Compensating Employees - Final Exam 2022

Determining the internal competency-based structure

1. Internal alignment: work relationships within the organization 2. core competencies 3. competency sets 4. behavioral descriptors 5. Competency-based structure

Creating a job-based approach

1. Job analysis, job descriptions 2. Job evaluation: classes or compensable factors 3. Factor degrees and weighting 4. Job-based structure

Jacob, an 18-year-old, has been working at HoldVille Corp. for over a year. If HoldVille offers full vesting after one year, which of the following statements is true?

Jacob is eligible for full pension as he has worked for over a year at HoldVille.

Paired comparison

Job evaluation method in which a matrix is used to compare all possible pairs of jobs; each job is compared with every other job being evaluated

Structures Based on Jobs, People, or Both (ch 4)

Job-based structures: - look at what people. are doing and the. expected outcomes Person-based: - determined by either individual's skills or their competencies

Which of the following statements is true about Germany?

Labor markets in Germany remain highly regulated, and tariff agreements set pay for union workers.

Which of the following is a benefit under Social Security?

Lump-sum death payments

The Pay Model (ch 2)

1. Objectives: How should compensation support business strategy and be adaptive to the cultural and regulatory pressures in a global environment? 2. Internal Alignment: How differently should the different types and levels of skills and work be paid within the organization? 3. External Competitiveness: How should total compensation be positioned against competitors? What forms of compensation should be used? 4. Employee Contributions: Should pay increases be based on individual and/or team performance, on experience and/or continuous learning, on improved skills, on changes in cost of living, on personal needs, and/or on each business unit's performance? 5. Management: How open and transparent should the pay decisions be to all employees? Who should be involved in designing and managing the system?

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

Pay-for-Performance: Short-Term Incentive Plans (ch 10)

Individual-based vs. Team-based

Pay Model Policies (ch 2)

Internal Alignment Competitiveness Contributions Management

Which of the following is a disadvantage of the ranking method of job evaluation?

It fails to tell employees what is important about their jobs.

Which of the following is true of the Affordable Care Act?

It is aimed at expanding health care coverage through an individual mandate to purchase health insurance and an employer mandate to provide qualifying health insurance coverage.

According to Hofstede's cultural dimensions, where there is high power distance, ________ pay structures are appropriate.

hierarchical

All employee benefits provided by employers are taxable.

False

Employees are the sole contributors to their cash balance plans.

False

All of the following are reasons for the growth of benefits except:

foreign lawsuits

"How-To": Major Decisions (ch 5)

1. Establish the purpose 2. Decide on single vs. multiple plans 3. Choose among alternative methods 4. Obtain involvement of relevant stakeholders 5. Evaluate the usefulness of the results

Strategy 2: Select the right raters

- 360 degree feedback: lessens impact of a single rater, feedback from supervisor, peer, self, customer, and subordinate - supervisors - peers - self - customer - subordinate - inter-rater reliability & multiple raters

Individual- based short-term incentive plans

- Merit bonuses (lump-sum) - Spot awards

Executive Order 11246

- Prohibits discrimination on the basis of race, color, religion, sex, or national origin - requires covered government contractors to file affirmative action plans - enforced by Office of Federal Contracts Compliance Programs (OFCCP) & Department of Labor

Evaluation methods

- Ranking format (alternation & paired comparison) - Classification - Point (Factor)

Establish the purpose

- Supports organization strategy - Supports work flow - Is fair to employees - Motivates behavior toward organization objectives

Compensation - manager definition (ch 1)

- a major expense that must be managed - a major determinant of employee attitudes and behaviors

Balanced Scorecard Approach

- a way to look at what contributes value in an organization - measures 4 dimensions and bases success on each 1. customer satisfaction 2. employee internal growth & commitment 3. operational efficiency in internal processes 4. financial measures

Communication: Managing the message (ch 18)

- compensation communicates what is important - 2 reasons are usually given for communicating pay information: 1. considerable resources have been devoted to designing a fair and equitable system that is intended to attract and retain qualified people and motivate performance 2. employees seem to misunderstand the pay system

Strategy 3: Understand how raters process information

- criterion contamination: allowing non-performance factors to affect performance scores - errors in observation (attention) - errors in storage and recall - errors in the actual evaluation

Disparate Treatment

- different standards are applied to different employees - intentional discrimination or unequal treatment

What behaviors do employers care about? (ch 9)

- employers want employees to perform in ways that lead to better organizational performance - organizational strategy is the guiding force that determines what kinds of employee behaviors are needed - Behavior = f(Ability, Motivation, Opportunity) - Ability Triangle: recruitment, selection, training - Motivation Triangle: compensation, performance management, culture - Opportunity Triangle: Org. development, Org. design, HR planning - pay and other rewards, as well as performance management and org. culture, should reinforce desired behaviors - compensation should reinforce employee attraction and retention - Incentive-based pay may be a viable option if: A. there is low variability paired with unstable & unclear performance measures\ B. low variability paired with stable and clear performance measures

Team-based short-term incentive plans

- group incentive plans - gain sharing plans * Scanlon, Rucker, Improshare - profit-sharing

Internal Structure

- levels - differentials - criteria

Strategy 5: Improving rater motivation and opportunity to rate more accurately

- managers prepare preliminary performance appraisals - managers who supervise similar groups of employees meet and post names and ratings for all to review - participants review & discuss their proposed appraisal ratings for every employee - participants adjust ratings to assure accuracy and consistency - final performance appraisals are prepared

Disparate Impact

- practices that have a differential effect on members o protected groups - practices may be applied equally but be prohibited because they had the consequence of excluding a protected group disproportionately and the tests were not related to the jobs in question

Ranking Formats

- require that the rater compare employees against each other to determine the relative ordering of the group on some performance measure - illustrates 3 methods of ranking employees: 1. straight ranking: employees are ranked relative to each other 2. alternation ranking: recognizes that raters are better at ranking people at extreme ends of the distribution. raters are asked to indicate best and worst employee 3. Paired comparison ranking: simplifies process by forcing raters to make ranking judgements about discrete pairs of people. each individual is compared separately with all others in the work group. The person who "wins" the most paired comparisons is ranked top in the group and so on

Organization factors that shape internal structures

- strategy - technology - human capital - HR policy - Employee acceptance - Cost implications

Compensation - stockholder definition (ch 1)

- using stock to pay employees creates a sense of ownership that will improve performance - others argue that too much employee ownership dilutes stockholder wealth - executive pay should align executive and shareholder interests

External factors that shape internal structures

-Economic pressures -government policies, laws and regulations -stakeholders -cultures and customs

Essay Q2. Provide 3 types of performance appraisal formats. Explain each appraisal briefly. To which company/position would you recommend each format can be effectively used in?

1. Straight Ranking: employees are ranked relative to each other. I would recommend straight ranking be used in jobs positions with limited flexibility and specific necessary skills or abilities. 2. 360-degree feedback: lessens the impact of a single reviewer by assessing employee performance from 5 viewpoints: supervisor, peer, self, customer, and subordinate. I would recommend using 360-degree feedback for employee development and evaluation of organizational leaders. 3. Behaviorally Anchored Rating Scale (BARS): require raters to evaluate employees using a performance variation continuum from good to bad that uses behaviors as anchors. I would recommend BARS be used for jobs where employees need to perform detailed tasks with accuracy but also need to possess certain traits such as empathy or assertiveness.

6 stage process of communication

1. defining objectives 2. collect information from executives, managers, and employees to assess their current perceptions, attitudes, and understanding of the subject 3. convey the information needed to accomplish the original objectives 4. determine the most effective media 5. conduct the campaign 6. evaluate program

Tying pay to performance requires 3 things

1. definition of performance 2. some continuum that describes different levels from low to high on the performance measure 3. decide how much of a merit increase will be given for different levels of performance

Strategy 4: Training Raters to Rate more Accurately

1. rater error training: goal is to reduce psychometric errors by familiarizing raters with their existence 2. performance-dimension training: exposes supervisors to the performance dimensions to be used in rating 3. performance-standard testing: provides raters with a standard. of comparison or frame of reference for making appraisals

Modifications to the Supply Side (ch 7)

2 theories: 1. Reservation Wage 2. Human Capital focus on understanding employee behavior

Point Method of Job Evaluation

3 characteristics: 1. compensable factors 2. factor degrees numerically scaled 3. weights reflecting the relative importance of each factor

Managing Labor Costs (ch 18)

3 main factors to control: 1. Employment: number of workers and the hours they work 2. Average cash compensation: wages, bonuses 3. Average benefit costs

Tying Pay to Subjectively Appraised Performance (ch 11)

3 types of pay increase guidelines: 1. General increase: low motivation potential, typically found in unionized firms, equal increase for each year of the contract 2. Across-the-board increase: low motivation potential, increases linked to cost-of-living changes 3. Seniority increases: tie pay increases to a preset progression pattern based on seniority

Today CEOs make ____ times the average worker.

300

Which of the following involves periodic adjustments based typically on changes in the consumer price index?

A COLA clause

Essay Q3. What are flexible benefit programs? Provide 3 advantages and 3 disadvantages. Would you like to use these programs in your company? Why or why not?

A flexible benefit plan is a benefit package in which employees. are given a core of critical benefits and permitted to expend that remainder of their benefit allotment on options that they find most attractive. Advantages: 1. The perceived value of benefits rises when employers introduce choice through a flexible benefits program 2. Increases employee recruitment and retention 3. Eliminates the guesswork of the employer choosing the employee benefits Disadvantages: 1. Flexible benefits programs require time and administrative resources 2. Flexible benefits programs require excellent communication 3. They can be costly If I were a business owner, I would like to implement a flexible benefits plan. I may not know what is best for each individual employee to have as part of their benefits package, but my employees would know what is best for them and be able to choose it. Providing a strict budget for each employee's benefit plan would allow them to mix and match their benefits without cost getting too high for my business.

What shapes internal structures? (ch 3)

External Factors Organization Factors

Which of the following companies uses probationary periods as a cost-containment measure?

DLG Corp., which excludes its new recruits from benefit coverage until they complete a year

Pay Model Objectives

Efficiency - performance, quality, customer & stockholder, cost Fairness Compliance Ethics

Which of the following plans give employees part ownership in a company?

Employee stock ownership plans

A 401(k) is an example of a defined benefit plan.

False

DrenchFort Corp. is a small company that pays high wages. As its wages are high, it does not provide any benefits. Recently, it has noticed that its employee turnover has increased, so it decides to provide benefits to retain employees. Which of the following benefits is most likely to reduce turnover?

Medical Coverage

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.

Michael was laid off by his company owing to budget cuts. Before being laid off, he earned $1,000 per week. If he has been receiving unemployment insurance benefits for 26 weeks, which of the following statements is true in this scenario?

Michael is no longer eligible for unemployment benefits.

Alternation Ranking

Orders job descriptions alternately at each extreme

Pan Corp. sells a smart lamp. As part of its promotional efforts, they place their products into movies, thereby increasing its popularity and ease of sale. Which of the following is most likely to happen?

Pan Corp. is likely to increase base salaries and decrease incentives.

Essay Q1. Complete the Pay Model (4 policies, 2 techniques in each policy, and 4 objectives) and describe the policy that you are most interested in and its reasons.

Policy Techniques 1. Internal Alignment: work analysis, descriptions 2. Competitiveness: surveys, policy lines 3. Contributions: seniority based, incentives 4. Management: cost, communication Objectives: 1. Efficiency (performance, quality, customer & stockholder, stock) 2. Fairness 3. Compliance 4. Ethics I am most interested in the policy of internal alignment because of its numerous affects on other aspects of an organization. The pay relationships determined by internal alignment affect all three compensation objectives of the pay model. Internal alignment helps determine appropriate differences in pay for people performing different work. Pay relationships that result affect employee decisions to stay with the organization, to increase their skill set by investing in additional training, or to seek more responsibility. Internal pay relationships can indirectly affect the capabilities of the workforce and, hence, the efficiency of the organization as a whole by motivating employees to pursue additional training and greater responsibility. Fairness is affected through employee's perception and comparisons of their pay to that of others within the organization. Compliance is also affected by the basis used to make internal comparisons in accordance with laws protected by the Equal Employment Opportunity Commission. Internally aligned pay structures can help determine pay for the wide variety of work and ensure that pay influences attitudes and behaviors and directs employee actions toward objectives.

1990 Americans with Disabilities Act (ADA)

Prohibits discrimination against essentially qualified employees with physical or mental disabilities or chronic illness; requires "reasonable accommodation" be provided so they can perform duties

1967 Age Discrimination in Employment Act (ADEA)

Prohibits employers from discriminating against employees over age of 40 and prohibits mandatory retirement at any age Prohibits discrimination based on age

In the context of cost containment, which of the following best describes the practice of "copay"?

Requiring that employees pay a fixed or percentage amount for coverage

Reservation Wage

Reservation wage is the lowest wage (or compensation) level at which workers are willing to accept the job offer, i.e. represents the value of income and benefits they receive from not working.

Jennifer is hurt at work while driving a forklift. Her employer claims that she was injured as a result of her careless driving and is therefore not eligible for workers' compensation. What will be the outcome of the employer's challenge to her worker's compensation claim?

She will likely receive workers' compensation benefits

Strategies for better understanding and measuring job performance (ch 11)

Strategy 1: Improve Appraisal Formats Strategy 2: Select the right raters Strategy 3: Understand how raters process information Strategy 4: Training raters to rate more accurately Strategy 5: Improving rater motivation and opportunity to rate more accurately

Which of the following countries has the strongest union?

Sweden

Which of the following countries has a highly decentralized pay approach while having a high level of flexibility in pay?

The United States of America

Which of the following is a feature of defined contribution plans?

The employee bears the investment risks.

A La Ville de Rose has its headquarter in Paris, France. They send one of its employees to Brussels, Belgium, and Helsinki, Finland, to manage its operations in these cities. The employee would be required to alternate between the two cities every three months. A La Ville de Rose offers only a moving expense on top of the base pay as the employee would be moving only within EU. Which of the following approaches to expatriate compensation is exemplified in this situation?

The modified balance sheet approach

Which of the following argues that executive pay increases to keep the same comparable relationship with lower-level employee pay?

The social comparison theory

MaxTrain Corp. recognizes that its competitor GlasWell Corp., which is unionized, offers higher wages and benefits. To avoid unionization demands from its workers, MaxTrain decides to offer the same wages and benefits to its employees as GlasWell. Which of the following phenomena is exemplified in this case?

The spillover effect

Essay Q4. According to Hofstede, the U.S. is low on power distance, high on individuality, high on masculinity, low on uncertainty avoidance, and low on long-term orientation. Russia, by contrast, is high on power distance, low on individuality, low on masculinity, high on uncertainty avoidance, and high on long-term orientation. Many U.S. managers are transplanting their own HRM practices into Russia while companies seek to develop operations there. How acceptable and effective do you think the following practices are and why?

To preface, Russia is low on uncertainty avoidance which means most new or foreign methods will likely receive some pushback and may be resisted at first. A) Extensive assessment of individual abilities for selection? - In a typical U.S. organization, extensive assessments of individual abilities play a critical role because there is a large emphasis on individuality. In Russia, individualism is only moderately important. It is of equal or more importance in Russia to assess whether the candidate is a team player. B) Individually based appraisal system? - Since Russia is low on individualism, an individually-based appraisal system would likely be less accepted and effective than a group- or team-based appraisal system. C) Suggestion system? - Employee suggestion systems tend to be successful in U.S. organizations because the U.S. is low on power distance. In contrast, Russia is high on power distance and there is not as much open communication between organizational leaders and employees. D) Self-managing work teams? - Self-managing work teams would likely be effective in Russia due to the country's high collectivism. The teams would need designated leaders to issue precise direction and supervise closely so as to be more effective in the high power distance country.

Which of the following is an objective of the unemployment insurance program?

To provide an incentive for employers to stabilize employment

A disadvantage of flexible benefit programs is that they increase administrative burdens and expenses.

True

Strategy 1: Improve Appraisal Formats

Two categories of evaluation formats are: Ranking and Rating

Competencies, business definition

a collection of observable behaviors that require no inference, assumption, or interpretation

To motivate executives to make decisions those are aligned with the interests of stockholders is, a company's best approach is using:

a long-term incentive plan using stock options.

Compensation - society definition (ch 1)

a measure of justice

Classification job evaluation

a series of classes covers the range of jobs, class descriptions are the labels

The Equal Pay Act (EPA) of 1963 (ch 17)

forbids wage discrimination on the basis of gender if employees perform equal work in the same establishment - jobs are considered equal if they require equal skill, effort, and responsibility and are performed under similar working conditions

Human Capital

based on the premise that higher earnings flow to those who improve their potential productivity by investing in themselves through additional education, training, and experience; assumes that people are paid at the value of their marginal product

Imagine a company which performs poorly while its CEO feels underpaid. If a compensation consultant is hired and he/she suggest a solution based on the agency theory, what will be the recommendation on the CEO pay?

be increased in order to avoid future turnover.

Increased global competition has caused unions to:

become more receptive to alternate reward systems that link pay to performance.

Limiting the liability for an employee's extended hospital stay costs to $200,000 is a cost-containment measure known as:

benefit ceiling

In the context of the point method of job evaluation, ________ are job attributes that provide the basis for evaluating the relative growth of jobs inside an organization.

compensable factors

Broad Banding (ch 8)

consolidates as many as 4 or 5 traditional grades into a single band with one minimum and one maximum - provides flexibility to define job responsibilities more broadly - support redesigned, downsized, boundary-less organizations that have eliminated layers of managerial jobs - foster cross-functional growth and development in new organizations - emphasis on lateral movement with no pay adjustments - control is in total salary budget, few in-system controls - reference rates act as guides, not controls - advantageous to global organizations - 2 steps: 1. set the number of bands 2. price the bands: reference market rates

Management Techniques

cost, communication, change, evaluation

Skill

experience, training, education, and ability as measured by the performance requirements of a particular job

Contingent workers receive ________ benefits than regular workers; contingent workers' benefits cost ________ for employers than it does for regular workers.

fewer; less

A benefit plan that allocates a set dollar amount to employees and allows them to select benefits is called a ________ plan.

flexible benefit

Which of the following is most likely a practice in supervisory/managerial pay?

increased use of variable pay.

A deferred wage increase

is negotiated at the time of initial contract negotiations with the timing and amount specified in the contract.

Competitiveness Techniques

market definitions, surveys, policy lines, pay structure

effort

mental or physical - the degree of effort actually expended in the performance of a job

Title VII of the Civil Rights Act of 1964 (ch 17)

prohibits discrimination on the basis of sex, race, color, religion, or national origin in any employment condition, including hiring, firing, promotion, transfer, compensation, and admission to training programs - EEOC is responsible for enforcement

Rating Formats

require raters to evaluate employees on some absolute standard rather than relative to other employees. Each performance standard is measured on a scale such than appraisers can check the point that best represents the employee's performance - standard rating scale: when adjectives are used as descriptors - behaviorally anchored rating scale (BARS): when behaviors are used as descriptors - Management by objectives (MBO): outcomes are used as a rating standard

Differences in pay between men and women in the same jobs are permitted if they are based on any one of four criteria, called affirmative defense:

seniority merit or quality of performance quality or quantity of production some factor other than sex

Contributions Techniques

seniority based, incentives, merit guidelines, pay for performance

The first major decision in setting externally competitive pay and designing the corresponding pay structures is to

specify the employer's competitive pay policy.

If a company has easily sold products,

the base compensation tends to be more important.

Responsibility

the degree of accountability required in the performance of a job

Human Capital

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

working conditions

the physical surroundings and hazards or a job, including dimensions such as inside versus outside work, heat, cold, and poor ventilation

____ is that nonunion management continues to enjoy the freedom from union "interference" in decision making and the workers receive the rewards already obtained by their unionized counterparts.

the spillover effect.

competency sets

translate core competency into action

Person-Based Structures: Competencies (ch 6)

try to abstract the underlying, broadly applicable knowledge, skills, and behaviors that form the foundation for success at any level or job in the organization (these are the core competencies)

In a(n) ________ pay plan, a contract is negotiated that specifies that employees hired after a given target date will receive lower wages than their higher-seniority peers working on the same or similar jobs.

two-tier

The best conclusion about union versus nonunion wage differences is that:

unions make a difference in wages across all studies and time periods.

Merit Guidelines

used for awarding merit raises that are tied to performance objectives 1. What should the poorest performer be paid as an increase? 2. How much should average performers be paid as an increase? 3. How much should the top performers be paid? 4. What should be the differential between different levels of performance?

Internal Alignment Techniques

work analysis, descriptions, evals/certifications, internal structures

Which of the following benefits is NOT mandated by either state or federal government?

work/life balance