HRMG460 Exam 3

key factors influencing a person's decision to join a firm

-level of pay -pay system characteristics -reward system that fits their personalities

individual PFP plans

-merit pay -lump sum bonuses - individual spot awards -individual incentive plans

factors impacting turnover

-pay based on individual performance -group incentive plans -level of employee satisfaction with pay -changing base pay

critical assumptions that must be met in order for PFP to be beneficial to organizations

1. Performance varies and desired behavior/results can be clearly and accurately measured 2. variations in performance are significantly affected by motivation 3. people are motivated by the amount and type of reward

executives are generally compensation with the following pay forms:

1. base salary 2. short-term (annual) incentives/bonuses 3. long-term incentives/capital appreciation plans 4. executive benefits 5. executive perquisites

how can you promote a better pay communication?

1. conduct a needs assessment 2. develop communication objectives 3. develop methods you will use to communicate pay information 4. actually have the conversations 5. evaluate your communication system

behaviors that compensation needs to reinforce:

1. employee attraction 2. retention 3. skill development 4. performance

for merit pay programs to be effective, we must:

1. ensure that subjective performance appraisal ratings are accurate 2. ensure the size of merit increase differentiates across levels of performance, so that it truly rewards higher performance 3. hold managers accountable for properly administering the merit pay system

expectancy theory focuses on 3 relationships

1. expectancy- the effort performance relationship 2. instrumentality- the performance rewards relationship 3. valence- the rewards personal goals

4 "hidden hazards" in PFP plans

1. incentives signal what is important, but the signals may be too blunt 2. incentives do motivate behavior, but sometimes it's the wrong behavior 3. incentive systems do affect who joins the organization, but the result can backfire 4. the use of variable pay increase pay dispersion, which can damage performance

developing a management strategy involves:

1. knowing the law and developing a plan to obey it 2. managing labor costs 3. making individual pay adjustments to slot employees into the sytem 4. communicating details on the compensation system to employees

there are 2 ways to reward employee contributions:

1. paying more for seniority 2. paying more for actual performance

rater training can (and should) focus on the following aspects of performance appraisal:

1. rater-error training. Train managers to recognize rating errors, especially unintentional errors, and explain techniques for reducing them 2. performance-dimension training. train managers to have a common understanding of performance dimensions they must evaluate 3. performance-standard training. train managers to have a common frame-of-reference on what performance behaviors correspond to each possible rating level on the scale that is used.

A major criticism of standard rating scales is: a. Raters have different definitions of scale levels b. Customers don't understand standard scales c. They are costly to develop d. They encourage halo and horn errors e. All of the above

A

According to Hofstede's cultural dimensions, in low-power-distance nations such as Australia and the Netherlands, _______ pay structures are appropriate. a. Egalitarian b. Variable c. Hierarchical d. Inequitable e. Variable

A

All of the following are criteria used in determining exempt status for executives regarding overtime pay provisions except _____ a. Engage in semi-routine activities b. Primarily undertake management duties c. Supervise two or more employees d. Authority to hire or fire other employees e. Compensated on a salary basis at a rate no less than $455/week (i.e. $23,600/year)

A

All of the following are strengths of 360-degree feedback except that it: a. Is extremely easy to administer, and involves very little cost b. Improves employee understanding of performance standards c. Promotes better performance d. Incorporates feedback from stakeholders most likely to be knowledgeable about certain aspects of performance e. Employees are generally satisfied with the results

A

All of the following except ______ are provisions of the 1938 Fair Labor Standards Act a. Prohibition of hazardous work b. The minimum wage c. Prohibition of child labor d. Overtime pay e. All of these are FLSA provisions

A

Allowing an employee's poor typing performance to influence evaluation of that employee's filing performance is an example of ______ error: a. Horn b. Halo c. Severity d. Spillover e. Clone

A

As per ______ theory, one's pay relative to what other employees are paid is important as employees evaluate their pay-effort balance in comparison to other employees. a. Equity b. Expectancy c. Agency d. Reinforcement e. Equality

A

Executives, scientists and engineers, and sales staff often receive special compensation treatment because _______ a. These jobs face conflicting demands b. These jobs are exempt under FLSA c. Recruiting and retention is difficult for these jobs d. These jobs are covered under the Sarbanes-Oxley Act e. All of the above

A

Teaching raters what constitutes good, average, and poor performance is ______ training a. Performance-standard b. Rater-error c. Performance-dimension d. Six-sigma e. Behavior modeling

A

The common feature to all types of incentive plans is: a. A pre-established standard of performance to determine the magnitude of incentive pay b. A sharing formula between worker and employer c. Penalties for poor performance d. Limits on the magnitude of incentive pay e. A permanent increase in base pay

A

When evaluating your compensation system, for every compensation objective you specify, a. You must have specific metrics to determine if the objective is being met b. You must make changes to your organization's affirmative action plan c. You must examine demographic composition of your workforce d. You must re-examine all job descriptions e. You must re-examine all job evaluations

A

Which of the following statements about merit pay is correct? a. Merit pay has a small, but significant effect on performance b. Merit pay is a type of short-term incentive c. Merit pay is a variable cost d. Merit pay should result in equal raises among all employees to ensure fairness e. All of the above

A

_______ offer(s) a reward pool based upon achieving operational and financial performance targets and communicates organizational priorities. a. The balanced scorecard b. Stock options c. Stock grants d. Individual spot awards e. All of the above

A

A group of female employees have sued your company claiming their job is substantially equal to a job performed by men. If the job is substantially equal, which of the following is your company's best defense? a. The job classifications are different b. Some factor other than sex c. Men occasionally perform two additional small tasks d. Most women were hired through a different source than men e. To argue that the effort required for the men exceeds that which is required for the women

B

A sophisticated form of merit pay grid ties pay not only to performance but also to one's position in the ______ a Bonus system b Pay range c Incentive range d Piece-rate incentives e Job analysis

B

Basically a phenomenon of the union sector, two tier wage structures differentiate pay based upon ______ a. Type of work b. Hiring date c. Place of work d. Length of contract, if applicable e. Industrial sector

B

Employers sometimes seek to avoid unionization by offering workers the wages, benefits, and working conditions won in rival unionized firms. This is known as _______ a. automatic progression b. the spillover effect c. market regression d. the equal mirror effect e. re-opener clause

B

If properly designed and administered, pay-for-performance plans can help organizations do all of the following except: a. Attract and hire good employees b. Keep turnover to nearly zero c. Encourage skill development d. Motivate high job performance e. Retain talented employees

B

Most unions insist on group-based performance measures with equal payouts to members because it ______ a. Enables employees to learn to new skills b. Cuts down on strife and internal quarrels c. Encourages individual differences d. Causes a spillover effect e. Encourages competition among individual workers

B

The first step to take when determining if a new compensation system is meeting its objectives is to a. Plan a new training program for employees to be introduced at the same time b. Set up a timetable for evaluation c. Calculate incentive effects d. Calculate sorting effects e. Ensure that all employees have signed up for direct deposit of paychecks

B

The most common form of outcomes-based appraisals is: a. The essay method b. MBO c. The performance standards review d. The BARS e. The standard rating scale

B

The purpose of this variable pay plan is to foster a "one-for-all" culture and to educate employees about the business a. Team incentives b. Profit sharing c. Merit pay d. Stock options e. All of the above

B

Under the _______ Act, employers can be held liable for current pay differences the occurred as a result of discrimination that occurred many years in the past a. Sarbanes-Oxley b. Lilly Ledbetter Fair Pay c. Equal pay d. Fair labor standards e. Occupational health and safety

B

Usually _______ are awarded for exceptional performance, often on special projects or for performance that so exceeds expectations as to be deserving of an add-on bonus. a. Variable pay awards b. Individual spot awards c. Lump-sum bonuses d. Merit pay e. All of the above

B

When a job involves less routine tasks, but an outcome can be specified, an excellent rating format is: a. BARS b. MBO c. Standard rating scales d. Essay e. Straight ranking

B

Which of the following is a legitimate reason why a compa-ratio may be less than 1? a. A majority of workers with high performance b. The majority of employees may be new or recent hires c. Low promotion rates d. Turnover is low e. The cost of goods and services in the area have decreased

B

_______ theory explicitly contends that we choose to do those things that we believe is most likely to lead to desired rewards. a. Goal-setting b. Reinforcement c. Agency d. Equity e. ERG

B

After a new compensation system has been developed, it must be a. Rewarded b. Legislated c. Implemented d. Stopped e. Re-opened

C

All of the following are major factors used to manage total labor costs except _____ a. Average employment level b. Average cash compensation c. Perquisites d. Average benefits costs e. All of these are major factors

C

Company X pays for performance. Allan, an employee of the company, is not in favor of this compensation system and, therefore, leaves Company X in search of another company with different rules for setting pay. This is an example of the: a. Design effect b. Compensation effect c. Sorting effect d. Incentive effect Ability effect

C

Employees' assessment of their ability to perform their job duties is called a(n) _____ a. Equity b. Instrumentality c. Expectancy d. Reinforcement e. Valence

C

First impression error is to ______ error as leniency error is to severity error a. Halo b. Horn c. Recency d. Clone e. Central tendency

C

In ______ type cases, the focus is on the discriminatory consequences rather than the intent to discriminate. a. Disparate treatment b. Access discrimination c. Disparate impact d. Valuation discrimination e. Comparable worth

C

In its simplest form, motivating employee's entails: a. Providing high compensation regardless of performance b. Providing low compensation regardless of performance c. Discovering what rewards matter to employees and providing them contingent on performance d. Discovering what rewards matter to employees and providing them regardless of performance e. Offering a competitive benefits program

C

Potential advantages of individual incentive plans include all of the following except: a. Lowered production costs b. Less direct supervision c. Employees embracing new technology d. Higher productivity e. More accurate estimates of labor costs

C

Which of the following is a good example of how external requirements might compel you to review and make changes to your compensation system? a. A change in your company's business strategy b. An increase in your company's employee turnover c. The recent rule change by the department of labor on the salary test for FLSA exemptions d. The recent trend toward more trait-based performance appraisal formats All of the above

C

Which of the following is not a long-term incentive plan? a. ESOPs b. Stock options c. Profit sharing d. All of these are long-term incentive plans e. None of these are long-term incentive plans

C

Which of the following is not an advantage of group incentive pay plans? a. Performance measures are easier to develop than for individual plans b. Cooperation within and across groups is encouraged c. Compensation risk to income stability is reduced d. Employee participation in decision-making increases e. A generally positive impact on organization and individual performance

C

_______ theory argues that performance-based pay is best for complex jobs where monitoring employee performance is difficult. a. Reinforcement b. Goal setting c. Agency d. Expectancy e. Maslow's

C

Desired employee behaviors are influenced by ______ a. Motivation b. Ability c. Environment d. Ability, motivation and environment e. Nothing more than money

D

During periods of higher unemployment, the impact of unions on general wage levels is _______ a. Unknown b. The same as periods of low unemployment c. Smaller d. Larger e. Unchanged

D

The concept of "comparable worth" a. Is required by the equal pay act b. Is required by the title VII of the civil rights act c. Is required by executive order 11246 d. Requires the use of a standard job evaluation procedure applied to all jobs e. All of the above

D

When the organization's business strategy changes, the _____ need(s) to change as well a. Production b. External factors c. Internal factors d. Compensation system e. Perks

D

Which of the following are key assumptions that must be met in order for pay-for-performance programs to be effective? a. Performance among employees varies, and can be accurately measured b. Employee performance is affected by motivation c. Employees are motivated by the amount and type of reward d. All of the above e. None of the above

D

Which of the following occupational groups are least likely to be categorized as exempt under the FLSA? a. Administrative b. Professional c. Executive d. Clerical e. Computer employees

D

Which of the following should be automatically considered on an ongoing basis to ensure that the compensation system is up-to-date? a. Changes in salary survey data among relevant labor market competitors b. Currency in the organization's job descriptions c. Changes in the demographic composition of the workforce d. All of the above e. None of the above

D

______ curve expresses the relationship between years since last degree, performance, and salary a. the phillips b. the marginal productivity c. a tenure d. a maturity e. a contingency

D

The male-female earnings gap reflects a. Differences in the work performed b. Differences in qualifications c. Work-related behavior like hours worked d. Pay discrimination All of the above

E

Wage adjustments in multi-year contracts may be specified in all of the following ways except ______ a. Cost-of-living adjustments b. Deferred wage increases c. Reopener clauses d. Escalator clauses e. Spillover causes

E

When implementing a new or significantly revised compensation system, you should a. Communicate changes in advance b. Estimate how much labor costs will change c. Crate a time lag between when the changes will be announced and when they will go into effect d. Introduce complex changes in stages e. All of the above

E

special groups

Tend to be strategically important to the company. If they don't succeed at their jobs, success for the whole organization is in jeopardy. Second, their positions tend to have built-in conflict, conflict that arises because different factions place incompatible demands on members of the group.

Gainsharing (team PFP plan)

a PFP plan that focuses on productivity improvements.

profit sharing (organization-level PFP plan)

a bonus paid out of an organization's profits; determined annually

union

a group of employees who band together, seeking to bargain collectively with their employer over the terms of their employment; tend to prefer entitlement based pay; prefer group based (not individual); lump sum instead of merit; ESOPs, skill-based plans, gainsharing plans, profit sharing plans

compa-ratio

a measure of how actual practice compares to policy

merit pay

a permanent increase in base pay based on the most recent performance appraisal

re-opener clause

a provision that allows negotiators from both sides to return to the negotiation table to re-evaluate wage rates if certain contingencies occur

escalator clause

a special type of COLA clause where CPI-based wage increases are established on an ongoing (as opposed to one-time) basis

validity

accuracy of measurement

team incentives (team PFP plan)

all members receive an incentive payment when pre-specified goals are met or exceeded.

performance appraisal

an evaluation of an individual employee's job performance over the past year

executive order 11246

applies to federal government contractors to ensure that they do not discriminate

economic perspective

argues that CEO pay should be commensurate with some measure of organization performance; ex: firm size appears to be the best predictor of CEO pay, and CEOs of organizations that outperform their market competitors tend to be paid more

expectancy theory (type of process theory)

argues that an employee will be motivated to perform better when he or she believes that the effort will lead to a favorable performance result; that a good performance result will lead to organizational rewards; and that the rewards will satisfy the employee's personal goals.

agency theory perspective

asserts that CEO pay should be arranged in a way that aligns with their interest with those of the principals (stockholders)

content theories

attempt to predict what is important to employees; Maslow's need hierarchy and herzberg's 2 factor theory

balanced scorecard bonus

can be given at either individual, team or organization level; bonus is generated on a variety of different metrics; the amount of bonus is determined in part by how well the organization's overall score compared to the threshold

unions prefer

collective bonus plans rather than individually-based bonuses

exporter

compensation managers at headquarters design a single, universal compensation system that will operate identically everywhere

reliability

consistency of measurement

performance management system

day-by-day approach to providing employees with feedback on how well they are performing their jobs.

agency theory (type of process theory)

deals with the relationship between principals (or owners) of a firm and the agents (or managers) are hired to conduct daily operations; the principals want a good return on their investment in the firm, and hire agents to conduct the business in a way that maximizes this return

motivation

discretionary efforts

performance

employee behaviors that have value to the organization

automatic progression

employee pay advances based on a pre-set determination of how years of service correspond to pay with the range; represents an entitlement approach to base pay increases over time

expatriates

employees on a temporary work assignment in another country; pay forms- base salary, income taxes, housing, allowances and premiums

green circle rates

employees whose base pay falls below the range minimum; generally, we would increase each affected employee's base pay to at least the range minimum

red circle rates

employees whose base pay is above the range maximum

tax equalization

employers pay the tax that employees owe foreign governments

process theories

examine the mental process that employees are thought to engage in when contemplating the nature of an exchange; expectancy, equity and agency theory

stock-based PFP plans (organization-level PFP plan)

focus on longer-term value creation

behavioral theories

focused on desired behavior itself; goal-setting and reinforcement

pay-for-performance (PFP)

focuses on using pay as a reward for good work rather than entitlement the organization is obligated to disburse

individual spot awards

given for employee effort NOT directly tied to an established performance standard.; ex: a customer service rep gets a spot award for working long hours to fill a new customer's order; requires setting aside discretionary funds

stock options (organization-level PFP plan)

grant employees the right to buy a specific number of shares of a company stock at a guaranteed price during a designated time frame; when the value of those shares increase on the market, the employee can exercise the option to buy at a lower price, sell at the (currently higher) market price, and reap a capital gain as additional income

deferred wage increase

guarantees a specified wage increase at a specified date that occurs after the contract goes into effect

globalizer

heavily networked to share ideas and knowledge

lump sum bonuses

increasingly being used to replace merit pay more cost-friendly; based on whatever criteria the organization wishes to reinforce

COLA clause

links a specific wage increase to changes in the Consumer Price Index (CPI)

country high in uncertainty avoidance

minimize variable pay

The Fair Labor Standards Act (FLSA)

minimum wage, overtime laws, and child labor laws

labor costs =

number of employees x [average cash compensation + average benefits cost]

salary compression

occurs when salaries of new hires catches up to or exceeds to pay received by longer-tenured employees

disparate treatment

pay policies differ based explicitly on some protected class status (ex: an organization grants pay increased to blacks based on seniority, but to whites based on performance)

disparate impact

pay policies may appear neutral on their face, but nonetheless have a differential effect among workers in a protected class. (ex: pay increases to male and female employees that are based on tenure could constitute disparate impact if females have less seniority)

business strategy

primary guide to determine what kind of specific employee behaviors are needed

professional occupations (scientists and engineers)

professionals have a "primary duty involving the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment; the work must be in a field of science or learning; and the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction"

Equal Pay Act

prohibits pay discrimination on the basis of sex when employees perform equal work

ability

referring to employees' capacity to perform based on training, knowledge and skills

environment

referring to working conditions, the work flow, quality of raw materials/machinery

social contract

refers to a society's expectations regarding employment relationships

time worked

refers to all time when the employee is on duty

comparable worth standard

requires that jobs equal in value to the employer be paid the same

tournament theory perspective

says that CEO pay should considerably exceed the pay for the next highest level of compensation in order to create the most motivating contest

social comparison perspective

says that CEO pay should have a set relationship to the pay of lower-level employees; suggests that when lower-level employee pay increases, CEO pay should increase by a corresponding amount.

time compensated, but not worked

sick pay, vacation pay, holiday pay, etc.

reinforcement theory (type of behavioral theory)

states that behavior is a function of its consequences; rewards can be used to stimulate and sustain performance-relevant behaviors

goal setting theory (type of behavioral theory)

states that the optimal motivation technique is to set difficult and specific goals for employees

localizer

tailor your practices for each specific location where your operate (different recipes for mcdonalds in different countries)

executives

the organization's top decision makers; develop and direct the implementation of the business strategy

pay discrimination

the valuation of worker characteristics that is unrelated to job performance (gender, age, religion, race, etc.)

individual incentive plan

tie pay to some objective, pre-specified level of performance; ex: piecework- employees are paid a certain rate for every unit and employees who produce more will earn more; raises productivity, lowers production costs, increases earnings of workers, less direct supervision, labor costs control; conflict btw. employees, new technology, reduced willingness of employees, complaints, increased turnover, mistrust

country high in power distance

use a hierarchical structure

country high in collectivism

use an egalitarian structure, gives equal pay increases, and group-based bonuses

country high on individualism

use individual-based pay and performance-based increases

equity theory (type of process theory)

workers compare the ratio of their job outcomes to job inputs with comparison or referent others; inequity creates tension, and can cause an employee to seek fairness

employee stock ownership plan (ESOP)- (organization-level PFP plan)

works by the organization contributing stock to a special trust, which is then distributed to employees when they retire or leave the organization