Econ 448 Exam 2 Practice Questions

Which of the following is NOT a long-term incentive plan? (A) Employee stock ownership plans (B) Merit bonus plans (C) Broad-based option plans (D) Performance plans

(B) Merit bonus plans

Which of the following is an example of a quoted-price market? (A) Streetcash, a website that allows buyers to negotiate product prices with the sellers (B) Vidwom, a website that allows buyers to bid for items sold by other users (C) Gramspot, a website where cars are auctioned by sellers for charity (D) Nile, a website that allows sellers to sell their products for a fixed price

(D) Nile, a website that allows sellers to sell their products for a fixed price

Company A determines a particular time to complete a particular task. Even if an employee completes the allotted task before the standard time of completion, the employee receives an amount of pay equal to the wage for the designated time. Which of the following payment methods is exemplified in this scenario? (A) Piecework plan (B) Merit plan (C) Skill-based plan (D) Standard hour plan

(D) Standard hour plan

To qualify for the administrative employee exemption, all of the following tests must be met:

- The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week - The employee's primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers - The employee's primary duty includes the exercise of discretion and independent judgement with respect to matters of significance.

The Rudd-Mitchell organization uses the Scanlon plan to provide incentives to its employees. The workers produce electrical components worth $5 million. The target ratio set by the organization is 30%. The employees will be given a bonus if the actual labor costs are less than ___________ million.

1.5

Give an example of a quoted-price market and an example of a bourse market.

An example of a quoted price market is a store that labels each item's price in their catalog. An example of a bourse market is a store that allows negotiation of prices, such as a car dealership.

"Central tendency" as a rating error refers to that a rater gives high ratings to all employees regardless of their performance. (T/F)

False

Employers in highly competitive product markets are more able to increase pay levels of employees. (T/F)

False

A company that implements a gain sharing program determines that the target ratio of labor costs to the sales value of production is 20/100, or 20%. After a year, it turned out that the workers produced parts worth $1.2 million, and the actual labor costs were $210,000. If the gain sharing bonus will be split equally between the workers and the company, how much bonus will the workers get? Please briefly write down calculation procedure.

Goal: (.20*1,200,000) = $240,000 Actual = $210,000 Gain = 240,000 - 210,000 = $30,000 Since the gain sharing bonus is split equally between the workers and the company, the workers will get a $15,000 bonus.

Read the following scenario, determine if they are eligible for unemployment benefits and briefly explain why: John graduated in Dec. 2019, but he hasn't been able to get a job until now.

No, John is not eligible for unemployment benefits because he has not had a job to use as the baseline for unemployment since he has not been employed. He needed to have been unemployed after having a job, which he has not. He is unemployed but not elligible for unemployment benefits.

Read the following scenario, determine if they are eligible for unemployment benefits and briefly explain why: Tom got fired from the company because he violated workplace safety rules multiple times, and he is currently seeking to get employed.

No, Tom is not eligible because he was fired due to the fault of his own. He was fired due to violating rules and that prevents him from being able to receive unemployment benefits.

_________ is a type of incentive pay in which payments are a percentage of an organization's profits and do not become part of its employees' base salary.

Profit sharing plan

What is reservation wage theory? What does the theory seek to explain?

Reservation wage theory is when job seekers have a reservation wage level below which they will not accept a job offer, no matter how attractive the other job attributes are. The theory seeks to explain differences in people's responses to job offers.

A multi-national organization uses a gainsharing program in which employees receive a bonus if the ratio of labor costs to the sales value of production is below a set standard. This incentive plan is referred to as the _______________.

Scanlon plan

Which of the following is a long-term incentive? Sales commission Group bonus Merit pay Stock option Piece rate

Stock option

List three commonly used factors by managers to determine the relevant markets for pay comparison.

The three commonly used factors to determine relevant markets are occupation, geography, and competitors.

A merit pay system links increases in base pay to employees' performance ratings. (T/F)

True

The Merrick plan is a form of differential piece-rate plan and it establishes three piecework rates. (T/F)

True

The reservation wage theory seeks to explain differences' in people's responses to job offers. (T/F)

True

The theory of compensating wage differentials states that if a job has negative characteristics, employers must offer higher wages to attract and retain workers. (T/F)

True

Under the Lilly Ledbetter Fair Pay Act, employers can be liable for current pay differences that are a result of discrimination occurred many years earlier. (T/F)

True

Within an organization, the midpoints of pay grades usually fall exactly on the pay-policy line. (T/F)

True

Because employers are raising employee pay at various times during the year, survey data are usually updated using a process called [ 1 ] or [ 2 ] to forecast the competitive rates for the future date when the pay decision will be implemented.

[ 1 ] aging [ 2 ] trending

A market pay line links a company's [ 1 ] on the horizontal axis with [ 2 ] on the vertical axis.

[ 1 ] benchmark jobs [ 2 ] markets rates

What are the four major components of the balanced scorecard?

customer, learning and growth, internal processes, and financial

Employers with a history of laying off a large share of their workforce generally pay _______ unemployment tax than those with few layoffs.

higher

What is the major disadvantage of using broad banding for pay structures?

inconsistency and favoritism

What is the major disadvantage of a merit pay system?

it can be expensive to use

Generally, as you go up the organizational hierarchy, the minimum and maximum of pay grades for higher level jobs have _______ distance to the midpoint compared to those for lower level jobs.

larger

An incentive system in which an organization links pay increases to ratings on performance appraisals is referred to as ______________.

merit pay

What is the major disadvantage of using profit sharing plans?

most employees do not feel their jobs have a direct impact on profits

What types of benefits does Social Security provide? Please list FOUR.

old age insurance survivor's insurance disability insurance health insurance

In a pay grade, the minimum and the maximum of the pay range should be _________ to the midpoint. of no relationship asymmetric symmetric

symmetric

What is the major problem with ESOPs? (employees stock ownership plan)

they have little impact on productivity or profit

An employee works at a manufacturing company and worked 50 hours last week. The employee's base rate of salary is $12 per hour, and this employee also earned a weekly bonus of $40 last week. How much overtime pay should this employee receive for the last week? Write down your calculation procedure.

(12*40) = 480 + bonus (40) = 520 Hourly rate = 520/40= $13 per hour Overtime rate = 13*1.5 = $19.50 Overtime Pay = 19.50*10= $195 Therefore, the amount that should be paid for overtime pay is $195

A firm uses a compensation plan to reward employees' performance based on an employee's performance rating and the employee's compa-ratio. Which of the following incentive plans is most likely exemplified in this scenario? (A) Merit pay plan (B) Skill-based plan (C) Standard hour plan (D) Piecework plan

(A) Merit pay plan

Which of the following is NOT a benefit that is required by law in the US? (A) Pension and retirement benefits (B) Unemployment insurance (C) Worker's compensation (D) Social security

(A) Pension and retirement benefits

Among the four types of pay-mix strategies, which of the following has the highest percentage of base pay? (A) security (commitment) strategy (B) performance-driven strategy (C) work-life balance strategy (D) market match strategy

(A) security (commitment) strategy

According to the Expectancy Theory, ______ refers to the value employees attach to the organization rewards offered for satisfactory job performance. (A) valence (B) reinforcement (C) instrumentality (D) equity

(A) valence

Among the four types of pay-mix strategies, which has the highest percentage of base salary? (A) Market-match (B) Security (Commitment) (C) Performance-driven (D) Work/life balance

(B) Security (Commitment)

Among the four types of pay-mix strategies, which has the highest percentage of employee benefits? (A) Performance-driven (B) Work/life balance (C) Market-match (D) Security (Commitment)

(B) Work/life balance

Which of the following is TRUE about individual spot awards? (A) They are more expensive than merit pay increases in the long run. (B) They are an example of long-term incentives. (C) Larger companies may use formal mechanisms for giving the awards. (D) They are given to all employees as a one-time cost-of-living adjustment.

(C) Larger companies may use formal mechanisms for giving the awards.

An organization uses the Scanlon plan to provide incentives to its employees. The workers produce electrical components worth $6 million. The target ratio set by the organization is 20%. The employees will be given a bonus if the actual labor costs are less than _________ million. (A) 4.8 (B) 1.5 (C) 30 (D) 1.2

(D) 1.2 (6*.20)

Choose any one of the motivational theories from: Equity Theory, Expectancy Theory, Goal Setting Theory, Reinforcement Theory, Agency Theory. Answer the following question: According to this theory, what important issue we need to consider when designing pay plans (list at least two)?

According to the Goal Setting Theory, you need to ensure the level of difficulty of the goal is proportional to the amount of incentive and also make sure the goal is specific.The level of difficulty needs to match how much the incentive is because if the performance goal is difficult to achieve and the reward is very small, employees will not be motivated to complete it. The pay incentive needs to match the level of difficulty of the goal to make employees motivated. Next, the goal has to be specific. It needs to be clear to the employee what is expected of them in order to receive the incentive. If the goal is vague and not clear, employees will be less motivated than if they know exactly what to do in order to achieve the goal.

Explain what is Equal Employment Opportunity (EEO) and what is the major enforcement agency for EEO laws.

Equal Employment Opportunity (EEO) is the condition in which all individuals have an equal chance for employment regardless of their race, color, religion, sex, age, disability, or national origin. The major enforcement agency for EEO laws is the EEOC, which is the Equal Employment Opportunity Commission.

What does external competitiveness refer to?

External competitiveness refers to the pay relationships among organizations. It looks at the organization's pay relative to its competitors.

"Horns error" as a rating error in performance appraisals refers to that a rater gives an employee high ratings on all aspects of performance because of his/her overall positive impression of the employee. (T/F)

False

A defined contribution retirement plan guarantees a specified or fixed level of retirement income. (T/F)

False

According to the goal setting theory, relative pay is important as employees evaluate their pay-effort balance in comparison to other employees. (T/F)

False

All U.S. employees, including federal, state, and local government employees, are covered under the Social Security program. (T/F)

False

Companies that conduct pay surveys should include at least 100 employers in the survey. (T/F)

False

Companies that use 360-degree performance evaluation should always link the evaluation results to pay raises or promotion decisions, in order to make the evaluation approach effective. (T/F)

False

Generally labor-intensive industries tend to pay higher than technology-intensive industries. (T/F)

False

In order to receive benefits from workers' compensation, an employee who suffered work-related injury must show evidence that his/her employer was negligent of workplace safety. (T/F)

False

Overtime pay is required only if the employer specifically asked or expected the employee to work more than 40 hours a week. (T/F)

False

The Family and Medical Leave Act (FMLA) allows employees to take up to 12 weeks of paid leave after childbirth or adoption, to care for a seriously ill family member, or their own serious illness. (T/F)

False

Under a defined benefit retirement plan, employees are responsible for choosing specific investments. (T/F)

False

Under the Equal Pay Act of 1963, all men and women who do the same work must be paid the same without any exceptions. (T/F)

False

When designing pay for performance plans, most companies use a single performance measure linking to pay increases or bonuses. (T/F)

False

QVO Financial, an auditing firm, distributes a portion of the profits resulting from improvements in productivity and efficiency among its employees. If the company enjoys an improvement of $45,000, 60% of the improvement might be the company's share. The other 40% would be distributed among the employees in the company. Which incentive plan is being exemplified in this scenario? Choose one from the following: Merit Pay; Merit Bonus; Piecework Rate; Gain-Sharing Plan; Profit Sharing Plan; Stock Ownership Plan.

Gain-sharing plan

Jeff owns and manages a small electronics repair store. He determines the time required by his employees to complete each task assigned by him. When employees complete the repairs in less time, they receive an amount of pay equal to that time determined by him. In this scenario, what pay for individual performance plan is Jeff is using?

Jeff is using the standard hour plan because he is paying the employees for the amount of time expected to complete the task, even if it takes less time.

Is a company's pay-policy line always identical with the market pay line? Answer Yes or No and explain why.

No, because the policy line is a percent of the market line and it specifies a percent above or below the market line that the employer intends to match. The pay policy line may be identical with the market pay line if the company uses match-the-market strategy. The pay policy line will be above or below the market pay line if the company leads or lags the market.

List TWO characteristics of the jobs that are grouped into one pay grade.

One characteristic is that these jobs are different jobs but are considered substantially equal for pay purposes. Another characteristic is that all jobs within a single grade will have the same pay range.

What are names of the two types of differential piece-rate plans?

Taylor plan and Merrick plan

What does the Employment Cost Index (ECI, published by the Bureau of Labor Statistics) measure?

The Employment Cost Index measures quarterly changes in employer costs for compensation.

What is the biggest disadvantage of using pure market pricing to determine pay structures in an organization?

The biggest disadvantage is that market pricing emphasizes external competitiveness and deemphasizes internal alignment.

You own Falzer's Tool Coating Company, a high-tech firm specializing in the coating of cutting tools (e.g., drill bits, cutting blades) to provide longer life before re-sharpening is needed. You are concerned that the competition continues to develop new coating methods and new applications of coating in different industries. You want to create a work environment where employees offer more new product ideas, and suggest new industries where these ideas might be applied. What type of compensation plan will you recommend and why?

The compensation award I recommend is the individual spot awards. This would reward employees for their creativity of new product ideas and suggestions for new industries to apply the ideas. This encourages employees to brainstorm ideas and then will be rewarded for good ideas that the company can implement. They would get awarded "on the spot" and right after the idea is implemented.

Company W pays its employees based on the number of products that the employees produce. The employees earn a flat rate of compensation for each product they produce. This type of compensation plan is called _____________. (please write down the specific name for the compensation plan).

This compensation plan is the straight piecework rate because they are paying a set rate per piece produced.

Julianna, the HR manager at Hudson Corp., is facing criticism from the company's high-performing employees for the lack of an effective incentive scheme that rewards them with the necessary pay. The company has avoided paying out incentives in addition to employees' monthly salary in an attempt to minimize costs. But, after the last annual meeting, it has been decided to pay employees an incentive amount based on their performance ratings and their compa-ratio. In this scenario, which pay for individual performance plan is Julianna applying?

This performance plan is merit pay because they are giving incentives based on performance ratings and their compa-ratio.

What factors determine the relevant labor market that an employer chooses? Please list THREE.

Three factors that determine the relevant labor market that an employer chooses are if there are employers who compete in (1) the same occupation or skills, (2) employees within the same geographic area, or (3) the same products and services (competitors)

According to the efficiency-wage theory, paying higher wages than competitors can bring higher profits because higher wages can attract higher ability workers and thus improve efficiency. (T/F)

True

An important implication of reinforcement theory is that the timing of payouts to employees is very important. (T/F)

True

Because employers are raising employee pay at various times during the year, survey data are usually updated using a process called aging or trending to forecast the competitive rates for the future date when the pay decision will be implemented. (T/F)

True

Comparing to Scanlon plans, Rucker plans tie incentives to more types of savings and can be more easily linked to individual incentive plans. (T/F)

True

Employee self-evaluations are valuable for employee development purpose, but they should not be used for administrative decisions such as promotion or pay raises. (T/F)

True

If federal and state minimum wage laws cover the same job, workers should be paid at or above the higher rate. (T/F)

True

Implementing safety programs can help an organization reduce the costs of workers' compensation insurance. (T/F)

True

In cases where the content of an organization's jobs does not sufficiently match that of the survey jobs, benchmark conversion can be used to quantify the differences of the job content. (T/F)

True

Maslow's theory suggests that performance-based pay can be demotivating if it impinges upon employees' capacity to meet daily living needs. (T/F)

True

One advantage of gain-sharing plans compared to profit sharing plans is that employees under gain-sharing plans can see a stronger link between their efforts and payoffs that they will receive. (T/F)

True

One important criticism to the broad-based option plans (BBOPs) is that rank-and-file employees may not necessarily see a connection between their actions and the company's stock price. (T/F)

True

For an organization that emphasizes on individual achievement and motivating employees through promotions, when determining the range overlap across different pay grades, the organization should consider _____ range overlap.

smaller

List the five types of legally required employee benefits.

social security, unemployment insurance, workers' compensation, family and medical leave, and health care

Name the two types of rating methods for performance appraisals:

standard rating scale and behaviorally anchored rating scales