Compensation Exam I Study Guide with Answers PDF

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Compensation Exam I Study Guide with Answers...

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Compensation Study Guide – Exam 1 Note: The purpose of this document is to highlight some of the more important topics discussed in class. The usual caveat with any study guide applies: this study guide is generally comprehensive, but not necessarily inclusive of everything you should study for the exam. In other words, you are responsible for all material covered in class, including videos, exercises, etc., as well as all assigned reading material. I hope that you find this study guide useful and helpful. Chapter 1 1. Define compensation Compensation refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship. a. Know the various forms of cash compensation and their purposes Base wages Cash comp. for work performed Reflects value of work or skills Generally ignores differences attributable to individuals Difference between wage and salary Merit pay/cost-of-living adjustment Merit increases – given in recognition of past work behavior Very common Somewhat controversial in terms of usefulness/effectiveness (discuss later in class) Cost-of-living adjustments –same increases to everyone, regardless of performance **These affect base pay Incentives/ Variable pay – tie pay increases directly to performance Attempts to affect future behavior Does not increase base wage; must be reearned each pay period (is variable) Potential size generally known beforehand (bonus associated with selling a particular model car) Can be tied to individual, team, business unit or corporate performance b. Be able to differentiation the different types of variable pay covered so far Commission Merit Increase Incentives 2. Describe the various components of the Pay Model Compensation objectives Efficiency Improving performance, increasing quality, delighting customers and stockholders Controlling labor costs Fairness

Fundamental objective of pay systems Fair treatment by recognizing both employee contributions, and employee needs. Compliance Conformance to Federal and State compensation laws and regulations Objectives Guide the design of the pay system Serve as the standards for judging success of the pay system. Policies and techniques are means to reach objectives Policies that form the foundation of the compensation system (4 policies) Internal Alignment Focus - Comparisons among jobs or skill levels inside a single organization Jobs and people’s skills are compared in terms of their relative contribution To what extent do we want to make compensation decisions based on comparisons between jobs – or how much jobs are “worth”? External Competitiveness Focus - Compensation relationships external to the organization: comparison with competitors For a particular job - Do we want to be above market (Medtronic)? At market? Below market (AES)? So how much and what forms of pay are important To what extent do we want to make compensation decisions based on what competitors are doing? Employee contributions Focus - Relation emphasis placed on employee performance Performance based pay affects fairness To what extent do we want to base pay based on individual performance (as compared to value of jobs or what the market is doing)? Administration Once we have decided on our compensation policies (internal alignment vs. external competitiveness), how do we best manage the system? Techniques that make up the compensation system. a. So far, we have covered Internal Alignment in relatively more depth, so be able to fully explain how internal alignment fits into the pay model, and the various components of internal alignment (strategy, job analysis). b. Be able to differentiate the three policy choices See above c. Compare/contrast internal alignment vs. external competitiveness I nt e r nalAl i gnme nti st her e l a t i on s h i psbe t we e nt h ej ob s /s ki l l s /c omp e t e n c i e swi t h i na s i n g l eo r g a ni z a t i o n. Ex t e r na lc o mpe t i t i v e ne s sr e f e r st ot hepa yr a t e so fa nor g a ni z a t i on ' sj o b si nr e l a t i ont oi t s c o mpe t i t or s ' p a yr a t e s . 3. Explain what our Compensation Objectives are See above

a. How do the various aspects of compensation we have covered so far in class help us meet these objectives? 4. What is the link between compensation and performance? An assumption behind this course is that strategic compensation: Can increase motivation and performance Can enhance organizational performance

Chapter 2 1. Explain the different strategy types Cost Leadership: Strategy is to be the low(est) cost producer in its industry – and to compete on the basis of cost. Must find economies of scale, and other cost-saving mechanisms, such as proprietary technology and preferential access to raw materials Differentiation: Strategy is to be unique in an industry on dimension(s) that are valued by consumers And charges a premium price. Focus: Strategy is to compete based on a narrow scope on an industry. Tailors is strategy to serve a specific a segment or group of market segments to the exclusion of others a. Be sure to be familiar with the examples given in class Wal Mart 2. What does it mean to take a “strategic perspective” to compensation? A strategic perspective focuses on those compensation choices that help the organization gain and sustain competitive advantage a. Explain what it means when we say compensation strategy should support business strategy. Think of (and carefully explain) some examples from class. 3. Describe the “cascade” of strategic choices Know the whole diagram?

4. What are the tests of competitive advantage? Is it aligned? – With business strategy – With external economic conditions – Internally with other HR systems Does it differentiate? From competitors Thus, is it difficult to imitate – This is what adds value Does it add value? Does it help attract, retain and increase performance of a talented workforce? – Reduced turnover – Individual, team and business unit performance Most difficult test (i.e. ROI) – But, can compare with competitors Chapter 3

1. What is internal alignment? Internal alignment, often called internal equity, refers to the pay relationships among different jobs/skills/competencies within a single organization. 2. Define and explain pay levels and differentials a. Be able to explain why different companies have different levels and differentials for similar job families b. Explain the Lockheed example Engineer example 3. Explain the Criteria of internal alignment a. Content Content – the work performed in a job and how it gets done - Structure ranks jobs on – skills required, complexity of tasks, problem solving, and/or responsibility b. Value Value – the worth of the work; its relative contribution to the organization objectives - Structure focuses on – relative contribution of these skills, tasks, and responsibilities to the organization's goals - Can include external market value 4. What some are the organizational factors that shape internal alignment? a. Explain the Merrill Lynch example Financial Adviser example 5. Briefly compare job vs. person-based structures Job-based structures relies on the work content – tasks, behaviors, responsibilities Person-based structure shifts the focus to the employee - Skills, knowledge, or competencies the employee possesses - Regardless of Whether or not they are used in the particular job 6. Under what conditions should pay structures be egalitarian or hierarchical? What are the pros/cons of each? Slide 15-22

Practice Questions Chapter 1: 1. The four types of cash compensation covered in class include all of the following except: a) Merit/cost of living b) Income protection c) Short-term incentives d) Long-term incentives e) None of the above Chapter 2: 9 . Wh i c ho ft hef ol l o wi n gr e l a t i on s hi p swi t h i nap a ys y s t e mi sa c c u r a t e ? a) Compensation objectives shape pay policies. b) Pay policies determine the objectives of the pay system. c) Organization strategies determine employee pay needs. d) Employee pay needs determine organization strategies e) a and b are accurate Ch a pt e r3 : 8 . I nt e r msofi n t e r na la l i gn me nt , whi c ho ft hef ol l o wi n gi sno tac on s e q ue nc eofawe l l d e s i gn e dp a ys t r u c t ur e ? a )Wor k e r sa r emot i v a t e dt os e e kh i gh e r l e v e lj ob s . b )Wor k e r ss e e ka dd i t i on a lt r a i ni n g . c )Wor k e r sf e e li ti sf a i rt hen e xt hi gh e s tj o bi spa i dmo r et ha nt he i rj o b d )Wor k e r sa r emot i v a t e db ypr od uc t i vi t yi nc e n t i v e s . e )a l lo ft hea bo v ea r ec on s e q ue nc e so fa ni nt e r n a l l y a l i gn e dp a ys t r u c t ur e

Chapter 17: 20. The law recognizes two types of discrimination when it comes to pay, the former occurring when an organization “denies particular jobs, promotions, or training opportunities to qualified women or minorities”, and the latter “looks at pay women and men receive for the jobs they perform”. These two types of discrimination, respectively, are know as: a) valuation discrimination and access discrimination b) disparate treatment and disparate impact c) access discrimination and valuation discrimination d) disparate impact and disparate treatment e) none of the above...