Compensation Exam 1

Troubled Asset Relief Program

- T.A.R.P. - restricts executive pay - discourages risk taking

Organizations in a turbulent and unpredictable environment requiring flexibility in jobs and work processes are likely to be more successful with a(n) _________ internal pay structure

- egalitarian

When cooperation is important for successful organization performance, which of the following pay structures is most suitable

- egalitarian

A major challenge in the design of future pay systems is how to better satisfy _________

- individual needs & preferences

When organizations performance declines

- performance base pay stops working

Most job structures are best described as

- person & job based

Reinforcement Theory

- positive & negative reinforcers to motivate behavior

Egalitarian pay structures have all BUT which of the following characteristics?

- preference for individual over team performance

James says, "I don't trust the way the company determines pay rates in my department." If James feels this way despite being happy with his current salary, he is most likely concerned about _____.

- procedural justice

procedural justice

- process for decisions - right to an attorney - right to an impartial judge

A compensation strategy should reflect an organization's __________

- values

Which of the following is often the largest component in an executive pay package

-stock options

Know the steps in developing a total compensation strategy and their correct order.

AMR Aston Martin Racing - assess - map - reassess

In the formula for predicting performance, the component most closely related to compensation is P=f(A,M,O)

Ability (Motivation) = compensation/pay Opportunity

Recognize fundamental objectives vs. a policy of the pay model

fundamental objectives - fairness - ethics policy - internal alignment - competitiveness - contributions - management Policies: Internal alignment (refers to comparisons among jobs or skill levels inside an organization. Pay relationships affect all four compensation objectives: efficiency, fairness, compliance, ethics). Competitiveness (refers to pay comparisons with competitors and affect objectives in 2 ways: 1. Employees must perceive their pay as competitive, or they may leave. 2. Controlling labor costs keeps the company's products competitive). Contributions (or nature of the pay mix is a key decision; make external competitiveness and employee contribution decision jointly). Management (means ensuring the right people get the right pay for achieving the right objectives in the right way). Fundamental objectives (Performance, quality, customer and stockholder, cost). Fairness, compliance, ethics, efficiency. Fairness (sometimes called equity) is a fundamental objective of pay systems.

Variable pay may also be called:

incentive pay

the role non-HR managers play in making pay decisions is called ___. ***

ownership

In the context of pay relationships, which of the following is illegal in the United States

pay basis on - age - gender - religion - race - disability

Organizations design their pay structures around _________

- jobs & job levels

Transparency

- transparency about pay

Which of the following tests of competitive advantage is probably the easiest test to pass

- alignment test

The well-defined jobs at McDonald's and their small differences in pay are an example of a(n) _____ internal pay structure.

- closely tailored

Customer-focused strategy

- improve customer expectations - customer focused - solution focus - customer satisfaction incentives - customer based pay

Innovator Strategy

- improve product - market based pay - shorten life cycle - mass customization & innovation - look for risk taking & innovative employees - reward innovation

Research investigating high-performance workers found that performance-based pay _________ when combined with other high-performance practices ***

- improves attitudes & behaviors

Which form of pay does not permanently increase labor costs?

- incentive pay

If the objective is to increase customer satisfaction, what forms of pay might you use

- incentive programs - merit pay

If a company wants to restructure its pay plan without increasing labor costs in the long run and while retaining its top employees which of the following examples would be the best strategy

- increase incentives - decrease base pay

Differentiated strategy***

- innovative products - premium prices

The alignment test ***

- align with business strategy - align with economic and sociopolitical conditions - ensure differentiation test passing

Union preferences are a major factor in _____ a total compensation strategy.***

- assessing

Commissions

- based on specific performance/achievement - tied to company profit

Entitlement

- belief that returns/rewards are owed - regardless of individual or company performance - employed = compensated

In a study causation can be best established by

- checking scope of study

Jacob works at PrimeClean Corp., a carwash company. He is asked to follow a set of instructions in a predetermined order to wash a car. All the details including the amount of washing liquid to use for each type of car are clearly specified. In this case, Jacob's company is most likely to use a:

- closely tailored pay structure

The difference between exchange value and use value surfaces when ________

- company mergers

Employee Contributions

- comparing same jobs & employee performance Comparisons among individuals doing the same job for the same organization, or nature of the pay mix is a key decision. Make the external competitiveness and employee contribution decision jointly. 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). The emphasis to place on employee contributions (or nature of pay mix) is an important policy decision because it directly affects employees' attitudes and work behaviors

___ is the key to attracting, retaining, and motivating employees with the abilities necessary to execute the business strategy and handle greater decision-making responsibilities.

- compensation

External competitiveness

- competitive pay with rivals - attract & retain employees - market driven - influences pay mix

Fairness perceptions ***

- considers employee contributions - considers employee needs

A structure based on value typically ranks jobs on ________:

- contributions of skill

The institutional model

- copying innovative practices from others

Most firms do not have generic strategies but use

- cost & innovation

A compensation system focusing on system control and work specifications is most closely associated with a(n) ________ strategy

- cost cutter

A compensation system that focuses on competitors' labor costs is most closely associated with a(n) _____________ strategy

- cost cutter

Mich Inc., a hardware store, has a rating system in place that rates employees on their friendliness, usefulness, and product knowledge. Based on the ratings an employee receives, he or she gets an incentive. The compensation strategy followed by Mich is most closely described as a:

- customer focused strategy

Technology used in producing goods and services influences the __________, the work to be performed, and the skills/knowledge required to perform the work

- design

What do objectives guide

- design of pay system - sets standards for successful pay systems

The problem that is most likely to be faced by organizations using egalitarian pay structure is

- difficult external recruitment

Providing unlimited compensation choices to employees would meet with ________ from the US internal revenue service

- disapproval

human capital

- education - experience - knowledge - abilities - skills

Which of the following is true of procedural justice

- effects administration design & decision making

Cost-cutter strategy

- efficiency - cost effective solutions - competitive labor costs - increase incentives - emphasize productivity - system control & work specifications

In firefighting and rescue squads and global software design teams, a(n) _____ structure is most closely associated with higher performance.

- egalitarian

Which of the following policy decisions directly affects employees' attitudes and work behaviors ***

- employee contributions/pay mix

In the context of internal structures, which of the following is true of a delayered structure

- equally valued employees

Factors that shape internal pay structures

- external - organization factors

Comparisons based on the forms of compensation used by other companies are part of

- external competitiveness

How an organization positions its total compensation against its competitors is part of _______ strategic choice

- external competitiveness

work/life balance is most closely associated with the ___ aspect of mapping a total compensation strategy ***

- external competitiveness

According to the text, which of the following decisions should be made jointly ***

- external competitiveness - employee contribution decisions

Common bases for modern pay structures include all but which of the following:

- external competitiveness - equity

Equity theory

- fairness focus - internal & external comparisons - knowledge of other's jobs

Egalitarian pay structures

- few levels - small differentials - equal treatment

Based on the opinions of 10,000 U.S. workers, Hudson found that when given their choice of unconventional benefits, most employees would select _____.

- flexible schedule

_______ are related to greater performance when the work flow depends on individual contributors

- hierarchical

Nina is a high-performing individual who works best alone. Which of the following companies is the most appropriate for her?

- hierarchical pay structure - performance based pay

Potential problem(s) in egalitarian pay structures

- high performing employees feel underpaid and quit

External factors are dominant influences on jobs filled via

- hiring graduates

Incentive Effect

- how much pay influences effort/motivation/performance

Sorting effect

- how pay attracts types of employees - helps tailor employees to company goals

The innovatory business strategy

- how to use resources for innovation objectives - deliver value & competitive advantage

Differences between incentives and merit increases.

- incentive = future - objective based i.e. commission - must be re-earned - criteria given beforehand - merit = past - subjective based - can increase base pay A difference between incentives and merit increases is that incentives are temporary. When an employee receives another kind of pay for performance, that pay is temporary. The bonus received by a salesperson for meeting his sales quota for quarter; Incentives also tie pay increases to performance. However, incentives differ from merit adjustments. First, incentives are tied to objective performance measures (e.g. sales) usually in a formula-based way, whereas a merit increase program typically relies on a subjective performance rating. There is also some subjectivity in the size of the pay increase awarded for a particular rating. Second, incentives do not increase the base wage and so must be re-earned each pay period. Third, the potential size of the incentive payment will generally be known (given the use of a formula) beforehand. Whereas merit pay programs evaluate past performance of an individual and then decide on the size of the increase, what must happen in order to receive the incentive payment is called out very specifically ahead of time.

Declining organization performance ________ the risks facing employees- risks of still smaller bonuses, demotions, wage cuts, and even layoffs

- increases

A compensation system using market-based pay is most likely to be part of a(n) _______________ strategy

- innovator

Flexible-generic job descriptions would most likely be used with a(n) _____ strategy.

- innovator

AMOC, Whole Foods' shared-fate philosophy of limiting executives salaries to no more than 19 times the average pay of full-time employees is an example of which strategic pay decision

- internal alignment

Career growth, hierarchy, and flexible design are most closely associated with the _____ aspect of mapping a total compensation strategy. ***

- internal alignment

Internal alignment is sometimes called __________

- internal equity

Pay for temporary workers is based upon

- internal structure

Research shows that ______ will effectively shift an organization in a downward performance spiral into an upward one ***

- it is unclear what compensation practices

All organizations that pay their employees have a compensation strategy even though _________

- it may not be stated or written

An organization defines its strategy through ***

- its choices

The most common bases for determining internal structures are

- job content & value

An organization whose profits or market share is increasing is able to pay ______ bonuses and stock awards

- larger

Tournament theory

- larger differentials - motivation through promotion - ideal for interdependence - positive sorting effects

Compensation is often a company's ________ controllable expense

- largest

Layered and delayered pay structures

- layered = hierarchical - delayered = egalitarian A layered pay structure is more hierarchical than a delayered pay structure and less egalitarian in terms of number of levels.

Strategy refers to ***

- long term plan - achieve goals & unique customer experience

· Greater pay dispersion is related to ________ turnover among executives:

- lower

Reasons why the great majority of the uninsured in the United States are from working families.

- majority of employment is through smaller companies - smaller employers are less likely to offer insurance benefits

Issues of transparency, technology, and choice are most closely associated with the _____ aspect of mapping a total compensation strategy. ***

- management

Pay system management

- managing base pay, short & long term incentives - ensure pay system is meeting objectives - ensure right pay for right work

Correlation coefficient ***

- measure of changes between connected variables

prominence ***

- measure of compensation importance to HR strategy

Differences between merit increases and merit bonuses

- merit increase = increase in base pay - merit bonus = lump some/no base pay change

What has the greatest instrumental value according to the text

- monetary incentives

According to the Hudson survey, which of the following is the single thing that would make 41% of workers happier.

- money

In mapping a total compensation strategy, the question of how important compensation is in the overall HR strategy is part of ***

- objectives

stock options

- option to purchase stock - set price - usually at discounted price

Marginal productivity theory (MPT)

- pay = proportion of work to objectives - labor demand focus - contract to Marxist surplus values

How to managers seek internal alignment within their organizations ***

- pay based on similarities between jobs

Base wage

- pay for work done - based on value the job and skills - ignores individual differences

Internal Alignment

- pay relationship between jobs in a company - equal pay for equal worth jobs - acceptable pay differential for unequal worth jobs

Trying to measure an ROI for any compensation strategy implies that ***

- people = human capital

Procedural fairness ***

- process for making pay decisions

Which of the following is a fundamental strategic choice at the corporate level ***

- products & services to offer

You need to recognize an example of a relational return

- psychological rewards - recognition - job security - learning opportunities

Which of the following is true of internal alignment (Will list three false statements and one true one):

- relates to internal relationships

Embedding compensation strategy within the broader HR strategy affects ***

- results

Know which of the statements is true of incentives. (8)

- rewards expected future performance - does not increase base wage - must be re-earned - criteria explained beforehand - one-time payment - referred to as variable pay - short or long term - long term can be pay in stock or options

Merit pay

- rewards past performance - lump sum or incremental

In a strategic approach to pay, internal alignment is the ______ issue to be decided (refers to order of issue to be decided according to the text):

- second

Factors used in defining equal work according to the equal pay act

- skill - effort - working conditions

Labor unions support ________ pay differentials

- small

Most unions prefer which of the following?

- small pay differences - seniority based promotions

Incentives do not permanently increase labor cost because

- they are one-time payments

Which of the following theories predicts that individual performance will be maximized when the pay differentials between jobs levels are large

- tournament theory

From descriptions be able to recognize which company is taking efforts to improve the work/life balance of its employees.

- vacation/jury duty/child & elder care - drug counseling/financial planning services - flexible schedules (remote/nonpaid time off/nontraditional schedules)

Content refers to the

- what is done - how it is done

Do most managers read research in HR management and compensation journals

- yes

Joshua believes that treating employees equally will improve their job satisfaction, which in turn will increase their work productivity and performance. In accordance to his beliefs, he wants to reduce the number of job levels and the pay differentials between the levels. In this case, he is most likely to use a(n):

-egalitarian pay structure