Compensation Exam 1

Correlation coefficient

A common measure of association that indicates how changes in one variable are related to changes in another.

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

Alignment tests.

In a study causation can be best established by

Analyzing the scope of the study.

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.

Differentiated strategy

Focus is on providing unique or innovative products at premium prices.

The innovatory business strategy

Guides decisions on how resources are to be used to meet a business's objectives for innovation, deliver value and build competitive advantage.

Which form of pay does not permanently increase labor costs?

Incentive.

Customer-focused strategy

Increase customer expectations. Customer-focused business response: Customer intimacy. Deliver solutions to customers. Speed to market. Customer-focused HR alignment program: Delight customer, exceed expectations. Customer-focused compensation system: Customer satisfaction incentives. Value of job and skills based on customer contact

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.

Which of the following is true of procedural justice

It addresses how design and administration decisions are made

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

It addresses relationships inside of an organization

Organizations design their pay structures around _________

Jobs and job levels

What has the greatest instrumental value according to the text

Monetary incentives.

Commissions

Payment tied directly to achievement of performance standards. Commissions are directly tied to a profit index (sales, production level) and employee costs; thus, they rise and fall in line with revenues

Trying to measure an ROI for any compensation strategy implies that

People are "human capital", similar to other factors of production.

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

Preferences for individual performance over team performance.

You need to recognize an example of a relational return

Recognition and status, employment security, challenging work, and learning opportunities. Non-financial returns from work have a substantial effect on employees' behavior. Are psychological and include recognition and status, employment security, learning opportunities, challenging work, and so on. Other forms of relational return might include personal satisfaction from successfully facing new challenges, teaming with great co-workers, and receiving new uniforms.

Fairness perceptions

Recognizes both employee contributions and needs.

human capital

Refers to the education, experience, knowledge, abilities, and skills required to perform work

Transparency

Refers to the openness and communication about pay.

What do objectives guide

The design of the pay system.

prominence

The measure of how important total compensation is in the overall HR strategy.

Incentives do not permanently increase labor cost because

They are one-time payments.

Most job structures are best described as

both person- and job-based structures.

The alignment test

helps ensure passing the differentiation test

Variable pay may also be called _____.

incentives

The institutional model

refers to firms that copy innovative practices adopted by other organizations

Content refers to the

work performed in a job and how it gets done

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

1. Assessing the strategy 2. Map the strategy 3. Reassess the strategy

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:

A closely tailored pay structure

Layered and delayered pay structures

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

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

A more flexible work schedule.

Merit pay

A reward that recognizes outstanding past performance. It can be given in the form of lump-sum payments or as increments to the base pay. Merit programs commonly designed to pay different amounts (often at different times) depending on the level of performance.

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

Assessing.

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

Closely tailored.

Compensation systems focusing on competitors' labor costs typically follow a ________ strategy

Cost-cutter strategy

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

Cost-cutter.

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

Factors that shape internal pay structures

External (economic pressures, government policies laws and regulations, stakeholders, and cultures and customs) and organization factors(strategy, technology, human capital, HR policy, employee acceptance, and cost implications)

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

External competitiveness and employee contribution decisions

Potential problem(s) in egalitarian pay structures

High performing employees may feel underpaid and quit.

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

Improves attitudes and behaviors.

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

Incentive programs and merit pay.

Know which of the statements is true of incentives.

Incentives also tie pay increases to performance but differ from merit adjustments; incentive programs use objective measures of performance; incentives do not increase base wage and must be re-earned; incentive payment is known beforehand- such as a commission; incentives try to influence future behavior and merit rewards past behavior- a matter of timing; because incentives are a one-time payment, they are frequently referred to as variable pay; incentives may be short- or long-term; long-term incentives are in the form of stock ownership or options.

Troubled Asset Relief Program (TARP)

Includes restrictions on executive pay and discouraged executives form taking "unnecessary and excessive risks".

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

Increasing incentive pay and decreasing base pay.

Internal alignment is sometimes called __________

Internal equity

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

It may not be stated or written.

Compensation is often a company's ________ controllable expense

Largest

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

Objectives.

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

People who are under the age of 65, and not below the poverty line obtain health insurance through their employers, but small employers, which account for a substantial share of employment, are much less likely than larger employers to offer health insurance to their employees.

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

Refers to the process by which a decision is reached: the right to an attorney, the right to an impartial judge, the right to receive a copy of the arresting officer's statement.

Procedural fairness

Refers to the process used to make pay decisions.

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

Skill, effort, and working conditions.

Most unions prefer which of the following?

Small pay differences among jobs and seniority-based promotions

Base wage

The basic cash compensation that an employer pays for the work performed. Tends to reflect the value of the work itself and ignore differences in individual contributions.

A compensation strategy should reflect an organization's __________

Values.

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

What products and services should the firm offer; What business should we be in

The most common bases for determining internal structures are

Work content and its value.

Do most managers read research in HR management and compensation journals

Yes

Most firms do not have generic strategies but use

a blend of cost and innovation.

stock options

a compensation system that gives employees the right to purchase shares of stock at a set price, even if the value of the stock increases above that price

Sorting effect

the effect a pay plan has on the composition of the current workforce (the types of employees attracted and retained)

Pay for temporary workers is based upon

the internal structure of their home employer.

Content of a job refers to

the work performed and how it gets done. A content-based structure ranks jobs based on: skills required, complexity of jobs, problem solving, and responsibility.

Reinforcement Theory

theory that positive and negative reinforcers motivate a person to behave in certain ways

Differences between incentives and merit increases.

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.

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

An egalitarian pay structure

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

Disapproval

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

External competitiveness.

Pay system management

Involves planning the elements of pay that should be included in the pay system (base pay, short-term and long-term incentives), evaluating how the system is operating, communicating with employees, and judging whether they system is achieving its objectives. Management means ensuring that the right people get the right pay for achieving the right objectives in the right way. The ground under compensation management has shifted. The traditional focus on how to administer various techniques is long gone, replaced by more strategic thinking- managing pay as part of the business.

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

It is unclear what compensation practices.

Labor unions support ________ pay differentials

Small.

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

Stock options.

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

A company that uses hierarchical pay structure to pay its employees based on performance.

Employee Contributions

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

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

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.

Entitlement

Employee belief that returns and/or rewards are due regardless of individual or company performance, as an entitlement of being an employee of an organization.

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

External competitiveness.

Cost-cutter strategy

Focus on efficiency. Cost-cutter business response: Operational excellence. Pursue cost-effective solutions. Cost-cutter HR alignment program: Do more with less. Cost-cutter compensation system: Focus on competitor's labor costs. Increase variable pay. Emphasize productivity. Focus on system control and work specifications

Egalitarian pay structures

Have few levels, small differentials, and support equal treatment.

External factors are dominant influences on jobs filled via

Hiring graduates.

Marginal productivity theory (MPT)

In contrast to Marxist "surplus value" theory, a theory that focuses on labor demand rather than supply and argues that employers will pay a wage to a unit of labor that equals that unit's use (not exchange) value. That is, work is compensated in proportion to its contribution to the organization's production objectives.

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

Increases

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

Individual needs and preferences.

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.

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

Internal alignment.

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

It sends the message that all employees are valued equally.

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

Larger

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

Lower.

In the formula for predicting performance, the component most closely related to compensation is

M

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

Management.

Differences between merit increases and merit bonuses

Merit increases are given as performance-based increments to the base pay. Merit bonuses are also based on performance rating but are paid in one lump sum rather than a permanent change in base pay.

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

More hierarchical structures

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

More money.

The difference between exchange value and use value surfaces when ________

One firm acquires another

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

Paying on the basis of one's age, gender, religion, national origin, and disability.

How to managers seek internal alignment within their organizations

Paying on the basis of similarities among jobs.

When organizations performance declines

Performance-based pay plans do not pay off.

Recognize fundamental objectives vs. a policy of the pay model

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.

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

Programs that help employees integrate their work and life responsibilities include: time away from work (vacations, jury duty, referrals for child and elder care); access to services to meet specific needs (drug counseling, financial planning); and flexible work arrangements (telecommuting, nontraditional schedules, nonpaid time off)

External competitiveness

Related to decisions concerning how an employer positions its pay relative to what competitors are paying. You want to ensure that pay rates are sufficient to attract and retain employees. To control labor costs so the organization's prices of products or services can remain competitive. Issues dealt with are conducting pay surveys, updating survey data, establishing pay policy lines, determining pay rates, determining pay ranges, and determining pay structures. Pay is 'market driven'- if focus on entirely. Objective is to ensure that pay is sufficient to attract and retain employees and to control labor costs to ensure competitive pricing of products/services. Refers to compensation relationships external to the organization: comparison with competitors. In addition to the decision of how much to pay, external competitiveness also includes pay mix decisions. Since employees make comparisons with others doing similar jobs or with others possessing similar skills or competencies outside the organization, pay must be sufficient to attract and retain a motivated workforce (relates to fairness objective). At the same time, the employer must control labor costs, so the organization's prices of products or services allow the organization to be competitive (relates to efficiency objective)

Embedding compensation strategy within the broader HR strategy affects

Results/Compensation strategy

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

Incentive Effect

The degree to which pay influences individual and aggregate motivation among the employees we have at any point in time; first, and perhaps most obviously, pay can affect the motivational intensity, direction, and persistence of current employees. Motivation, together with employee ability and work/organizational design (which can help or hinder employee performance), determines employee behaviors such as performance.

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

The difficulty in external recruitment

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

The extent external competitiveness and equity

Internal Alignment

The pay relationship among jobs or skill levels within a single organization; focuses attention on employee and management acceptance of those relationships. It involves establishing equal pay for jobs of equal worth and acceptable pay differentials for jobs of unequal worth

A structure based on value typically ranks jobs on ________:

The relative contribution of skills.

An organization defines its strategy through

The tradeoffs it makes in choosing what to do and what not to do.

Tournament theory

This theory says all players play better when the prize differentials are larger. Applying this to organization structures, the bigger the prize for getting to the next level of structure, the greater the motivation. Differentiation and dispersion in teams. Team sports depend both on individual performance and team effort. Teams with identical salaries outperformed those with big differentials. Egalitarian structures had a sizeable effect on individual's performance. When task interdependence and discretionary cooperative behavior is required- teams with differentiated salaries did better. Larger differentials based on performance generated positive sorting effects

Equity theory

This theory suggests employees judge the equity (fairness) of their pay by making multiple comparisons. Comparing to jobs similar to their own (internal equity). Comparing their jobs to others at the same employer (internal equity). Comparing their jobs' pay against external pay levels (external equity). Comparison results depend on the accuracy of employee knowledge of other's jobs, internal structure, and external pay. Equity theory could support either egalitarian or hierarchical structures. Equity theory says people compare ratio of their own outcomes to inputs with ratios or internals, externals, and themselves in a past or future situation

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

Tournament theory

Strategy refers to

an organization's long-term course of action designed to deliver a unique customer experience while achieving its goals

Innovator Strategy

increase product complexity and shorten product life cycle. Innovator business response: Product leadership. Shift to mass customization and innovation. Cycle time. Innovator HR program alignment: Committed to agile, risk taking, and innovative people. Innovator compensation system: Reward innovation in products and processes. Market-based pay. Flexible-generic job descriptions.