Chapter 4 Components of Compensation Strategy PDF

Preview

Summary

question bank...

Description

Name :

Clas s:

Dat e:

Chapter 4 - Components of Compensation Strategy True / False 1. The two key questions that must be addressed in designing any compensation system are: a) What role should each of the three compensation components play in the compensation mix? and b) What total level of compensation should be provided? a. True b. Fals e ANSWER: True 2. An advantage of base pay is that it directly links pay with output or performance. a. True b. Fals e ANSWER: Fals e 3. Generally, research supports the notion that employees prefer compensation strategies that have performance pay as the key compensation mechanism. a. True b. Fals e ANSWER: Fals e 4. The main types of individual performance pay are piece rates, commissions, merit pay, and goal-sharing plans. a. True b. Fals e ANSWER: Fals e 5. Research cited in the textbook suggests that performance pay plans have relatively high discontinuation rates. a. True b. Fals e ANSWER: True 6. An advantage of indirect pay is that benefits receive more favourable income tax treatment than direct pay. a. True b. Fals e ANSWER: True 7. Competitive pressure may force some firms to provide indirect pay. a. True Copyright Cengage Learning. Powered by Cognero.

Page 1

Name :

Clas s:

Dat e:

Chapter 4 - Components of Compensation Strategy b. Fals e ANSWER: True 8. One major advantage of job evaluation programs is that they require the use of comprehensive job descriptions. a. True b. Fals e ANSWER: Fals e 9. Pay for knowledge systems are beneficial for organizations that require great task flexibility from their labour force. a. True b. Fals e ANSWER: True 10. Competency-based pay is usually applied at the managerial and professional levels. a. True b. Fals e ANSWER: True Multiple Choice 11. Which of the following steps is NOT considered in designing a compensation system? a. determining actual dollar values for jobs and individual employees b. determining the total level of compensation to provide c. determining how each of the mix choices should be structured d. determining the mix of compensation components ANSWER: a 12. For the majority of employees in Canada, what is the largest component of the pay package? a. benefits b. performance pay c. indirect pay d. base pay ANSWER: d 13. Johnny is compensated based on a rate of $25.00 per hour worked. Which term best describes the manner in which Johnny is compensated? a. commissio n b. wage Copyright Cengage Learning. Powered by Cognero.

Page 2

Name :

Clas s:

Dat e:

Chapter 4 - Components of Compensation Strategy c. piece rate d. salary ANSWER: b 14. Why might employees prefer base pay over performance pay? a. Performance pay is more predictable. b. Base pay is directly related to their performance level. c. They dislike uncertainty about their compensation. d. Market conditions are always changing. ANSWER: c 15. As a human resource consultant, you have been asked to provide some rationale on why an organization may decide to use base pay as a cornerstone for a compensation scheme. Which of the following should you advance in supporting your argument? a. It provides an organization with more labour flexibility in the allocation of tasks. b.It guarantees employee performance and aligns salaries to performance. c. It encourages team work. d.Unions are most likely to agree with management’s approach, given this scheme encourages individual performance. ANSWER: a 16. Which condition make it impractical to use output-related pay? a. Output is easy to measure. b. Output is very stable. c. Output cannot be controlled by the individual employee. d. Output is easy to price in terms of its value to the employer. ANSWER: c 17. As an employer, you believe it is always a good idea to pay people for their contributions to organizational results. Which plan would likely be the key component of the compensation plan? a. indirect pay b. base pay c. pay for knowledge d. performance pay ANSWER: d 18. 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 Copyright Cengage Learning. Powered by Cognero.

Page 3

Name :

Clas s:

Dat e:

Chapter 4 - Components of Compensation Strategy d. targeted incentives ANSWER: c 19. As the CEO of a small start-up firm, you would like to reward employees based, in part, on organizational performance. However, cash flow is low. Which pay plan should you consider using? a. employee stock plans b. high base pay c. extensive benefits d. commissions ANSWER: a 20. Which of the following is a group performance pay plan? a. gain sharing b. profit sharing c. stock options d. piece rates ANSWER: a 21. Which pay type usually makes up a small proportion of total compensation, and may not be used at all by some employers? a. mandatory benefits b. wages c. merit pay d. salaries ANSWER: c 22. In Canada approximately what percentage of an employer’s total compensation costs are employee benefits? a. 1020 b. 2030 c. 3040 d. 4050 ANSWER: a 23. Which of the following is an example of mandatory indirect pay? a. major health benefits such as medical coverage b. registered retirement savings plans (RRSPs) benefits Copyright Cengage Learning. Powered by Cognero.

Page 4

Name :

Clas s:

Dat e:

Chapter 4 - Components of Compensation Strategy c. employee services d. workers’ compensation benefits ANSWER: d 24. Your company offers you pay for time not worked, disability benefits, supplemental medical coverage, and a full range of free employee services. Which component of the compensation mix includes these items? a. direct pay b. base pay c. indirect pay d. performance pay ANSWER: c 25. As a consultant, you have been asked by an organization to provide a menu of indirect benefits that the employer doesn’t have to provide by law. Which of the following would you NOT include in your menu? a. employment insurance b. company pension plan c. psychological counselling d. supplemental medical coverage ANSWER: a 26. Why can medical and dental coverage can be purchased more cheaply by the employer than the employee? a. indexation b. economies of scale c. utility d. dividends ANSWER: b 27. 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. ANSWER: a 28. Which of the following is NOT a method used to determine employee base pay? a. profit sharing b. pay-for-knowledge c. job evaluation d. market pricing Copyright Cengage Learning. Powered by Cognero.

Page 5

Name :

Clas s:

Dat e:

Chapter 4 - Components of Compensation Strategy ANSWER: a 29. As a general rule, organizations using a high-involvement managerial strategy use indirect pay as a way to encourage which of the following relationships? a. employer– community b. employee–task c. employer–employee d. employer–union ANSWER: c 30. Which methods are used to establish base pay? a. market pricing, job evaluation, and pay for knowledge b. job analysis, competency testing, and demographics c. tenure, job preview, and environmental analysis d. knowledge, education, and market pricing ANSWER: a 31. Which of the following refers to job evaluation? a. determining how well a job is performed b. surveying the market c. ranking all jobs according to their value to the firm d. establishing the skill level of each employee ANSWER: c 32. ABC Inc. is a very small firm. It has decided to pay its employees at rates that are similar to other small firms in its geographic area. What method of pay is ABC Inc. using? a. job evaluation b. market pricing c. competency-based pay d. geographic-based pay ANSWER: b 33. What are two key advantages of market pricing? a. simplicity and cost b. equity and fairness c. equity and efficiency d. range and depth ANSWER: a 34. Which statement best describes the difference between pay for knowledge systems (PKS) and job-based pay systems? a. Pay for knowledge systems involve basing pay on the capabilities of individuals, and Copyright Cengage Learning. Powered by Cognero.

Page 6

Name :

Clas s:

Dat e:

Chapter 4 - Components of Compensation Strategy job-based pay is based on the characteristics of the job. b.Pay for knowledge systems are applied to managerial employees, and job-based pay is applied to operational-level employees. c. Pay for knowledge systems are more widely used by Canadian firms than job-based pay systems, d.Pay for knowledge systems involve low training costs and are easier to administer than job-based pay systems, ANSWER: a 35. Which statement best describes the notion of pay for knowledge systems? a. There is little empirical evidence supporting the validity of competency-based pay models. b. Competency-based pay models are usually associated with operational level roles. c. Pay for knowledge requires very detailed job descriptions for every role in an organization. d. Pay for knowledge fits well with classical management styles, requiring employee flexibility in skill sets. ANSWER: a 36. As the owner of a large hotel, you expect your employees to be flexible, learn a variety of skills, and shift around from one job to another as needed. Which plan will best fit your needs? a. stock options b. skill-based pay c. team-based pay d. piece rates ANSWER: b 37. Which base pay method best supports behaviours needed by high-involvement firms? a. market pricing b. pay for knowledge c. job evaluation d. broad banding ANSWER: b 38. Peter, a manager at a local manufacturing firm, is perplexed that employees tend to respond to management’s request by evoking the dreaded “That is not on my job description,” or “That is above my pay grade.” From a compensating perspective, which base pay method is normally associated with the aforementioned responses? a. market pricing b. job evaluation c. competency-based pay d. skill-based pay ANSWER: b Copyright Cengage Learning. Powered by Cognero.

Page 7

Name :

Clas s:

Dat e:

Chapter 4 - Components of Compensation Strategy 39. Your executive vice president has asked you to explain the basic notion of “skill blocks” within the context of skillbased pay systems design. What two variables would you emphasize? a. different skills and depth of each skill b. skill certification and criterion c. key competencies and training requirements d. broad banding and market value ANSWER: a 40. Which of the following is NOT a key issue in competency-based pay systems? a. identifying competencies that demonstrably affect performance b. devising methods to measure achievement of each competency c. providing learning opportunities d. developing the merit pay grid ANSWER: d Subjective Short Answer 41. According to the textbook, what are the key conditions for using output-related pay? ANSWER Necessary conditions include: : a) The job output is easily measurable. b) The output is easily calculable in value to the employer. c) The output is easily attributable to specific employees. d) The output is controllable by the individual employee. e) It is not highly unstable. 42. Briefly describe the three main categories of performance pay, and provide examples for each category. ANSWER Performance pay may be geared to the performance of the individual employee, the : work group or team, or the organization as a whole. Individual performance pay plans include piece rates, commissions, merit pay, and special incentives. Group performance pay plans include gain-sharing plans, goal-sharing plans, and other group plans. Organizational performance pay plans include profit-sharing plans, employee stock plans, and other organization performance pay plans. 43. Briefly discuss the advantages and disadvantages of using indirect pay. ANSWER The possible advantages of indirect pay are that it can help attract employees, can : match conditions at unionized firms, receives favourable tax treatment, has economies of scale in purchasing, can provide valued rewards for little or no cash outlay, can provide employee peace of mind, can help the employer deal humanely with employees, may help promote company products, and may support managerial strategy. The possible disadvantages are benefits costs, rigidity of costs, difficulty in developing an efficient package, costly communication and administration, inability to motivate task behaviour, the possibility of causing excessive employee stability, and poorly designed plans may cause undesirable employee behaviour. 44. Briefly explain the three methods for establishing base pay. ANSWER The three main methods for establishing base pay are market pricing, job evaluation, Copyright Cengage Learning. Powered by Cognero.

Page 8

Name :

Clas s:

Dat e:

Chapter 4 - Components of Compensation Strategy :

and pay for knowledge systems. Market pricing establishes base pay by determining the minimum amount of pay necessary to attract qualified individuals from the labour market. Job evaluation establishes base pay by ranking all jobs in the firm according to their value to that firm. Pay for knowledge systems establish base pay according to the total value of the skills and competencies an employee has acquired.

45. Identify and briefly describe the issues in developing a skill-based pay system. ANSWER There are five main issues in the design of a skill-based pay system: : 1. deciding whom to include 2. designing the skill blocks 3. linking skill blocks to pay 4. providing learning opportunities 5. certifying skill achievement Skill-based pay systems are suitable for organizations that need employee flexibility, and high-level and diverse employee skills. Skill blocks are set out in a grid defined by skill types and levels. Skill block difficulty, length of time for skill mastery, and the value of each skill block determine the relative amount of increase for each skill block. The high–low method determines entry level and skill block pay amounts. Training needs to be provided since pay is tied to skill development. A valid and fair system for determining when an employee has mastered a skill block is needed. 46. Explain why organizations pursuing a high-involvement management strategy may find the notion of offering indirect pay to employees somewhat problematic and at odds with the principles of high involvement? ANSWER This question should begin with a detailed explanation of high-involvement : management strategy, particularly focusing on the notion that extrinsic rewards should be geared towards driving strong performance, and not towards controlling poor performance/output. Then, students need to link or identify that by its very nature, indirect pay does not perfectly fit a high-involvement management strategy; indirect pay is not necessarily linked to corporate or enterprise performance, while at the same time, high-involvement organizations value their employees and do not want valuable employees to leave the organization as a result of a poor indirect pay packages. Notions of motivation theory may also be part of this answer, i.e., organizations need to be able to satisfy lower order needs (safety), etc., before higher order needs can be satisfied.

Copyright Cengage Learning. Powered by Cognero.

Page 9...