Econ 448- final exam

What are the four major components of the balanced scorecard?

1. financial. 2. customer 3. internal business processes 4. innovation and learning

The Rudd-Mitchell organization uses the Scanlon plan to provide incentives to its employees. The workers produce electrical components worth $5 million. The target ratio set by the organization is 30%. The employees will be given a bonus if the actual labor costs are less than ___________ million.

1.5

What does the Employment Cost Index (ECI, published by the Bureau of Labor Statistics) measure?

ECI measures quarterly changes in employer costs for compensation.

Choose any one of the motivational theories from: Equity Theory, Expectancy Theory, Goal Setting Theory, Reinforcement Theory, Agency Theory. Answer the following question: According to this theory, what important issue we need to consider when designing pay plans (list at least two)?

Equity Theory: motivation is influenced by the desire to be treated fairly. One important issue to consider when designing a pay plan using the equity theory is clearly defining performance measures for employees. This will give employees motivation on what the specifically focus on and they know if they achieve these objectives, it will show up in their compensation. A second important issue to consider is making sure there is fairness and consistency of performance based pay across all employees in the organization. Since this theory is all about being treated fairly, an organization must make sure they are being consistent with how they are pay employees. If an employee notices they are performing the exact same as another employee, but they are getting paid less, this will unmotivate this employee and they will feel like they are not being treated fairly.

What does external competitiveness refer to?

External competitiveness refers to an organization's pay relative to its competitors .

Based on this module's lecture content, comment on the following statement regarding whether it's True or False, and briefly explain why: In order to make the 360-degree performance evaluation approach effective, the evaluation results should be always linked to pay raise or promotion decisions.

I believe this statement to be false. In order to make the 360-degree performance evaluation approach effective, I do NOT think evaluation results should be linked to pay or promotion decisions. One of the main reasons for not linking pay or promotion to this approach is rater errors. I think the feedback from the 5 groups of people ( manager, customers, peers, self & subordinates) could be very susceptible to creating these errors, especially since some groups are not trained to properly evaluate someone. This could be very unmotivating to the employee. Instead, I think there are other performance evaluation approaches that are better linked to pay raises.

Which of the following is an example of a quoted-price market?

Nile, a website that allows sellers to sell their products for a fixed price

Read the following scenario, determine if they are eligible for unemployment benefits and briefly explain why: John graduated in Dec. 2019, but he hasn't been able to get a job until now.

No, John would be eligible for unemployment benefits because he does not fulfill the "base period" criteria

Is a company's pay-policy line always identical with the market pay line? Answer Yes or No and explain why.

No. The pay-policy line is a target set by the company. The company should use the market pay line in order to plan what amount they are intending to match at the market pay line. However, the pay-policy line and the market pay line are not always identical because the market pay line fluctuates based on what competitors are doing.

Give an example of a quoted-price market and an example of a bourse market.

One example of a quoted-price market is stores when stores label each item's price or job ads that list a job opening's starting wage. One example of a bourse market is when stores allow haggling until an agreement is reached, like Ebay.

What is the major disadvantage of a merit pay system?

One major disadvantage is merit pay can be expensive.

What is reservation wage theory? What does the theory seek to explain?

Reservation wage theory explains that job seekers have a reservation wage level below which they will not accept a job offer, no matter how attractive the other job attributes. It seeks to explain differences in people's responses to job offers.

Among the four types of pay-mix strategies, which has the highest percentage of base salary?

Security (Commitment)

Jeff owns and manages a small electronics repair store. He determines the time required by his employees to complete each task assigned by him. When employees complete the repairs in less time, they receive an amount of pay equal to that time determined by him. In this scenario, what pay for individual performance plan is Jeff is using?

Standard hour plan

What is the major disadvantage of using broad banding for pay structures?

There are generally inconsistencies and favoritism using broad banding

Among the four types of pay-mix strategies, which has the highest percentage of employee benefits?

Work/life balance

Because employers are raising employee pay at various times during the year, survey data are usually updated using a process called [1] or [2] to forecast the competitive rates for the future date when the pay decision will be implemented.

aging trending

A market pay line links a company's [1] on the horizontal axis with [2] on the vertical axis.

benchmark jobs markets rates

"Central tendency" as a rating error refers to that a rater gives high ratings to all employees regardless of their performance.

false

"Horns error" as a rating error in performance appraisals refers to that a rater gives an employee high ratings on all aspects of performance because of his/her overall positive impression of the employee.

false

Overtime pay is required only if the employer specifically asked or expected the employee to work more than 40 hours a week.

false

Employers with a history of laying off a large share of their workforce generally pay _______ unemployment tax than those with few layoffs.

higher

What is the major problem with ESOPs?

it has little impact of profit or productivity

Generally, as you go up the organizational hierarchy, the minimum and maximum of pay grades for higher level jobs have _______ distance to the midpoint compared to those for lower level jobs.

larger

Which of the following is NOT a long-term incentive plan?

merit bonus plan

An incentive system in which an organization links pay increases to ratings on performance appraisals is referred to as ______________.

merit pay

Julianna, the HR manager at Hudson Corp., is facing criticism from the company's high-performing employees for the lack of an effective incentive scheme that rewards them with the necessary pay. The company has avoided paying out incentives in addition to employees' monthly salary in an attempt to minimize costs. But, after the last annual meeting, it has been decided to pay employees an incentive amount based on their performance ratings and their compa-ratio. In this scenario, which pay for individual performance plan is Julianna applying?

merit pay

_____________________ is a type of incentive pay in which payments are a percentage of an organization's profits and do not become part of its employees' base salary.

profit-sharing plan

Among the four types of pay-mix strategies, which of the following has the highest percentage of base pay?

security (commitment) strategy

For an organization that emphasizes on individual achievement and motivating employees through promotions, when determining the range overlap across different pay grades, the organization should consider _____ range overlap.

smaller

Company A determines a particular time to complete a particular task. Even if an employee completes the allotted task before the standard time of completion, the employee receives an amount of pay equal to the wage for the designated time. Which of the following payment methods is exemplified in this scenario?

standard hour plan

Which of the following is a long-term incentive?

stock option

In a pay grade, the minimum and the maximum of the pay range should be _________ to the midpoint.

symmetric

A defined contribution retirement plan guarantees a specified or fixed level of retirement income.

true

A merit pay system links increases in base pay to employees' performance ratings.

true

According to the Expectancy Theory, ______ refers to the value employees attach to the organization rewards offered for satisfactory job performance.

valence

List the five types of legally required employee benefits.

1. Social security benefits 2. Unemployment insurance 3. Workers compensation 4. Family and Medical Leave 5. Health Care

Name the two types of rating methods for performance appraisals:

1. Standard rating scale 2. Behaviorally anchored rating scale

What are names of the two types of differential piece-rate plans?

1. Taylor plan 2. Merrick plan

List TWO characteristics of the jobs that are grouped into one pay grade.

1. These are different jobs but considered substantially equal for pay purposes 2. All jobs within a single grade will have the same pay range.

List three commonly used factors by managers to determine the relevant markets for pay comparison.

1. occupation 2. geography 3. competitors

What factors determine the relevant labor market that an employer chooses? Please list THREE.

1. occupation or skills 2. geographical location 3. products and services

What types of benefits does Social Security provide? Please list FOUR.

1. retirement insurance 2. Health insurance 3. disability insurance 4. survivors' insurance

An organization uses the Scanlon plan to provide incentives to its employees. The workers produce electrical components worth $6 million. The target ratio set by the organization is 20%. The employees will be given a bonus if the actual labor costs are less than _________ million.

1.2

QVO Financial, an auditing firm, distributes a portion of the profits resulting from improvements in productivity and efficiency among its employees. If the company enjoys an improvement of $45,000, 60% of the improvement might be the company's share. The other 40% would be distributed among the employees in the company. Which incentive plan is being exemplified in this scenario?

Gain-sharing plan

Which of the following is TRUE about individual spot awards?

Larger companies may use formal mechanisms for giving the awards.

Based on the video lectures and the article "Motivating Works - Ranked and Yanked" (which you can find in the folder of "Module 12 Supplemental Materials"), what are the major advantages and disadvantages of forced distribution approach in performance evaluation?

Major advantages: easy basis for compensation differences, gets rid of people who are not benefiting the company Major disadvantages: discrimination in ranking, unhealthy competition, unbalanced power, discourages teamwork & collaboration

Read the following scenario, determine if they are eligible for unemployment benefits and briefly explain why: Tom got fired from the company because he violated workplace safety rules multiple times, and he is currently seeking to get employed.

No, he is not eligible for unemployment benefits because it was his own fault he is not unemployed. You must be unemployed "through no fault of your own" meaning it is not your fault you are unemployed. However, in this case Tom is at fault because he was fired.

According to the goal setting theory, relative pay is important as employees evaluate their pay-effort balance in comparison to other employees.

false

All U.S. employees, including federal, state, and local government employees, are covered under the Social Security program.

false

Companies that conduct pay surveys should include at least 100 employers in the survey.

false

Companies that use 360-degree performance evaluation should always link the evaluation results to pay raises or promotion decisions, in order to make the evaluation approach effective.

false

Employers in highly competitive product markets are more able to increase pay levels of employees.

false

Generally labor-intensive industries tend to pay higher than technology-intensive industries.

false

In order to receive benefits from workers' compensation, an employee who suffered work-related injury must show evidence that his/her employer was negligent of workplace safety.

false

The Family and Medical Leave Act (FMLA) allows employees to take up to 12 weeks of paid leave after childbirth or adoption, to care for a seriously ill family member, or their own serious illness.

false

Under a defined benefit retirement plan, employees are responsible for choosing specific investments.

false

Under the Equal Pay Act of 1963, all men and women who do the same work must be paid the same without any exceptions.

false

When designing pay for performance plans, most companies use a single performance measure linking to pay increases or bonuses.

false

A multi-national organization uses a gainsharing program in which employees receive a bonus if the ratio of labor costs to the sales value of production is below a set standard. This incentive plan is referred to as the _______________.

scanlon plan

Company W pays its employees based on the number of products that the employees produce. The employees earn a flat rate of compensation for each product they produce. This type of compensation plan is called _____________. (please write down the specific name for the compensation plan).

straight piecework plan

According to the efficiency-wage theory, paying higher wages than competitors can bring higher profits because higher wages can attract higher ability workers and thus improve efficiency.

true

An important implication of reinforcement theory is that the timing of payouts to employees is very important.

true

Because employers are raising employee pay at various times during the year, survey data are usually updated using a process called aging or trending to forecast the competitive rates for the future date when the pay decision will be implemented.

true

Comparing to Scanlon plans, Rucker plans tie incentives to more types of savings and can be more easily linked to individual incentive plans.

true

Employee self-evaluations are valuable for employee development purpose, but they should not be used for administrative decisions such as promotion or pay raises.

true

If federal and state minimum wage laws cover the same job, workers should be paid at or above the higher rate.

true

Implementing safety programs can help an organization reduce the costs of workers' compensation insurance.

true

In cases where the content of an organization's jobs does not sufficiently match that of the survey jobs, benchmark conversion can be used to quantify the differences of the job content.

true

Maslow's theory suggests that performance-based pay can be demotivating if it impinges upon employees' capacity to meet daily living needs.

true

One advantage of gain-sharing plans compared to profit sharing plans is that employees under gain-sharing plans can see a stronger link between their efforts and payoffs that they will receive.

true

One important criticism to the broad-based option plans (BBOPs) is that rank-and-file employees may not necessarily see a connection between their actions and the company's stock price.

true

The Merrick plan is a form of differential piece-rate plan and it establishes three piecework rates.

true

The reservation wage theory seeks to explain differences' in people's responses to job offers.

true

The theory of compensating wage differentials states that if a job has negative characteristics, employers must offer higher wages to attract and retain workers.

true

Under the Lilly Ledbetter Fair Pay Act, employers can be liable for current pay differences that are a result of discrimination occurred many years earlier.

true

Within an organization, the midpoints of pay grades usually fall exactly on the pay-policy line.

true

What is the major disadvantage of using profit sharing plans?

Employees do not have much control over profits. So employees might work hard and deserve a bonus, but the company does not earn enough revenue so the employees do not end up getting the extra bonus. There are other disadvantages that stem from this such as lack of motivation or increased turnover, but this is the biggest disadvantage to the profit sharing plans.

You own Falzer's Tool Coating Company, a high-tech firm specializing in the coating of cutting tools (e.g., drill bits, cutting blades) to provide longer life before re-sharpening is needed. You are concerned that the competition continues to develop new coating methods and new applications of coating in different industries. You want to create a work environment where employees offer more new product ideas, and suggest new industries where these ideas might be applied. What type of compensation plan will you recommend and why?

I would suggest Employee stock ownership plan (ESOP). If you give employees stock, they would be willing the stay with the company longer and this would generate long term effects. Coming up with an innovative idea is something that will take time and patience. If employees get stocks and stay with the company, they will see the long term effects of their ideas in play. Also, ESOP's foster employees willingness to paparticipate in the decision making process. This is exactly what Falzer's Tool Company is wanting from their employees. They want their employees to participate in this process and suggest new ideas etc. ESOP seems to be a good compensation plan option for what Falzer's is trying to achieve right now.

What is the biggest disadvantage of using pure market pricing to determine pay structures in an organization?

Pure market pricing ignores internal alignment, as well as the link of internal pay structures with business strategy.

A firm uses a compensation plan to reward employees' performance based on an employee's performance rating and the employee's compa-ratio. Which of the following incentive plans is most likely exemplified in this scenario?

merit pay plan