Compensation Exam 1
Troubled Asset Relief Program
- T.A.R.P. - restricts executive pay - discourages risk taking
Organizations in a turbulent and unpredictable environment requiring flexibility in jobs and work processes are likely to be more successful with a(n) _________ internal pay structure
- egalitarian
When cooperation is important for successful organization performance, which of the following pay structures is most suitable
- egalitarian
A major challenge in the design of future pay systems is how to better satisfy _________
- individual needs & preferences
When organizations performance declines
- performance base pay stops working
Most job structures are best described as
- person & job based
Reinforcement Theory
- positive & negative reinforcers to motivate behavior
Egalitarian pay structures have all BUT which of the following characteristics?
- preference for individual over team performance
James says, "I don't trust the way the company determines pay rates in my department." If James feels this way despite being happy with his current salary, he is most likely concerned about _____.
- procedural justice
procedural justice
- process for decisions - right to an attorney - right to an impartial judge
A compensation strategy should reflect an organization's __________
- values
Which of the following is often the largest component in an executive pay package
-stock options
Know the steps in developing a total compensation strategy and their correct order.
AMR Aston Martin Racing - assess - map - reassess
In the formula for predicting performance, the component most closely related to compensation is P=f(A,M,O)
Ability (Motivation) = compensation/pay Opportunity
Recognize fundamental objectives vs. a policy of the pay model
fundamental objectives - fairness - ethics policy - internal alignment - competitiveness - contributions - management Policies: Internal alignment (refers to comparisons among jobs or skill levels inside an organization. Pay relationships affect all four compensation objectives: efficiency, fairness, compliance, ethics). Competitiveness (refers to pay comparisons with competitors and affect objectives in 2 ways: 1. Employees must perceive their pay as competitive, or they may leave. 2. Controlling labor costs keeps the company's products competitive). Contributions (or nature of the pay mix is a key decision; make external competitiveness and employee contribution decision jointly). Management (means ensuring the right people get the right pay for achieving the right objectives in the right way). Fundamental objectives (Performance, quality, customer and stockholder, cost). Fairness, compliance, ethics, efficiency. Fairness (sometimes called equity) is a fundamental objective of pay systems.
Variable pay may also be called:
incentive pay
the role non-HR managers play in making pay decisions is called ___. ***
ownership
In the context of pay relationships, which of the following is illegal in the United States
pay basis on - age - gender - religion - race - disability
Organizations design their pay structures around _________
- jobs & job levels
Transparency
- transparency about pay
Which of the following tests of competitive advantage is probably the easiest test to pass
- alignment test
The well-defined jobs at McDonald's and their small differences in pay are an example of a(n) _____ internal pay structure.
- closely tailored
Customer-focused strategy
- improve customer expectations - customer focused - solution focus - customer satisfaction incentives - customer based pay
Innovator Strategy
- improve product - market based pay - shorten life cycle - mass customization & innovation - look for risk taking & innovative employees - reward innovation
Research investigating high-performance workers found that performance-based pay _________ when combined with other high-performance practices ***
- improves attitudes & behaviors
Which form of pay does not permanently increase labor costs?
- incentive pay
If the objective is to increase customer satisfaction, what forms of pay might you use
- incentive programs - merit pay
If a company wants to restructure its pay plan without increasing labor costs in the long run and while retaining its top employees which of the following examples would be the best strategy
- increase incentives - decrease base pay
Differentiated strategy***
- innovative products - premium prices
The alignment test ***
- align with business strategy - align with economic and sociopolitical conditions - ensure differentiation test passing
Union preferences are a major factor in _____ a total compensation strategy.***
- assessing
Commissions
- based on specific performance/achievement - tied to company profit
Entitlement
- belief that returns/rewards are owed - regardless of individual or company performance - employed = compensated
In a study causation can be best established by
- checking scope of study
Jacob works at PrimeClean Corp., a carwash company. He is asked to follow a set of instructions in a predetermined order to wash a car. All the details including the amount of washing liquid to use for each type of car are clearly specified. In this case, Jacob's company is most likely to use a:
- closely tailored pay structure
The difference between exchange value and use value surfaces when ________
- company mergers
Employee Contributions
- comparing same jobs & employee performance Comparisons among individuals doing the same job for the same organization, or nature of the pay mix is a key decision. Make the external competitiveness and employee contribution decision jointly. The fairness objective calls for fair treatment for all employees by recognizing both employee contributions (e.g. higher pay for greater performance, experience, or training) and employee needs (e.g. a fair wage as well as fair procedures). The emphasis to place on employee contributions (or nature of pay mix) is an important policy decision because it directly affects employees' attitudes and work behaviors
___ is the key to attracting, retaining, and motivating employees with the abilities necessary to execute the business strategy and handle greater decision-making responsibilities.
- compensation
External competitiveness
- competitive pay with rivals - attract & retain employees - market driven - influences pay mix
Fairness perceptions ***
- considers employee contributions - considers employee needs
A structure based on value typically ranks jobs on ________:
- contributions of skill
The institutional model
- copying innovative practices from others
Most firms do not have generic strategies but use
- cost & innovation
A compensation system focusing on system control and work specifications is most closely associated with a(n) ________ strategy
- cost cutter
A compensation system that focuses on competitors' labor costs is most closely associated with a(n) _____________ strategy
- cost cutter
Mich Inc., a hardware store, has a rating system in place that rates employees on their friendliness, usefulness, and product knowledge. Based on the ratings an employee receives, he or she gets an incentive. The compensation strategy followed by Mich is most closely described as a:
- customer focused strategy
Technology used in producing goods and services influences the __________, the work to be performed, and the skills/knowledge required to perform the work
- design
What do objectives guide
- design of pay system - sets standards for successful pay systems
The problem that is most likely to be faced by organizations using egalitarian pay structure is
- difficult external recruitment
Providing unlimited compensation choices to employees would meet with ________ from the US internal revenue service
- disapproval
human capital
- education - experience - knowledge - abilities - skills
Which of the following is true of procedural justice
- effects administration design & decision making
Cost-cutter strategy
- efficiency - cost effective solutions - competitive labor costs - increase incentives - emphasize productivity - system control & work specifications
In firefighting and rescue squads and global software design teams, a(n) _____ structure is most closely associated with higher performance.
- egalitarian
Which of the following policy decisions directly affects employees' attitudes and work behaviors ***
- employee contributions/pay mix
In the context of internal structures, which of the following is true of a delayered structure
- equally valued employees
Factors that shape internal pay structures
- external - organization factors
Comparisons based on the forms of compensation used by other companies are part of
- external competitiveness
How an organization positions its total compensation against its competitors is part of _______ strategic choice
- external competitiveness
work/life balance is most closely associated with the ___ aspect of mapping a total compensation strategy ***
- external competitiveness
According to the text, which of the following decisions should be made jointly ***
- external competitiveness - employee contribution decisions
Common bases for modern pay structures include all but which of the following:
- external competitiveness - equity
Equity theory
- fairness focus - internal & external comparisons - knowledge of other's jobs
Egalitarian pay structures
- few levels - small differentials - equal treatment
Based on the opinions of 10,000 U.S. workers, Hudson found that when given their choice of unconventional benefits, most employees would select _____.
- flexible schedule
_______ are related to greater performance when the work flow depends on individual contributors
- hierarchical
Nina is a high-performing individual who works best alone. Which of the following companies is the most appropriate for her?
- hierarchical pay structure - performance based pay
Potential problem(s) in egalitarian pay structures
- high performing employees feel underpaid and quit
External factors are dominant influences on jobs filled via
- hiring graduates
Incentive Effect
- how much pay influences effort/motivation/performance
Sorting effect
- how pay attracts types of employees - helps tailor employees to company goals
The innovatory business strategy
- how to use resources for innovation objectives - deliver value & competitive advantage
Differences between incentives and merit increases.
- incentive = future - objective based i.e. commission - must be re-earned - criteria given beforehand - merit = past - subjective based - can increase base pay A difference between incentives and merit increases is that incentives are temporary. When an employee receives another kind of pay for performance, that pay is temporary. The bonus received by a salesperson for meeting his sales quota for quarter; Incentives also tie pay increases to performance. However, incentives differ from merit adjustments. First, incentives are tied to objective performance measures (e.g. sales) usually in a formula-based way, whereas a merit increase program typically relies on a subjective performance rating. There is also some subjectivity in the size of the pay increase awarded for a particular rating. Second, incentives do not increase the base wage and so must be re-earned each pay period. Third, the potential size of the incentive payment will generally be known (given the use of a formula) beforehand. Whereas merit pay programs evaluate past performance of an individual and then decide on the size of the increase, what must happen in order to receive the incentive payment is called out very specifically ahead of time.
Declining organization performance ________ the risks facing employees- risks of still smaller bonuses, demotions, wage cuts, and even layoffs
- increases
A compensation system using market-based pay is most likely to be part of a(n) _______________ strategy
- innovator
Flexible-generic job descriptions would most likely be used with a(n) _____ strategy.
- innovator
AMOC, Whole Foods' shared-fate philosophy of limiting executives salaries to no more than 19 times the average pay of full-time employees is an example of which strategic pay decision
- internal alignment
Career growth, hierarchy, and flexible design are most closely associated with the _____ aspect of mapping a total compensation strategy. ***
- internal alignment
Internal alignment is sometimes called __________
- internal equity
Pay for temporary workers is based upon
- internal structure
Research shows that ______ will effectively shift an organization in a downward performance spiral into an upward one ***
- it is unclear what compensation practices
All organizations that pay their employees have a compensation strategy even though _________
- it may not be stated or written
An organization defines its strategy through ***
- its choices
The most common bases for determining internal structures are
- job content & value
An organization whose profits or market share is increasing is able to pay ______ bonuses and stock awards
- larger
Tournament theory
- larger differentials - motivation through promotion - ideal for interdependence - positive sorting effects
Compensation is often a company's ________ controllable expense
- largest
Layered and delayered pay structures
- layered = hierarchical - delayered = egalitarian A layered pay structure is more hierarchical than a delayered pay structure and less egalitarian in terms of number of levels.
Strategy refers to ***
- long term plan - achieve goals & unique customer experience
· Greater pay dispersion is related to ________ turnover among executives:
- lower
Reasons why the great majority of the uninsured in the United States are from working families.
- majority of employment is through smaller companies - smaller employers are less likely to offer insurance benefits
Issues of transparency, technology, and choice are most closely associated with the _____ aspect of mapping a total compensation strategy. ***
- management
Pay system management
- managing base pay, short & long term incentives - ensure pay system is meeting objectives - ensure right pay for right work
Correlation coefficient ***
- measure of changes between connected variables
prominence ***
- measure of compensation importance to HR strategy
Differences between merit increases and merit bonuses
- merit increase = increase in base pay - merit bonus = lump some/no base pay change
What has the greatest instrumental value according to the text
- monetary incentives
According to the Hudson survey, which of the following is the single thing that would make 41% of workers happier.
- money
In mapping a total compensation strategy, the question of how important compensation is in the overall HR strategy is part of ***
- objectives
stock options
- option to purchase stock - set price - usually at discounted price
Marginal productivity theory (MPT)
- pay = proportion of work to objectives - labor demand focus - contract to Marxist surplus values
How to managers seek internal alignment within their organizations ***
- pay based on similarities between jobs
Base wage
- pay for work done - based on value the job and skills - ignores individual differences
Internal Alignment
- pay relationship between jobs in a company - equal pay for equal worth jobs - acceptable pay differential for unequal worth jobs
Trying to measure an ROI for any compensation strategy implies that ***
- people = human capital
Procedural fairness ***
- process for making pay decisions
Which of the following is a fundamental strategic choice at the corporate level ***
- products & services to offer
You need to recognize an example of a relational return
- psychological rewards - recognition - job security - learning opportunities
Which of the following is true of internal alignment (Will list three false statements and one true one):
- relates to internal relationships
Embedding compensation strategy within the broader HR strategy affects ***
- results
Know which of the statements is true of incentives. (8)
- rewards expected future performance - does not increase base wage - must be re-earned - criteria explained beforehand - one-time payment - referred to as variable pay - short or long term - long term can be pay in stock or options
Merit pay
- rewards past performance - lump sum or incremental
In a strategic approach to pay, internal alignment is the ______ issue to be decided (refers to order of issue to be decided according to the text):
- second
Factors used in defining equal work according to the equal pay act
- skill - effort - working conditions
Labor unions support ________ pay differentials
- small
Most unions prefer which of the following?
- small pay differences - seniority based promotions
Incentives do not permanently increase labor cost because
- they are one-time payments
Which of the following theories predicts that individual performance will be maximized when the pay differentials between jobs levels are large
- tournament theory
From descriptions be able to recognize which company is taking efforts to improve the work/life balance of its employees.
- vacation/jury duty/child & elder care - drug counseling/financial planning services - flexible schedules (remote/nonpaid time off/nontraditional schedules)
Content refers to the
- what is done - how it is done
Do most managers read research in HR management and compensation journals
- yes
Joshua believes that treating employees equally will improve their job satisfaction, which in turn will increase their work productivity and performance. In accordance to his beliefs, he wants to reduce the number of job levels and the pay differentials between the levels. In this case, he is most likely to use a(n):
-egalitarian pay structure
