Compensation True and False

True

Over time, lump-sum bonuses cost employers less than merit pay.

False

The most common measure of variation in pay surveys is the standard deviation.

False

Unions prefer individual to group incentive pay plans since members can earn more money.

True

A combination plan often favored by CEOs who don't like to make payouts when the company loses money is a completely self-funding plan. (

False

A common practice is to use the 10th and 90th percentiles from pay survey data to set minimums and maximums of pay grades.

True

A fast and efficient worker would earn more money under a Rowan plan than under a Halsey 50-50.

False

A frequency distribution must be constructed to calculate a median.

True

A good solution to the problem of production variability is to set gain sharing goals based upon industry norms.

True

A group performance based pay plan is superior to an individual plan when individual production standards and production methods must change to meet changing events.

False

A job involving production of many parts each hour would have a rate based upon a time period per unit of production.

True

A pay range exists when at least two employees in the same job are paid different rates.

False

Additional authority, control and autonomy are always positively motivating job factors for workers.

False

Adjustments to forms of pay occur more often than adjustments to overall pay level.

False

Advantages of the balanced scorecard are that it is easily understood by employees and has low administrative costs.

True

An employer offering lower base pay with high bonuses is likely signaling they are seeking risk-taking employees.

True

An important implication of reinforcement theory is that when employees receive pay is important.

False

An individual incentive pay system is associated with high turnover of high performers.

True

An individual manager could be a factor affecting an employer's external competitiveness.

False

Blue-collar workers feel pay increases should be based upon performance

True

Both pay level and pay mix decisions focus on two objectives: (1) control costs and increase revenues and (2) attract and retain employees.

True

Both pay level and pay system characteristics affect applicants decisions to accept a job.

False

Broad-based option plans are usually limited to managerial and professional employees.

False

Cafeteria-style compensation is based on the idea that the organization knows what package of rewards would best suit individual employees' needs.

False

Career moves between bands are more common than within bands.

True

Combat pay premiums paid to military personnel offset some of the risk of being fired upon is an example of a lead pay-level policy.

False

Companies are moving back to entitlement-oriented pay to reduce turnover.

False

Compensating differentials theory says that paying above market wages will lead to workers with higher ability

False

Costing and budgetary control are more difficult using individual incentives than under time-based pay.

True

Eligibility refers to who in the organization may participate in an incentive pay program.

True

Employees working under individual incentive plans tend to resist the introduction of new technology.

True

Employers in highly competitive markets are less able to raise prices without loss of revenues.

True

Evidence suggests that skill-based pay may not increase productivity.

False

External competitiveness is primarily determined by the impact of government regulations on the firm or industry.

False

Gain sharing plans tend not to use a historical standard to set productivity standards since environmental conditions can change quickly.

False

Gain sharing poses greater risk to individual employees than profit sharing.

False

Generally, team-based incentives are more attractive than individual incentives

False

Goal setting theory argues that employees' performance in maximized when performance targets are stated as "do your very best".

True

High performance ratings are nearly always statistically related to high merit increases.

True

Human capital theory assumes that people are paid at the value of their marginal product.

False

Identifying desired behaviors is the emphasis of agency theory.

True

Identifying pay survey participants by company name is considered price fixing under the Sherman Act.

True

If the purpose of a survey is to price the entire structure, then benchmark jobs can be selected to include the entire job structure.

True

In a labor market, the demand side focuses on the actions of the employers.

True

In a labor market, the market rate is where the lines for labor demand and labor supply cross.

True

In determining the compensation strategy, a major strategic decision is whether to mirror what competitors are paying.

True

In practice, organizations use skills and competencies to assess value of labor instead of marginal revenue product.

False

In the formula (behavior = f (M, A, E)), M standards monetary incentives

False

In today's organizations, socialization, the culture and training rather than compensation packages are typically used to direct employees to desired behaviors.

False

It is easier for employers to determine the worth of jobs that fall into fuzzy markets than traditional relevant markets.

True

It is likely that workers act in accordance with reservation wage theory with respect to both wages and benefits.

False

Job applicants who will not accept a job that pays below a certain level are acting according to signaling theory.

False

Jobs with short cycle tasks normally have a rate based upon a time period per unit of production.

True

Line of sight is highest in individual incentive plans.

True

Line of sight means that employees believe they can influence performance targets.

False

Lump-sum bonuses have less risk for workers than merit pay.

False

Managers have more control over distributive justice than procedural justice.

True

Many employees are not satisfied with compensation at risk plans because they do not understand the process used to determine their pay

True

Many of the disadvantages of individual incentives are due to both a fear production standards may be changed and workers' focus on maximizing output.

True

Marginal productivity theory argues that when factors of production are held constant, each additional worker is less productive than the last one hired.

True

Marginal revenue is measurable and used by managers to determine both pay levels and how many employees to hire.

True

Market lines may be constructed by either freehand drawing or linear regression.

False

Market pricers match a small percentage of their jobs with market data.

True

Maslow's theory suggests that performance-based pay can be de-motivating.

True

Other things being constant, in a hiring scenario, the employer will continue to hire until the marginal revenue generated by the last hire is equal to the costs associated with employing that person.

True

Pay ranges for managerial jobs are larger than ranges for other jobs because these jobs have greater opportunity for both discretion and performance than lower level jobs.

True

Pay ranges for top-level management positions are commonly larger than those other professional and midlevel managerial positions.

True

Pay surveys include information about both all forms of cash compensation and benefits.

True

Performance plans typically feature corporate performance objectives for a time three years in the future.

False

Ranges support flexibility within guidelines while bands support some flexibility within controls.

True

Regression smoothes large amounts of data while minimizing variations.

True

Risk-sharing plans include a provision for cuts in base pay that are only recaptured in years when the organization meets performance objectives.

True

Setting your company's base pay to competitors' total compensation risks high fixed costs.

True

Signaling theory applies to both the demand and supply side

False

Signaling theory argues that higher wages leads to greater efficiency.

True

Smaller pay ranges may reduce the opportunities for promotion.

True

Standard hour plans are better for non-repetitive jobs requiring numerous skills for completion.

False

Stores that label each item's price or ads that list a job opening's starting wage are examples of bourses.

True

Talented individuals have a higher marginal value in larger organizations.

False

The Rowan plan uses a standard that is purposefully set high requiring high performance levels.

False

The final step in determining externally competitive pay levels and structures is merging internal and external pressure.

False

The first assumption of labor market theories is that employers always seek to maximize penetration.

False

The focus of team incentive plans is work groups or teams and does not include divisions or an entire company.

False

The free-rider problem is common in firms using individual incentive plans

True

The level problem in team compensation is an example of the line of sight problem.

False

The most influential theory explaining pay-level differences is marginal revenue productivity.

False

The pay structure is reflected in job evaluation or skill certification.

False

The percent of companies using some form of variable pay is declining because many employees prefer base wages.

True

The point of the behavior = f (M, A, E) model is that, though very important, compensation alone cannot change employee behavior.

False

The product market sets the floor on the minimum wage required to attract sufficient numbers of employees.

False

The relevant labor market for accounting, sales or clerical skills should be limited to each industry in which these types of work are found.

True

The standard hour plan is likely to be an effective incentive plan for plumbers employed by a plumbing company.

True

The three factors usually used to determine the relevant labor markets are the occupation, geography, and competitors

True

There is no single "going rate" in the labor market for a specific job.

False

Time studies do not take into account fatigue or worker personal needs.

False

Total cash includes base pay plus stock options and benefits.

True

Wages in labor-intensive industries are generally lower than in technology intensive industries.

True

When flat pay rates are used, they are typically the midpoint of a corresponding survey job.

True

When pay raises are based on events over which employees lack significant control, they are likely to regard the system as unfair.

True

When there is an unusual level of turnover in a job, an employer is likely to conduct a market survey.

True

Work load and work variety are both components of a total reward system

True

A lead policy may force the employer to increase wages of current employees too, to avoid internal misalignment and murmuring.

True

A major problem of group incentive plans is performance targets are not correctly set.

True

A problem with incentive pay plans is workers focus exclusively on behaviors that are rewarded.

True

A pure market pricing strategy tends to ignore internal alignment.

True

According to agency theory, because employees prefer a salary, they demand higher total pay if performance-based pay is used.

True

According to efficiency-wage theory, paying higher wages than competitors lowers labor costs due to more efficient workers.

False

Agency theory argues that employees prefer risky pay since rewards can be greater than a salary.

True

Aging the market data to a point halfway through the plan year is called lead/lag.

False

An advantage of group incentives is turnover may be higher among poorer performers because they hurt group performance.

True

Grades group job evaluation data on the horizontal axis.

True

Graduating students usually find themselves in a quoted-labor market.

True

Incentive effect means pay can motivate people to perform better.

False

Incentive pay systems are an effective way to motivate workers to perform a variety of tasks in changing situations.

False

Individual incentives never include financial penalties for poor performance.

True

Individual incentives yield higher productivity gains.

False

Merit pay differs from other forms of incentive pay in that it must be "earned" every year.

True

More companies are using pay based upon individual, group and organization performance; workers with high security needs may accept lower pay for pay security; and workers may need higher pay to stay and perform in an at-risk pay company.

True

Most variable-pay plans have some form of profit "trigger" linked to revenue growth or profit margins.

False

Salary data available to employees via the Internet are as reliable and accurate as other more traditional surveys.

True

Security in terms of compensation refers to the predictability of one's paycheck from one time to another.

True

The process of multiplying survey data by a factor reflecting the difference between a survey and a company job is called survey leveling. (