Compensation Management Test Questions
Course Introduction
Compensation Management explores the strategies and practices involved in designing and administering employee compensation systems within organizations. The course examines foundational theories of motivation, internal and external equity, and legal considerations affecting pay decisions. Students will learn about job evaluation, salary surveys, incentive pay, benefits administration, and the alignment of compensation strategies with organizational objectives. Case studies and real-world scenarios provide practical insights into creating fair, competitive, and cost-effective compensation packages that support talent acquisition, retention, and overall organizational performance.
Recommended Textbook
Strategic Compensation A Human Resource Management Approach 7th Edition by Joseph J. Martocchio
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Page 2
Chapter 1: Strategic Compensation: A Component of Human Resource Systems
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Sample Questions
Q1) This is a way in which companies often trim their payroll responsibilities by encouraging higher paid workers with more seniority to voluntarily leave the company earlier than previously planned.
A) resignation plans
B) severance plans
C) early retirement programs
D) employee expenditure plans
Answer: C
Q2) P&G uses ________ strategy based on brand image and price premium in between its Iams and Eukanuba brands.
Answer: differentiation
Q3) Which of the following is NOT one of the three broad categories that discretionary benefits fall into?
A) worker's compensation laws
B) paid time off
C) protection programs
D) services
Answer: A
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Chapter 2: Contextual Influences on Compensation Practice
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Q1) This law was established in order to regulate the implementation of various employee benefits and pension programs.
A) The Older Workers Benefit Protection Act (OWBPA)
B) The Americans with Disabilities Act of 1990 (ADA)
C) The Employee Retirement Income Security Act of 1974 (ERISA)
D) The Fair Labor Standards Act of 1938
Answer: C
Q2) This type of bargaining occurs when unions shift from bargaining for large pay increases to simply bargaining for greater job security.
A) guarded
B) concessionary
C) heightened
D) compensationary
Answer: B
Q3) ________ refers to an employee acquiring non forfeitable rights to an employer's contribution to fund benefits.
Answer: Vesting
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Page 4
Chapter 3: Traditional Bases for Pay: Seniority and Merit
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Sample Questions
Q1) The halo effect and similar-to-me effects are considered examples of which type of rating error?
A) trait system errors
B) contrast errors
C) illegal discrimination errors
D) bias errors
Answer: D
Q2) An appraisal system that requires all employees be placed in groups that span the spectrum from well above average to well below average performance is called a ________ performance appraisal.
Answer: forced distribution
Q3) ________ by ________ is used mainly for managerial and professional employees,and typically evaluates employees' progress toward strategic planning objectives.
Answer: Management,objectives
Q4) Among the various performance appraisal techniques,________ is the only one based on actual observable job behaviors.
Answer: BARS behaviorally anchored rating scales
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Chapter 4: Incentive Pay
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Sample Questions
Q1) With which profit sharing formula does the profit sharing pool become funded only after profits exceed a predetermined level but fall below some established maximum level?
A) fixed first-dollar-of-profits
B) profitability threshold
C) graduated first-dollar-of-profit
D) equal payments
Q2) This type of individual incentive plan rewards employees who recruit new customers or new employees.
A) behavior encouragement
B) referral
C) management incentive
D) piecework
Q3) The general rule of thumb is that short-term company goals last less than how long?
A) 1 month
B) 6 months
C) 1 year
D) 5 years
Q4) The Improshare bonus is based on a ________ ratio formula.
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Chapter 5: Person-Focused Pay
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Sample Questions
Q1) Compare and contrast person focused pay and job-based pay.Discuss the advantages of person-focused pay to employers.
Q2) In this person-focused pay model,employees are rewarded for increasing their skills within a single job family,even if the skills do NOT build on each other.
A) stair-step
B) skill blocks
C) job-point accrual
D) cross-departmental
Q3) Compare and contrast the stair-step model and the skill blocks model.What kinds of skills are applicable in each model?
Q4) Teams that have members learn scheduling,coordinating,training,and leading others are emphasized in what type of work team?
A) self-regulating work groups
B) supervisory work teams
C) management teams
D) non-supervised work teams
Q5) A ________ encourages employees to develop skills and learn to perform jobs from different job families.
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Chapter 6: Building Internally Consistent Compensation Systems
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Sample Questions
Q1) After completing the job analysis,your boss has asked you to conduct a job evaluation of the various positions in the company.Detail the steps you would take in accomplishing this task.
Q2) These indicate the name of each job within a company's job structure.
A) job specifications
B) job summaries
C) position headings
D) job titles
Q3) George owns a small manufacturing plant that produces customized printed circuit boards.There are about 15 jobs to rate.What type of job-content evaluation approach do you suggest to George?
A) alternation ranking
B) simple ranking plans
C) paired comparison
D) classification plans
Q4) In an auto manufacturing company installing a windshield on the assembly line represents a ________.
Q5) ________ refers to a body of information applied directly to the performance of a function.
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Chapter 7: Building Market-Competitive Compensation Systems
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Sample Questions
Q1) When examining competitors' compensation offerings this term is used to describe the percentage of employer compensation costs that are applied to compensation and benefits.
A) mix
B) quartile
C) standard percentile
D) nominal dollars
Q2) These are tools used by employers to determine the pay levels needed to recruit highly qualified employees.
A) strategic surveys
B) external market surveys
C) compensation surveys
D) internal market surveys
Q3) ________ refers to a group of two or more jobs that are based on similar work characteristics,duties,and responsibilities.
Q4) Elaborate on the link between a company's pay level policy and its strategic mandate.
Q5) HR professionals rely on ________ jobs as reference points for setting pay levels.
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Chapter 8: Building Pay Structures that Recognize
Individual Contributions
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Sample Questions
Q1) ________ represent the vertical dimension of pay structures.
Q2) Which scenario would be appropriate for using a salary-only plan?
A) the salesperson is selling high-priced products with long lead times
B) the salesperson has substantial influence over sales
C) the company is looking to save money due to budget constraints
D) the company is looking to create competition among its sales staff
Q3) Midpoint,minimum,and maximum are values used to define which of the following?
A) pay grades
B) pay ranges
C) pay structures
D) pay levels
Q4) These represent the horizontal dimension of pay structures.
A) pay ranges
B) pay grades
C) job evaluation points
D) pay spreads
Q5) Compare and contrast merit pay systems and sales compensation.
Q6) ________ describe the allocation of monetary resources to fund pay structures.
Q7) ________ is a form of compensation based upon a percentage of the selling price of a product or service. Page 10
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Chapter 9: Discretionary Benefits
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Q1) This policy allows employees to schedule time off without having to justify the reasons,and is more effective in controlling absenteeism than other types of absence control policies.
A) personal paid time off
B) social service leaves
C) sick leaves
D) integrated paid time off
Q2) XYZ Company tries to influence employee food choices by stocking vending machines with nutritional food.They also offer programs to teach stress reduction techniques.What kind of discretionary benefit program does this company sponsor?
A) family assistance program
B) employee assistance program
C) wellness program
D) employer assistance program
Q3) Which of the following is an example of a welfare practice?
A) overtime pay
B) regular wages
C) workers' compensation laws
D) employee recreational areas
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Page 12
Chapter 10: Employer-Sponsored Retirement Plans and Health Insurance Programs
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Q1) Which one of the following is probably the main reason that health reimbursement accounts (HRAs)are particularly appealing to employees with relatively low salaries or hourly wages?
A) the contribution of employees is on a pretax basis
B) employees do not contribute to them
C) employees forfeit unused balances present at the end of a year
D) permits employees to carry unused balances from year to year
Q2) These types of insurance plans are set up to cover things like dental care,vision care,and prescription drugs.
A) flexible savings plans
B) flexible services accounts
C) carve-out plans
D) health services accounts
Q3) This consumer-driven health care option allows employees to contribute pre-tax wages annually to pay for qualified medical expenses,but they will lose the balance not used at year's end.
A) flexible spending accounts
B) health reimbursement arrangements
C) health savings accounts
D) flexible savings accounts
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Chapter 11: Legally Required Benefits
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Sample Questions
Q1) How often will Jill receive an unemployment check?
A) daily
B) weekly
C) bi-monthly
D) monthly
Q2) To be fully insured under OASDI,an employee would have to work at least how long?
A) 24 months
B) 5 years
C) 10 years
D) 12 months
Q3) Thelma is on the Medicare Prescription Drug Program and has just spent over $5,100 out-of-pocket on medications,how much of the prescription costs will Medicare now cover for her?
A) 67%
B) 100%
C) 50%
D) 95%
Q4) ________ financing implies that the company assumes total costs for each discretionary benefit.
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Chapter 12: Compensating Executives
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Sample Questions
Q1) XYZ Pharmaceuticals recently announced that the clinical trials for a cancer drug failed to cure the illness.This announcement led to a dramatic decrease in the stock value of the company.The company hired a new CEO two years ago when the clinical trials for this drug had already initiated.Which one of the following is true about the compensation of the CEO of XYZ Pharmaceuticals?
A) The CEO should receive lower compensation since shareholder returns have been declining.
B) The CEO was not involved in the decision of the failed initiative; therefore he/she should not receive lower compensation.
C) There is no simple answer as to what should be the compensation level of this CEO.
D) The compensation of this CEO depends only on pretax profit margins, so we need more information to decide on the compensation of this CEO.
Q2) Executives receive ________ as the difference between the stock price at the time of purchase and the lower stock price at the time an executive receives the stock option.
Q3) Shareholders' interests are represented by a ________ who weigh the pros and cons of top executives' decisions.
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Page 15
Chapter 13: Compensating the Flexible Work Force:
Contingent Employees and Flexible Work Schedules
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Q1) Who has the authority to define a "year of service" for pension protection purposes?
A) the human resources department
B) the chief executive officer
C) the union
D) the U.S. Department of Labor
Q2) Temporary employment agencies are responsible for complying with all federal employment legislation except which one?
A) ADA
B) FLSA
C) workers' compensation
D) ERISA
Q3) The Bureau of Labor Statistics does not monitor pay levels for which type of temporary workers?
A) part-time employees
B) leased employees
C) temporary employees
D) independent contractors
Q4) Explain leased employee arrangements.Discuss employee benefits for leased workers.
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Chapter 14: Compensation Expatriates
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Q1) What law mandates that management bargain in good faith with labor unions over terms of employment such as wages?
A) Fair Labor Standards Act of 1938
B) National Labor Relations Act of 1935
C) North American Free Trade Agreement
D) North American Treaty Organization
Q2) Stephan is going to be getting a mobility premium for going to Saudi Arabia.How are you going to give it to him?
A) when he completes the assignment
B) over the length of his assignment
C) in 3 installments
D) a lump-sum payment
Q3) Which base-pay method works best for expatriates who move from one foreign assignment to another and rarely,if ever,work in their home countries?
A) expatriate-based
B) host-country-based
C) home-country-based
D) headquarters-based
Q4) What is the balance sheet approach? When is its use most appropriate?
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Chapter 15: Pay and Benefits Outside the United States
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Q1) Which of the following countries has the lowest per capita GDP?
A) India
B) Mexico
C) Brazil
D) China
Q2) Which one of the following is NOT a characteristic of NAFTA?
A) NAALC
B) convergence of labor standards
C) only Mexico and United States are members
D) trade deals
Q3) The United States,Canada,and Mexico are part of a trade bloc better known as ________.
Q4) In China,the minimum wage rates are set by ________.
Q5) An employee should receive regular pay during illness for a period of how many weeks in Germany?
A) 4 weeks
B) 6 weeks
C) 8 weeks
D) 10 weeks
Q6) In 2010,________ is the largest economy in Asia (and growing rapidly).
Page 18
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Chapter 16: Challenges Facing Compensation Professionals
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Q1) List the four challenges for compensation professionals.Among these,describe the challenges brought by wage issues in China.
Q2) Which one of the following is NOT one of the direct or indirect reasons of rising wages in China?
A) Chinese policy makers' support of increased wages
B) one-child policy
C) labor shortages
D) increasing cost of exports
Q3) Which one of the following is NOT one of the long-term implications of underemployment?
A) Underemployment may slow down the economic recovery from recession.
B) Underemployment will likely lead to higher spending by companies.
C) Underemployment will most likely lead to a reduced consumption of goods and services.
D) Underemployment will probably result in reduced business production.
Q4) ________ is the face value of a dollar.
Q5) ________ refers to a general slowdown in economic activity.
Page 19
Q6) ________ measures the purchasing power of a dollar.
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