domain,corporate strategy,technology,organization size,and work force.These factors in the firm's context determine the most appropriate managerial strategy and structure for the organization (which includes the reward system).A change in any factor may trigger a need to change the managerial strategy and the structural variables.
Q3) The classical managerial approach to management assume employees are inherently lazy and require constant vigilance.
A)True
B)False
Answer: True
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Page 4
Chapter 3: A Behavioural Framework for Compensation
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Q1) Which short scenario best describes organizational citizenship behaviour?
A) Joe,a shop mechanic,approaches management with an initiative that will improve customer service.
B) Duane,a faculty member,starts and finishes his lectures on time as per his syllabus.
C) Mary,a university graduate,was so impressed with company ABC that she decided to join the company.Ten years later she was still working for ABC.
D) Carlos "volunteers" for special community events on behalf of his company only when he is paid overtime.
Answer: A
Q2) Which theory is most applicable in explaining why a hockey player who earns $10 million per year is dissatisfied with his pay?
A) equity
B) relative deprivation
C) psychological contract
D) reinforcement
Answer: A
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Chapter 4: Components of Compensation Strategy
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Q1) 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,what would most likely be included in this compensation mix?
A) merit pay
B) piece rates
C) profit sharing
D) targeted incentives
Q2) Which statement best explains the reason for the decrease in popularity of "defined benefit plans" by employers in Canada?
A) There has been increased longevity of employees.
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.
Q3) Briefly describe the three main categories of performance pay,and provide examples for each category.
Q4) Briefly explain the three methods for establishing base pay.
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Chapter 5: Performance Pay Choices
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Q1) Which of the following is NOT a suitable condition for merit pay?
A) Individual performance varies.
B) Performance is not controllable by the individual.
C) Individual performance can be separated out.
D) Undesirable side effects are readily manageable.
Q2) You work for a company that assembles plastic toys.Generally speaking,employees working at similar assembly plants receive $15.00 per hour.Internal corporate data indicate that the average worker should be able to assemble 20 toys per hour.Your organization has made a strategic decision to pay assembly line workers on the basis of their output.What is the piece rate you are contemplating paying your assembly line workers?
A) $300.00 per day
B) $1.33 per toy
C) $0.75 per toy
D) $150.00 per day
Q3) Explain the difference between goal-sharing and gain-sharing plans.
Q4) Piece rates have experienced high discontinuation rates.
A)True
B)False
Q5) Identify and briefly explain the nature of individual performance pay plans.
Page 7
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Chapter 6: Formulating the Reward and Compensation Strategy
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Q1) In which organization would compensation have a low role?
A) UNICEF store
B) chicken-processing plant
C) tree-planting firm
D) used car dealership
Q2) What are a firm's choices for compensation-level strategy and how can it decide between them?
Q3) The key reason that executives earn so much more than other employees is because their base pay is so much higher.
A)True
B)False
Q4) A "lead-the-market" compensation policy should be deployed only in situations when organizations face very tight labour markets.
A)True
B)False
Q5) Briefly describe the five main steps in the formulation of compensation strategy.
Q6) Briefly summarize the legislative framework that compensation must comply with.
Page 8
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Chapter 7: Evaluating Jobs: the Job Evaluation Process
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Q1) Which statement provides the best example of a job specification?
A) arranging meetings and scheduling out-of-town travel
B) possessing a valid driver's licence
C) answering telephones and personal inquiries
D) reporting to the head of the department
Q2) Briefly explain the purpose of job evaluation and the nature of "relative worth."
Q3) As a human resource professional,you have been asked by your organization to develop a job description for the heavy-duty mechanic role.What are you likely NOT to include in the job description?
A) some statement describing the conditions under which the mechanic will work under B) the appropriate pay grades,ranges,and future pay increase scales
C) the level of skill and certification required for the role
D) the fact that the mechanic will be working under the supervision of a senior technician
Q4) The Position Analysis Questionnaire focuses on behaviours that make up a job. A)True B)False
Q5) What should a job description contain if it is to be useful for job evaluation?
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Chapter 8: Evaluating Jobs: the Point Method of Job Evaluation
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Q1) Which statement best explains how to establish pay grade sizes using the equal interval approach?
A) Look for natural breaks between clusters of jobs when setting up the grades.
B) Increase the grade widths for higher-value jobs but not necessarily by an equal percentage.
C) Reduce the number of pay grades by creating large bands.
D) Make the point spreads equal for all pay grades.
Q2) What type of gender bias problem is exemplified by the belief that "any of the skills needed to work with young children should not be highly rated because care giving comes natural to women"?
A) ignoring factors found in female jobs
B) confusing job content with stereotypes
C) biased job descriptions
D) differential evaluation of factors
Q3) Reliability of the job evaluation system means that the system will produce the same results even if different evaluators are used.
A)True
B)False
Q4) Discuss the advantages and disadvantages of the point method of job evaluation.
Page 10
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Chapter 9: Evaluating the Market
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Q1) What are three of the main "third-party" sources of compensation data?
A) Statistics Canada,trade journals,and government agencies
B) private agencies,trade journals,and government agencies
C) government agencies,industry groups,and consulting firms
D) consulting firms,boards of trade,and publishers
Q2) For public sector organizations,the key factor determining wages is the employees' ability to generate revenue.
A)True
B)False
Q3) Which of the following is generally NOT a determinant of employees' pay in the public sector?
A) collective bargaining
B) employees' ability to generate revenues
C) employers' ability to pay
D) budget available for pay increases
Q4) The compa-ratio is calculated by taking the average pay of all employees holding a particular job title and then dividing this by the midpoint of the pay range for that job.
A)True
B)False
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Chapter 10: Evaluating Individuals
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Q1) Senior management determines how much money will be available for merit pay against performance metrics identified in the beginning of the fiscal year,and then distributes those funds across departments.Which approach has senior management used to determine the total amount of money available for merit pay?
A) top-down
B) across the board
C) organizational performance indicators
D) bottom-up
Q2) Which statement best describes peer evaluation ratings?
A) Peers tend to be more lenient than superiors.
B) Peers tend to be less lenient than superiors.
C) There is no difference between peer and superior ratings.
D) Peer ratings are the most valid of the sources of appraisals.
Q3) Which of the following is NOT an administrative reason for doing performance appraisals?
A) to identify employees for merit pay
B) to identify employees for promotion
C) to provide useful feedback to employees
D) to monitor the overall quality of performance of the firm
Q4) Define and describe the key elements of performance management.
Page 12
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Chapter 11: Designing Performance Pay Plans
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Q1) According to research on Canadian firms,in the majority of cases,which employees are included in the profit-sharing plan?
A) all full-time and part-time employees
B) non-unionized employees only
C) designated employees only
D) all full-time employees
Q2) Which of the following is NOT an example of a nonmonetary award?
A) stock bonuses
B) a pat on the back for a job well done
C) a company picnic
D) an all-expenses-paid holiday
Q3) Which condition makes a gain-sharing plan NOT viable and requires you to consider another option?
A) No valid historical benchmark can be set.
B) Employee involvement is not an integral part of the system.
C) The plan involves large expenditures to implement.
D) Employees receive only 50 percent of the share.
Q4) Identify how design issues for stock plans differ for private corporations.
Q5) Discuss the key issues in designing a nonmonetary reward plan.
Q6) Briefly describe the Scanlon Plan.
Page 13
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Chapter 12: Designing Indirect Pay Plans
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Q1) What is the first issue in developing an effective benefit system?
A) determining the tax implications
B) examining the compensation cost structure of the organization
C) establishing the administration process
D) determining the role of indirect pay in compensation strategy
Q2) Which of the following are all Canadians entitled to?
A) Old Age Security
B) defined pension plans
C) defined contribution plans
D) deferred profit-sharing plans
Q3) Defined contribution plans are riskier for employees versus defined benefit plans.
A)True
B)False
Q4) Which plan allows you to tailor your benefit plan to suit your needs and even trade off benefits that are not important to you?
A) health care spending accounts
B) simplified flex plan
C) flexible benefits plan
D) fixed benefits plan
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Chapter 13: Activating and Maintaining an Effective Compensation System
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Q1) Identify and describe the steps necessary for implementing a compensation system.
Q2) What is a major issue for most organizations when planning for information technology?
A) whether to use computers
B) whether to use consultants
C) how advanced the system should be
D) whether to protect employee privacy
Q3) Your organization has asked you to prepare a compensation budget by taking into account the following variables: current employees' wages,anticipated merit increases,seniority increases,as well as expected turnover.What kind of compensation budgeting process is your organization using?
A) zero-based
B) top-down
C) bottom-up
D) break-even
Q4) Discuss the advantages and disadvantages of outsourcing compensation administration,as well as the factors involved in deciding outsourcing policy.
Q5) Identify the tasks involved in preparing to implement a compensation system.
Page 15
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