Chapter 18 Learn-it

Which of the following is true of outsourcing? A: Cost savings are a major potential advantage of outsourcing. B: It is recognized as a transformational activity. C:It is a viable alternative for activities that are major contributors to an organization's objectives. D: Limited responsiveness to unique employee-manager problems is a major potential advantage of outsourcing.

D - Cost savings are a major potential advantage of outsourcing

Activities that are not unique to an organization and those that can be done cheaper (and perhaps also better) by an outside provider are called (blank)(blank)

Transactional activities

What is a contingent worker?

Employment agreements of these employees may cover only short, specific time periods.

(blank)(blank)(blank) guarantee that different managers grant consistent raises to employees with similar performance ratings and in the same position in their ranges.

Merit increase guidelines or grids

Communication portals

These help managers and/or workers understand compensation policies and practices by answering frequently asked questions and describing how compensation systems affect their pay.

What is the role of pay in strategic changes in business strategy? A: Compensation has to be realigned with changes in business strategy. B: The bigger the change in business strategy, the smaller the sorting effects experienced by organizations. C: Compensation plays no role when organizations restructure. D: The ability-motivation-opportunity (AMO) framework plays no role in business strategy restructuring.

A - Compensation has to be realigned with changes in business strategy

What are the reasons for managers paying employees at rates that are less than the intended policy? (Check all that apply.) A: Employees may be poor performers. B: The majority of employees may be new. C: Promotions may be occurring rapidly. D: Employees may be delivering high performance. E: There may be low turnover.

A,B, and C

Average salary (fixed payments) level plus variable compensation payments such as bonuses, gain sharing, stock plans, and/or profit sharing comprise (blank)(blank)(blank)

Average cash compensation

In order to seek bankruptcy protection from creditors, some companies have eliminated _____. A: payment for time not worked B: defined benefit (pension) plans C: paid time off during working hours D: legal insurance plans

B - Defined benefit (pension) plans

What is a core employee?

Organizations desire a long-term relationship with these employees.

Instructing managers in compensation policies and techniques

This involves training mangers in the concepts of a sound pay-for-performance plan and in standard company remuneration techniques

Top down approach

Upper management ascertains the amount of money that is to be spent on pay and allocates it to each sub-unit for the plan year.

A typical approach to top-down budgeting is planned (blank)(blank)(blank), which is essentially the percentrage increase in average pay for the unit that is planned to occur.

pay level rise

What are the problems associated with headcount reductions? (Check all that apply.) A: Workforce reductions, if not handled well, can be detrimental to employee relations. B: Regulatory requirements make it difficult to make targeted cuts. C: Owing to increases in unemployment insurance taxes, workforce reductions are costly in tangible terms up front. D: Announcements of layoffs and plant closings generally have unfavorable short-run effects on stock prices. E: Organizations with greater workforce reductions experience greater voluntary turnover. F: Workforce reductions increase benefits costs over time.

A, B, C, and E

Decisions to raise the average pay level of employees is in part a function of an organization's _____. A: public credibility B: financial circumstance C: commitment to layoffs and furloughs D: compliance to regulations

B - Financial circumstance

Which of the following is a feature of broad bands? A: They do not place control in the salary budgets given to managers. B: They are more about pay decisions than career management. C: They do not offer flexibility to managers in making pay decisions. D: They are accompanied by external market "reference rates."

B - They are more about pay decisions than career management

Which of the following are headcount reduction strategies that are used by organizations to cut labor costs? (Check all that apply.) A: Pay cuts B: Exit incentives C: Layoffs D: Furloughs

B and C

What are the factors included in the labor cost model? (Check all that apply.) A: Employee work-life balance B: Hours worked C: Mandatory and voluntary employee leaves D: Number of employees E: Cash compensation

B, D, and E

In the context of managing labor costs, it is a viable option to _____ when the costs of fixed benefits are high. A: increase voluntary turnover B: withdraw overtime C: add overtime D: cutback headcount reduction

C - Add overtime

In the context of embedded controls, which of the following is meant to offer managers greater flexibility compared to a grade-range design? A: Compa-ratios B: Skill- and competency-based plans C: Broad bands D: Merit increase grids

C - Broad bands

In order to reduce benefits costs, most companies have recently resorted to _____. A: revoking their provisions of paid leave of up to 12 weeks per year B: discontinuing their contributions to unemployment insurance plans C: suspending their matching contributions to employee 401(k) plans D: abandoning their temporary and permanent disability payment programs

C - Suspending their matching contributions to employee 401(k) plans

Which of the following is a feature of broad bands? A: They do not offer flexibility to managers in making pay decisions. B: They are accompanied by external market "reference rates." C: They are more about pay decisions than career management. D: They do not place control in the salary budgets given to managers.

C - They are more about pay decisions than career management.

The turnover effect is also referred to as

Churn

Instances where employees are paid below the minimum ranges are referred to as (blank)(blank)(blank)

Green circle rates

Bottom up approach

Individual employees' pay for the plan year is forecasted and summed to create an organization-wide salary budget.

Software packages that support manager self-service

These help managers pay their workers appropriately.

Software packages that support employee self-service

These help workers access their personal information, allocate savings between value or growth investment funds, make choices about which health care coverage they prefer, and access vacation schedules.

Changes in prices in the product and and service markets

This concept is measured by certain government indexes such as the consumer price index (CPI)

Checking data and compiling reports

This involves auditing the pay raises forecasted by managers to ensure tha they do not exceed the pay guidelines and are consistent with appropriate ranges.

True or false: In the context of raising average pay level of employees, financially troubled employers increase employees' copays and deductibles for benefits as a last resort.

False - This is false. Financially troubled employers may not be able to maintain competitive market positions. Often as a last resort, firms decrease base wages (as well as variable pay).

Which of the following is true of contingent workers? A: They are not employees. B: They are not recruited by staffing services firms. C: They can be independent contractors or vendors. D: They can offset the unfavorable short-run effects on stock prices that are a result of layoffs.

C - They can be independent contractors or vendors

Software packages that process transactions

These standardize forms, run analysis, and generate reports at the click of the mouse.

Communication approach

This approach focuses on explaining practices, details, and the way wages are ascertained.

Marketing Approach

This approach focuses on strategy, values, and benefits of overall policies and may be silent on details such as range maximums, increase guides, and the like.

A decentralized strategy

This compensation strategy and function is more likely to be found in organizations that are larger and/or compete in different product (or geographic) markets.

A centralized strategy

This compensation strategy and function is more likely to be found in smaller and/or single line of business organizations.

The cost of living

This concept is measured by examining the personal expenditures of each employee.

Changes in wages in labor markets

This concept is measured through pay surveys

Providing consultation to managers

This involves giving advice and salary information services to managers upon request.

Which of the following is true of creating a compensation budget? A: It is invariably a bottom-up process. B: It seldom requires examining the cost implications of instituting gain-sharing plans. C: It seldom requires examining the cost implications of increasing merit pay. D: It requires trade-offs.

D - It requires trade offs

In the context of the factors that influence wages in the labor market, which of the following statements is true of the consumer price index (CPI)? A: The CPI is an accurate way to measure changes in wages in labor markets. B: The CPI is often tied to wages through a process called delayering. C: The CPI is an accurate way to measure an individual employee's cost of living. D: The CPI measures changes in prices over time.

D - The CPI measures changes in prices over time.

True or false: Shifts in pay mix do not reflect changes in business strategy and restructuring.

False - This is false. Pay is a powerful signal of change; changing people's pay captures their attention. At a broader level, pay changes can play two roles in any restructuring. Pay can be a leading catalyst for change or a follower of change.

When employees are paid above the range maximum

Red circle rates

Rank the steps involved in top-down budgeting in an organization in the correct order

1: Pay increase-budget for the entire organization is estimated by top management 2: A total budget is allocated to each manager 3: Managers distribute a total budget among subordinates.

Distributing forecasting instructions and worksheets

This involves providing managers with the forms and directives necessary to preplan raises.

A decentralized strategy

This refers to a management strategy of giving separate business units the responsibility of designing and administering their own systems.

True or false: A shortage of business-related knowledge among compensation managers restricts the usefulness of compensation software.

True - This is true. A shortage of business-related knowledge among compensation managers not only limits the usefulness of compensation software but also limits the contribution of compensation management.

True or false: In the past, financial planning associated with managing compensation was solely about costs.

True - This is true. Financial planning requires understanding the revenues (or returns) gained from certain compensation decisions. In the past, financial planning in compensation was only about costs. This is perhaps because costs are tangible and easy to measure, whereas the returns generated by compensation strategy may often be intangible and harder to quantify.

Rank the steps involved in WorldatWork's six-stage process of communication in the correct order

1: Define the objectives of an employee communication program. 2: Obtain information and identify the facts 3: Select communication tools and media 4: Conduct communication sessions with employees 5: Evaluate the success of an employee communication program

Vestal Productions Inc., a multinational entertainment company, intends to raise the average salary of all its employees during its annual appraisal cycle. The company's managers have carefully factored in the current year's rise, ability to pay, market adjustments, turnover effects, changes in the cost of living, and geographic differentials. After doing so, the company has decided that the planned rise in average salary for the current cycle is 7.6 percent. In this scenario, what is the implication of the company's decision? A: It means that the company has a set target of 7.6 percent as the hike in average salary. B: It means that all employees will receive a salary hike of 7.6 percent. C: It means that the 7.6 percent figure represents the lowest value the company places on the output of work. D: It means that the 7.6 percent figure is the range minimum to be received by all employees.

A - It means that the company has set a target of 7.6% as the hike in average salary.

The management of Lighthouse Publications, a multinational publishing company, has to decide the compensation budget for the next fiscal year. After considering current year's rise, the company's ability to pay, market adjustments, turnover effects, changes in the cost of living, and geographic differentials, the management decides that the planned rise in average salary for the new fiscal year will be 5 percent. Identify the implication of this decision. A: The average salary calculated to include all employees will be 5 percent higher in the next fiscal year. B: The base salary of all employees will increase by 5 percent in the next fiscal year. C: The value of the work done by all employees in the next fiscal year will be 5 percent of total revenue. D: The lowest pay increment in the next fiscal year will be 5 percent.

A - The average salary calculated to include all employees will be 5 percent higher in the next fiscal year.

Which of the following statements is true of bottom-up budgeting? A: This approach uses merit increase grids to ensure equal pay raises for employees with similar performance ratings. B: The forecasting cycle in bottom-up budgeting locks in managers to the exact pay change recommended for each employee. C: The budget forecasted by managers represents a plan, and deviations due to unforeseen changes are common. D: This approach places responsibility for pay management on shareholders and investors.

C - The budget forecasted by managers represents a plan, and deviations due to unforeseen changes are common.

In the context of increasing the average pay levels of employees, the _____ recognizes the fact that when workers depart (through layoffs, quitting, retiring), they are usually replaced by workers who earn lesser wages. A: spillover effect B: rollover effect C: turnover effect D: walkover effect

C - Turnover effect

True or false: The design of ranges and the evaluation of jobs need not be reexamined if red circle rates become prevalent throughout an organization.

False - This is false. If red circle rates become common throughout an organization, then the design of the ranges and the evaluation of the jobs should be reexamined.

True or false: In the context of allocating a salary budget to subordinates, some companies use forced distribution approaches to minimize the number of employees placed in low performance categories.

False - This is false. Once salary budgets are allocated to each subunit manager, they become a constraint: a limited fund of money that each manager has to allocate to subordinates. To limit the number of employees placed in high performance categories (and thus the number of employees receiving the largest merit increases), some companies used forced distribution approaches.

Which of the following is an index that is used to evaluate how managers actually pay employees in relation to range midpoints? A: Compa-ratios B: Relational returns C: Factor scales D: Exchange values

A - Compa-Ratios

A centralized strategy

This refers to a management strategy which positions the design and administration obligations at corporate headquarters.