MGMT 468 Exam 2
Efficiency Wage Theory
A theory that explains why firms are rational in offering higher-than-necessary wages.
Pay Level
An average of the array of rates paid by an employer.
Human Capital
An economic theory proposing that the investment one is willing to make to enter an occupation is related to the returns one expects to earn over time in the form of compensation.
Shared Choice
An external competitiveness policy that offers employees substantial choice among their pay forms.
Sales Value of Production (SVOP)
An incentive metric that calculates the dollar value of goods produced and in inventory.
Marginal revenue product model must only do two things:
(1) Determine the pay level set by market forces, and (2) determine the marginal revenue generated by each new hire.
In the context of types of markets, which of the following statements is true?
Bourse markets allow haggling over terms and conditions until an agreement is reached.
Aging market data to a point halfway through a plan year is called
Lead/lag
Zones
Ranges of pay used as controls or guidelines within pay bands that can keep the system more structurally intact. Maximums, midpoints, and minimums provide guides to appropriate pay for certain levels of work. Without zones employees may float to the maximum pay, which for many jobs in the band is higher than market value.
Compensation at Risk
See Risk Sharing
Earnings at Risk
See Risk Sharing
Earnings-at-Risk
See risk sharing.
Topping Out
Situation in which employees in a skill-based compensation plan attain the top pay rate in a job category by accumulating and/or becoming certified for the top-paid skill block(s).
Labor Demand
The employment level organizations require. An increase in wage rates will reduce the demand for labor, other factors constant. Thus, the labor demand curve (the relationship between employment levels and wage rates) is downward-sloping.
Perquisites (Perks)
The extras bestowed on top management, such as private dinning rooms, company cars, and first-class airfare.
Which of the following statements is NOT true?
Workers whose performance is consistently average are rated higher than those who perform better at the end of a rating cycle.
Paying a dime for every bottle collected and turned to a collection center is an example of:
a straight piecework system.
A study of 400 compensation specialists revealed that:
market data had a substantially larger effect on pay decisions than job evaluation data.
A survey shows that most employers are responding to increased benefit costs by
requiring employees to pay higher deductibles and copays.
Reservation Wage
A theoretical minimum standard below which a job seeker will not accept an offer, no matter how attractive the other job attributes.
A horn error occurs when an employee is:
downgraded across all performance dimensions because of poor performance on one dimension.
Employers continue to hire until the marginal revenue of the last hire equals his or her wage rate. This is based on the first labor market theory assumption that:
employers seek to maximize profits.
Among peer raters, the most objective evaluations are given by:
high-performing workers.
When a company moves from an individual incentive plan to a group incentive plan, the company is most likely to experience
higher turnover among high performers.
Pay Grade
One of the classes, levels, or groups into which jobs of the same or similar values are grouped for compensation purposes. All jobs in a pay grade have the same pay range--maximum, minimum, and midpoint.
Spot Awards
One-time award for exceptional performance; also called a spot bonus.
Which of the following statements is true of pay level?
Pay level is directly proportional to labor costs.
Pay Mix
Relative emphasis among compensation components such as base pay, merit, incentives, and benefits.
Pay-Policy Line
Representation of the organization's pay-level policy relative to what competitors pay for similar jobs.
Total Compensation
The complete pay package for employees, including all forms of money, bonuses, benefits, services, and stock.
Outsourcing
The practice of hiring outside vendors to perform functions that do not directly contribute to business objectives and in which the organization does not have a comparative advantage.
Balanced Scorecard
A corporatewide, overall performance measure typically incorporating financial results, process improvements, customer service, and innovation.
Criterion Deficiency
A criterion is deficient if it fails to include all of the dimensions relevant to job performance (e.g., excluding keyboarding skills for a secretary's job performance).
Bureau of Labor Statistics (BLS)
A major source of publicly available pay data. It also calculates the consumer price index.
Bourse
A market that allows haggling over terms and conditions until an agreement is reached.
Consumer Price Index (CPI)
A measure of the changes in prices in a fixed market basket of goods and services purchased by a hypothetical average family. Not an absolute measure of living costs; rather, a measure of how fast costs are changing. Published by the Bureau of Labor Statistics, U.S. Department of Labor.
Which of the following types of rankings would be least preferred by managers of more than 10-15 employees?
Paired-comparison ranking
Pay-for-Performance Plans
Pay that varies with some measure of individual or organizational performance, such as merit pay, lump-sum bonus plans, skill-based pay, incentive plans, variable pay plans, risk sharing, and success sharing.
Which of the following is linked to high pay levels?
Reduced vacancy rates
________ is the additional output associated with the employment of one additional human resource unit, with other production factors held constant.
The marginal product of labor
External Competitiveness
The pay relationships among organizations; focuses attention on the competitive positions reflected in these relationships.
Which of the following jobs would most likely fall into a fuzzy market?
The position of senior director of Future Vision Services that was filled by a software engineer with e-commerce, marketing, and theater experience
Shirking Behavior
The propensity of employees to allow the marginal revenue product of their labor to be less than its marginal cost; the be lax.
In the context of subordinates as raters, which of the following statements is true?
Upward feedback has been historically viewed as countercultural.
Telling raters that sometimes the work environment and system affect job performance more than the individual employee's behavior:
leads to higher ratings.
The estimates of competitors' pay rates will be incorrect and the pay level and pay mix inappropriately established if:
markets are incorrectly defined.
When employee performance is easily measured and the organization's performance is fairly stable over time, the most effective type of compensation is to offer
monetary rewards with large incentives.
The first major decision in setting externally competitive pay and designing the corresponding pay structures is to
specify the employer's competitive pay policy.
Central Tendency
A midpoint in a group of measures.
Skill-Based Pay
A pay structure in which workers are paid for the skills they are certified to have obtained.
Paired Comparison Ranking
A ranking job evaluation method that involves comparing all possible pairs of jobs under study.
Which of the following is a disadvantage of gain-sharing plans?
Payouts can occur even if a company's financial performance is poor.
Range Midpoint
The salary midway between the minimum and the maximum rates of a salary range. The midpoint rate for each range is usually set to correspond to the pay-policy line and represents the rate paid for satisfactory performance on the job.
Employer of Choice
The view that a firm's external wage competitiveness is just one facet of its overall human resource policy and that competitiveness is more properly judged on overall policies. Challenging work, great colleagues, or an organization's prestige must be factored into an overall consideration of attractiveness.
A team leader with a free-rider problem in his team can most likely maximize the performance of his team by:
specifying performance levels and due dates.
For organizations using a skill-competency-based pay system or generic job descriptions, the best approach for pricing jobs is
the low-high approach.
360-Degree Feedback
A rating method that assesses employee performance from five points of view: supervisor, peer, self, customer, and subordinate.
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 are commonly designed to pay different amounts (often at different times) depending on the level of performance.
Regression
A statistical technique for relating present-pay differentials to some criterion, that is, pay rates in the external market, rates for jobs held predominantly by men, or factor weights that duplicate present rates for all jobs in the organization.
Skill Analysis
A systematic process to identify and collect information about the skills required to perform work in an organization.
Straight Ranking Procedure
A type of performance appraisal format in which the rater compares or ranks each employee relative to each other employee.
Lead Pay-Level Policy
A wage structure that is set to lead the market throughout the plan year. Its aim is to maximize a firm's ability to attract and retain quality employees and to minimize employee dissatisfaction with pay.
Lag Pay-Level Policy
A wage structure that is set to match market rates at the beginning of the plan year only. The rest of the plan year, internal rates will lag behind market rates. Its objective is to offset labor costs, but it may hinder a firm's ability to attract and retain quality employees.
The corporate performance of Yellow Corp. is fairly stable. However, it is difficult to measure individual performance. In this case, the most effective compensation mix is to offer
A wide range of awards beyond just money.
________ is a crucial factor that affects the perception of fairness of a skill-based plan.
The design of the certification process
Labor costs=
(pay level) times (number of employees)
Most studies report that when different people rank-order jobs, the correlations are between:
.85 and .96.
Pay ranges for office and production work commonly range between
5 and 15 percent.
Risk Sharing
An incentive plan in which employees' base wages are set below a specific level (e.g., 80% of the market wage) and incentive earnings are used to raise wages above the base. In good years an employee's incentive pay will more than make up for the 20% shortfall, giving the employee a pay premium. Because employees assume some of the risk, risk-sharing plans pay more generously than success-sharing plans in goods years.
Essay Format
An open-ended performance appraisal format. The descriptors used can range from comparisons with other employees to adjectives, behaviors, and goal accomplishment.
Standard Rating Scales
Appraisal systems characterized by (1) one or more performance standards being developed and defined for the appraiser and (2) each performance standard having a measurement scale indicating varying levels of performance on that dimension. Appraisers rate the appraisee by checking the point on the scale that best represents the appraisee's performance level. Rating scales vary in the extent to which anchors along the scale are defined.
Competency
Basic knowledge and abilities employees must acquire or demonstrate in a competency-based plan in order to successfully perform the work, satisfy customers, and achieve business objectives.
Skill Blocks
Basic units of knowledge employees must master to perform the work, satisfy customers, and achieve business objectives.
Brito v. Zia Company
Benchmark case that interpreted performance evaluation as a test, subject to validation requirements, and used these evaluations based on a rating format to lay off employees, resulting in a disproportionate number of minorities being discharged.
Broad Banding
Collapsing a number of salary grades into a smaller number of broad grades with wide ranges.
Competency-Based Structure
Compensation approach that links the pay to the depth and scope of competencies that are relevant to doing the work. Typically used in managerial and professional work where what is accomplished may be difficult to identify.
Which of the following is an advantage of the skill-based structure?
Continuous learning flexibility
Copay
Copay requires that employees pay a fixed or percentage amount for coverage.
Consumer-Driven Health Care Benefits
Costs link consumer choice of more or less expensive options to higher or lower individual costs. Also called consumer-directed health care plans.
Affirmative Action
Firms with government contracts must take affirmative steps to hire women and minorities in proportion to their presence in the labor force.
Compensating Differentials
Economic theory that attributes the variety of pay rates in the external labor market to differences in attractive as well as negative characteristics in jobs. Pay differences must overcome negative characteristics to attract employees.
True or False: In the context of employee benefits, many group-based benefits are usually obtained at a higher rate than could be obtained by employees acting on their own.
False
Which of the following statements is true of employee benefits?
Group insurance has relatively easy qualification standards.
Gain-Sharing (Group Incentive) Plans
Incentive plans that are based on some measure of group performance rather than individual performance. Taking data on a past year as a base, group incentive plans may focus on cost savings (e.g., the Scanlon, Rucker, and Improshare plans) or on profit increases (profit-sharing plans) as the standard for distributing a portion of the accrued funds among relevant employees.
Which of the following is a negative outcome of the management by objectives method?
Increase in performance pressure and stress
Incentive
Inducement offered in advance to influence future performance (e.g., sales commissions).
Long-Term Incentives
Inducements offered in advance to influence longer-rate (multiyear) results. Usually offered to top managers and professional to get them to focus on long-term organization objectives.
Which of the following is true of weighted mean as a statistical measure to analyze survey data?
It captures the size of supply and demand in a market.
Which of the following is an advantage of providing stock ownership as variable pay to employees?
It defers a portion of taxes to employees.
Which of the following statements is true of the Halsey 50-50 method?
It derives its name from the shared split between worker and employer of any savings in direct cost.
Which of the following statements is true of the Rowan plan?
It is an individual incentive plan that provides for variable incentives as a function of a standard expressed as time period per unit of production.
Which of the following is true of the marginal revenue product model?
It oversimplifies business conditions in the real world.
Which of the following best describes the impact of the Maintenance Act (1973) on employee benefits?
It required employers to offer alternative health coverage options to employees.
In the context of benefits communication methods, which of the following is mostly true about an information portal?
It requires ongoing maintenance and an intuitive user interface.
Skill-Based Structures
Link pay to the depth or breadth of the skills, abilities, and knowledge a person acquires that are relevant to the work. In structures based on skill, individuals are paid for all the skills for which they have been certified, regardless of whether the work they are doing requires all or just a few of those particular skills. The wage attaches to the person. In contrast, a job-based plan pays employees for the job to which they are assigned, regardless of the skills they possess.
Market Line
Links a company's benchmark job evaluation points on the horizontal axis (internal structure) with market rates paid by competitors (market survey) on the vertical axis. It summarizes the distribution of going rates paid by competitors in the market.
In the context of the performance evaluation process, which of the following ensures that raters are motivated to rate accurately?
Making sure that managers are graded on how well they utilize and develop human resources
One review of the evidence suggests that employees do not begin to consider changing their behavior unless raises are at least an increase of ________ percent.
Maybe: 6-7
In the context of pay influencing turnovers, which of the following is a result of too little pay?
Maybe: Feelings of unfair treatment among employees.
In the context of a pay-for-performance plan, which of the following questions is related to equity?
Maybe: How far down the organization will the plan run?
Which of the following statements is true of merit pay?
Merit programs are commonly designed to pay different amounts depending on the level of performance.
Company X pays for performance. Allan, an employee of the company, is not in favor of this reward system and, therefore, leaves Company X in search of another company with different rules for getting rewards. This is an example of the:
Sorting effect.
Unemployment Insurance (UI)
State-administered program that provides financial security for workers during periods of joblessness.
Quoted-Price Market
Stores that label each item's price or ads that list a job's opening starting wage are examples of quoted-price markets.
Job-Based Systems
Systems that focus on jobs as the basic unit of analysis to determine the pay structure; hence, job analysis is required.
Multiskill Systems
Systems that link pay to the number of different jobs (breadth) an employee is certified to do, regardless of the specific job he or she is doing.
Ability to Pay
The ability of a firm to meet employee wage demands while remaining profitable; a frequent issue in contract negotiations with unions. A firm's ability to pay is constrained by its ability to compete in its product market.
Hit Rate
The ability of a job evaluation plan to replicate a predetermined, agreed-upon job structure.
Marginal Product of Labor
The additional output associated with the employment of one additional human resource unit, with other factors held constant.
Flexible Compensation
The allocation of employee compensation in a variety of forms tailored to organization pay objectives and/or the needs of individual employees.
Utility Theory
The analysis of utility, the dollar value created by increasing revenues and/or decreasing costs by changing one or more human resource practices. It has most typically been used to analyze the payoff to making more valid employee hiring/selection decisions.
Pay Structure
The array of pay rates for different jobs within a single organization; they focus attention on differential compensation paid for work of unequal worth.
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.
Copetitive Intelligence
The collection and analysis of information about external conditions and competitors that will enable an organization to be more competitive.
Which of the following is an advantage of skill-based pay plans?
They aid in deploying workers in a way that better matches the work flow.
Which of the following is an advantage of team incentives?
They are effective in stimulating ideas and problem solving.
Which of the following statements is true of individual spot awards?
They are given to employees for exceptional performance as an add-on bonus.
Which of the following statements is true of market pricers?
They assume that little value is added through internal alignment.
Which of the following statements is true regarding broad bands?
They foster cross-functional growth.
Which of the following is an advantage of flexible benefit plans?
They increase the involvement of employees in choosing benefit plans.
Relevant Markets
Those employers with which an organization competes for skills and products/services. Three factors commonly used to determine the relevant markets are the occupation or skills required, the geography (willingness to relocate and/or commute), and employers that compete in the product market.
Rater Error Training
Training that enables performance appraisers to identify and suppress psychometric errors such as leniency, severity, central tendency, and halo errors when evaluating employee performance.
Performance-Standard Training
Training that gives performance appraisers a frame of reference for making ratee appraisals.
Performance-Dimension Training
Training that gives performance appraisers an understanding of the dimensions on which to evaluate employee performance.
If a benefit forecast suggests future cost containment may be difficult, the benefit should:
be offered to employees only on a cost-sharing basis.
Employees in a multiskill system earn pay increases:
by acquiring new knowledge.
The final major decision in setting externally competitive pay and designing the corresponding pay structures is to
construct a pay policy line that reflects external pay policy.
Skill-based plans tend to work best in organizations using a(n) ________ strategy.
cost-cutter
All of the following are advantages of flexible benefits EXCEPT:
decreased administrative expenses.
The reliability of job evaluation techniques is measured by:
determining if different evaluators produce the same results.
A camper is an employee who ________ in a skill-based pay system.
does not want to rotate jobs
According to Frito-Lay's list of competencies for managerial work, the behavior of modeling, teaching, and coaching company values is linked to the ________ competency dimension.
doing it the right way
The first issue in setting up a benefits package is:
finding out who should be protected or benefited.
Pay Satisfaction
A function of the discrepancy between employee' perceptions of how much pay they should receive and how much pay they do receive. If these perceptions are equal, an employee is said to experience pay satisfaction.
Rucker Plan
A group cost savings plan in which cost reductions due to employee efforts are shared with employees. It involves a somewhat more complex formula than a Scanlon plan for determining employee incentive bonuses.
In the context of performance appraisals, which of the following statements is true?
All other things being equal, males are rated higher than females.
Criterion Contamination
Allowing nonperformance factors to affect performance scores.
In ________ ranking, raters look at a list of employees, decide who the best employee is, and cross that person's name off the list. From the remaining names, the manager decides who the worst employee is and crosses that name off the list—and so forth.
Alternation
Rent
Amount by which payment to a factor of production (capital or labor) exceeds the payment needed to keep it employed and/or its productivity. In the case of an employee (labor), economic rent would be compensation paid beyond what is necessary to retain the employee and/or beyond his/her marginal product.
Cost Containment
An attempt made by organizations to contain benefit costs, such as imposing deductibles and coinsurance on health benefits or replacing defined benefit pension plans with defined contribution plans.
Management By Objectives (MBO)
An employee planning, development, and appraisal procedure in which a supervisor and a subordinate, or group of subordinates, jointly identify and establish common performance goals. Employee performance on the absolute standards is evaluated at the end of the specified period.
Flexible Benefit Plan
Benefit package in which employees are given a core of critical benefits (necessary for minimum security) and permitted to expend the remainder of their benefit allotment on options that they find most attractive.
Employee Retirement Income Security Act (ERISA)
For employers who choose to have a retirement plan, this act sets some formidable rules that must be followed to be in compliance.
Wage and Price Controls
Government regulations that aim at maintaining low inflation and low levels of unemployment. They frequently focus on "cost-push" inflation, limiting the size of pay raises and the rate of increases in prices charged for goods and services. Used for limited time periods only.
Which of the following is an assumption held by the labor supply model about the behavior of potential employees?
Job seekers do not face barriers to mobility.
Workers' Compensation
Legally required programs in each state that provide payment of medical expenses and compensation for lost wages resulting from work-related injuries or disabilities.
Benefit Limitation
Limit of disability income payments to some maximum percentage of income and limit of medical/dental coverage for specific procedures to a certain fixed amount.
Which of the following is NOT true of the relationship between employer size and its ability to pay?
Maybe: Talented people prefer to work in larger organizations.
Which of the following is NOT a disadvantage of flexible benefit programs?
New benefits are highly difficult to introduce.
Market Pay Line
Using key/benchmark jobs, a market pay policy line can be constructed that shows external market pay survey data as a function of internal job evaluation points. In many cases, the market pay policy line is obtained by using regression analysis, which yields an equation of the form "market pay = intercept + slope x job evaluation points." By plugging the job evaluation points for any job (both benchmark and non-benchmark jobs) into the equation, the predicted pay for each job can be obtained.
Behaviorally Anchored Rating Scales (BARS)
Variants on standard rating scales in which the various scale levels are anchored with behavioral descriptions directly applicable to jobs being evaluated.
When an organization's performance has regular and large swings and individual performance is unclear and hard to measure, the most effective compensation mix is to offer
a base pay with low incentives and a wide array of awards.
When an organization's performance has frequent highs and lows, but individual performance is fairly stable and performance measures are clear, the most effective compensation mix is to offer
a large base pay and low incentive pay.
A person with low self-esteem is likely to seek
a large, decentralized organization with little pay for performance.
Components identified as vital to the success of both Scanlon and Rucker plans are:
a productivity norm and effective worker committees.
Rating Format
A type of performance appraisal format that requires that raters evaluate employees on absolute measurement scales that indicate varying levels of performance.
Ranking Format
A type of performance appraisal format that requires that the rater compare employees against each other to determine the relative ordering of the group on some performance measure.
Improshare (IMproved PROductivity through SHARing)
A gain-sharing plan in which a standard is developed to identify the expected hours required to produce an acceptable level of output. Any savings arising from production of agreed-upon output in fewer-than-expected hour are shared by the firm and the worker.
Scanlon Plan
A group cost-savings plan designed to lower labor costs without lowering the level of a firm's activity. Incentives are derived as the ratio between labor costs and sales values of production (SVOP).
Alternative Ranking
A job evaluation method that involves ordering the job description alternatively at each extreme. All the jobs are considered. Agreement is reached on which is the most valuable and then the least valuable. Evaluators alternate between the next most valued and next least valued and so on until the jobs have been ordered.
Equal Employment Opportunity
A mandate that all firms make employment decisions that are "blind" to minority/gender status.
Success Sharing
An incentive plan (e.g., profit sharing or gain sharing) in which an employee's base wage matches the market wage and variable pay adds on during successful years. Because base pay is not reduced in bad years, employees bear little risk.
Variable Pay
Pay tied to productivity or some measure that can vary with the firm's profitability.
Probationary Period
Period during which new employees are excluded from benefits coverage, usually until some term of employment is completed.
Pay-With-Competition Policy
Policy that tries to ensure that a firm's labor costs are approximately equal to those of its competitors. It seeks to avoid placing an employer at a disadvantage in pricing products or in maintaining a qualified workforce.
Claims Processing
Procedure that begins when an employee asserts that a specific event (e.g., disablement, hospitalization, unemployment) has occurred and demands that the employer fulfill a promise for payment. As such, a claims processor must first determine whether the act has, in fact, occurred.
Benchmark Coversions
Process of matching survey jobs by applying the employer's plan to the external jobs and then comparing the worth of the external job with its internal "match."
Social Security
Program based on federal law that provides retirement and disability benefits.
Performance Metrics
Quantitative measures of job performance.
Which of the following is a difference between ranges and bands?
Ranges offer recognition via titles or career progression, whereas bands offer cross-functional experience and lateral progression.
Job Structure
Relationship among jobs inside an organization, based on work content and each job's relative contribution to achieving the organization's objectives.
Pay Ranges
The range of pay from minimum to maximum set for a pay grade or class. It puts limits on the rates an employer will pay for a particular job.
Ranges
The range of pay rates from minimum to maximum set for a pay grade or class. It puts limits on the rates an employer will pay for a particular job.
Survey
The systemic process of collecting and making judgments about the compensation paid by other employers.
________ is an example of a bourse.
The total compensation for a top athlete