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Student name:__________
TRUE/FALSE – Write ‘T’ if the statement is true and ‘F’ if the statement is false.
1) Engineers in almost all companies are treated as special compensation cases because of
their education and training.
⊚ true
⊚ false
2) Contingent workers may work alongside permanent workers yet often receive lower
wages and benefits for the same work.
⊚ true
⊚ false
3) Members of boards of directors are not categorized as candidates for special
compensation.
⊚ true
⊚ false
4) The most popular method of providing special compensation to supervisors is by paying
overtime.
⊚ true
⊚ false
5) The compensation committees of boards of directors typically set executive salaries.
⊚ true
⊚ false
6) The most recent trend in executive compensation is increased use of stock options.
⊚ true
⊚ false
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7) Incentive stock options may be deducted as a company expense.
⊚ true
⊚ false
8) ERISA and the tax code specify that the average value of benefits for low-paid
employees must be at least 75 percent of those of highly paid employees.
⊚ true
⊚ false
9) In 2010, the Dodd-Frank Act gave power to shareholders by giving them a nonbinding
(but image important) vote on appropriateness of an executive’s compensation.
⊚ true
⊚ false
10) The best predictor of CEO pay is the performance of the company.
⊚ true
⊚ false
11) In good economic climates with roaring sales, companies can afford to hire mid- and
low-level sales personnel to capture the extra sales.
⊚ true
⊚ false
12) Organizations rely very heavily on external market data in pricing scientists’ and
engineers’ base pay.
⊚ true
⊚ false
13) Unlike executives, scientists and engineers are less likely to receive lavish athletic
facilities and large offices.
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⊚ true
⊚ false
14) As the market of a product matures, the sales pattern for that product will change, and
companies need to adapt the compensation for their sales force accordingly.
⊚ true
⊚ false
15) In maturing markets, companies focus both on performance-based pay tied to customer
satisfaction and on greater base salaries to retain conservative salespeople.
⊚ true
⊚ false
16) Compensation packages for salespeople must be competitive because salespeople tend to
compare their pay with competitors.
⊚ true
⊚ false
17) In a recession environment, companies need to react to the decreasing level of sales by
rewarding top-level performers that achieve high levels of sales despite the economic downturn.
⊚ true
⊚ false
18) Independent contractors always earn less than their permanently employed counterparts.
⊚ true
⊚ false
19) Independent contractors generally are less expensive for employers as they receive no
benefits.
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⊚ true
⊚ false
20) At least for high-skilled contingent workers, it is increasingly popular to view careers as a
series of opportunities to acquire valuable increments in knowledge and skills.
⊚ true
⊚ false
MULTIPLE CHOICE – Choose the one alternative that best completes the statement or
answers the question.
21) In which of the following situations would engineering jobs be most likely treated as a
special compensation group?
A) Mechanical engineers employed by a large city corporation
B) Computer engineers employed at a software firm
C) Biomolecular engineers employed at a farm equipment manufacturer
D) Acoustical engineers at a waste disposal company
22) Executives, supervisors, and sales staff often receive special compensation treatment
because
A) these jobs face conflicting demands.
B) these jobs are exempt under the FLSA.
C) recruitment and retention are always difficult for these jobs.
D) these jobs are covered under the Sarbanes-Oxley Act.
23) Which of the following often go for extended periods in the field with little supervision?
A) Sales staff
B) Top management
C) Supervisors
D) Professional employees
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24) The biggest trend in supervisory pay centers on
A) increased use of variable pay.
B) payment of wages that equal subordinate pay.
C) paying a wage that is above that of the highest paid superior.
D) payment of higher wages without benefits.
25) The differential between supervisors’ base pay and their highest paid subordinate is
typically ________ percent.
A) 0 to 5
B) 5 to 30
C) 30 to 50
D) 50 to 90
26) Which of the following face the possibility that disgruntled stockholders may sue over
corporate strategies that do not ”pan out”?
A) Supervisors
B) The board of directors
C) Professional employees
D) Sales staff
27) Annual bonuses often play a major role in executive compensation and are primarily
designed to
A) motivate better short-term performance.
B) reduce overtime pay.
C) decrease pay differentials between supervisors and subordinates.
D) increase employee turnover.
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28) ________ use cash or stock award that is determined by increase in stock price during
any time chosen (by the executive) in the option period.
A) Phantom stock plans
B) Restricted stock plans
C) Stock appreciation rights
D) Incentive stock options
29) A(n) ________ uses cash or stock award if specific goals are achieved.
A) nonqualified stock option
B) incentive stock option
C) restricted stock plan
D) performance share plan
30) A(n) ________ uses cash or stock award that is determined by an increase in stock price
at a fixed future date.
A) phantom stock plan
B) incentive stock option
C) restricted stock plan
D) nonqualified stock option
31) Nonqualified stock options require
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A) purchase of stock at a stipulated price, not conforming with the Internal Revenue
Code.
B) a cash or stock award to be determined by an increase in stock price at a fixed future
date.
C) a cash or stock award to be determined by an increase in stock price during any time
chosen in the option period.
D) a grant of stock at a reduced price with the condition that it may not be sold before a
specified date.
32) At the time they are granted, which of the following have no tax implications for an
executive?
A) Phantom stock plans
B) Incentive stock options
C) Stock appreciation rights
D) Performance share/unit plans
33) Which of the following is a benefit under the Employee Retirement Income Security Act
guidelines for qualified pension plans?
A) Additional life insurance
B) Home security
C) Payment of club dues
D) Executive physicals
34) Which of the following is the most popular executive perk offered by most companies?
A) Executive physicals
B) Payment of club dues
C) Family spousal travel
D) Corporate housing
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35) Which of the following is the least popular executive perk offered by most companies?
A) Payment of club dues
B) Housing allowance
C) Supplemental life insurance
D) Home security
36) ________ argues that executive pay rises to maintain the same relative relationship with
the salaries of lower-level employees.
A) The economic approach theory
B) The team production theory
C) The social comparison theory
D) Agency theory
37) Today, top executive pay is more than ________ times the pay of the average worker.
A) 1,500
B) 2,000
C) 900
D) 300
38) A recent article analyzing the results from over 100 executive pay studies shows that the
best predictor of executive pay is by far
A) firm size.
B) the number of insiders on the board of directors.
C) the industry in which the firm operates.
D) firm performance.
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39) The most common approach to motivating executives to make decisions that are in the
best interests of stockholders is
A) high base salaries with few bonuses.
B) average base salaries with significant firm performance bonuses.
C) a long-term incentive plan using stock options.
D) average base salary with performance-based perks.
40) In recent years, some firms have tried to deal with the plateau effect and also
accommodate the different career motivations of mature scientists and engineers through a(n)
A) individual career ladder.
B) alternative career path.
C) military-style career ladder.
D) dual-career ladder.
41) ________ curve expresses the relationship between years since last degree, performance,
and salary.
A) The Phillips
B) The marginal productivity
C) A tenure
D) A maturity
42) Popular stereotypes of salespeople characterize them as being heavily motivated by
A) financial compensation.
B) personal growth and job security.
C) recognition and appreciation.
D) promotional opportunities.
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43) If improved account retention became a major focus of attention, the performance
measure stressed would be
A) gross margin on sales or price per unit.
B) percentage account erosion.
C) a volume measure.
D) a customer satisfaction index.
44) When designing a sales compensation plan, it should be kept in mind that:
A) salespeople rank recognition as their number-one motivator.
B) salespeople under an incentive system will view customer service as an imposition.
C) compensation systems are independent of the nature of a product or service.
D) commissions for sales volume reduce the incentive to sell.
45) Leah, the CEO of SteadyResults Corp., feels that she is underpaid, so she hires a
compensation consultant to survey actual competitors of the company. According to agency
theory, if SteadyResults performs poorly, her salary will most likely:
A) remain the same as CEO salary is based only on performance.
B) be withheld and paid at a later date as the company is doing poorly.
C) be increased in order to retain her.
D) remain the same as the company is doing poorly.
46) Hannah is the CEO of JF Corp., a steel manufacturing company. She finds that the
market is exhibiting the signs of a maturing market. She wants to revise the compensation
package for her sales employees to adapt to the changing market conditions. In this case, Hannah
is most likely to:
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A) increase base pay.
B) provide a commission-based incentive plan.
C) provide incentives based on new customer generation.
D) include a significant incentive component.
47) NaxWell Corp. sells a smart wristband that, apart from monitoring heart rate and blood
pressure, also reminds users to stand and walk every half hour. As part of its promotional efforts,
a celebrity starts wearing the wristband, thereby increasing its popularity and ease of sale. Which
of the following is most likely to happen?
A) NaxWell will set lower sales targets for its employees.
B) NaxWell is likely to increase base salaries and decrease incentives.
C) NaxWell is likely to lower its executive compensation in order to increase stock
price.
D) NaxWell will hire only contingent workers.
48) With easily sold products,
A) companies prefer a more aggressive sales force.
B) the base compensation tends to be more important.
C) the incentives provided in the form of commissions tend to be more important.
D) companies tend to set lower sales targets.
49) Working through a temporary-help agency usually means:
A) high recognition for the work done.
B) lower work stress in comparison to permanent employees.
C) higher benefits in comparison to permanent employees.
D) low pay in administrative or day labor positions.
50) A compensation consultant is hired to survey actual competitors of the company:
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A) if the CEO is overpaid and the company is doing poorly.
B) if the CEO is truly overpaid.
C) if the CEO is truly underpaid.
D) if the CEO is not underpaid and the company is doing poorly.
SHORT ANSWER. Write the word or phrase that best completes each statement or
answers the question.
51) Who are special groups? What are the characteristics that special groups share?
52) List the basic components of most executive compensation packages.
53) Explain any one element of an executive compensation package in detail.
54) What is the type of conflict faced by contingent workers?
55) Describe how executives ensure themselves high compensation.
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Answer Key
Test name: chapter 14
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