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Student name:__________
TRUE/FALSE – Write ‘T’ if the statement is true and ‘F’ if the statement is false.
1) Compensation decisions influence organization’s performance by influencing costs and/or
revenues.
⊚ true
⊚ false
2) A major advantage of a reduction in force is that it reduces benefits costs.
⊚ true
⊚ false
3) Exit incentives are likely to result in the loss of high-performing employees.
⊚ true
⊚ false
4) Many employers achieve flexibility and control employment costs by utilizing contingent
workers rather than expanding and contracting the core workforce.
⊚ true
⊚ false
5) Rather than define employment as hours of work, number of employees is often used.
⊚ true
⊚ false
6) Compensation strategy influences effectiveness not only by its influence on (labor) costs,
but through its influence in helping increase revenues or returns as well.
⊚ true
⊚ false
7) The CPI accurately reflects an individual employee’s cost of living.
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⊚ true
⊚ false
8) Outsourcing is a viable alternative as organizations struggle with activities that do not
directly contribute to objectives.
⊚ true
⊚ false
9) An individual employee cannot earn more pay than the maximum of the pay grade of
their current job.
⊚ true
⊚ false
10) If red circle rates become common throughout an organization, then the design of the
ranges and the evaluation of the jobs should be reexamined.
⊚ true
⊚ false
11) Broad bands provide managers greater discretion in pay for their subordinates compared
to a grade-range design.
⊚ true
⊚ false
12) A compa-ratio is the average actual pay divided by the midpoint of the pay grade.
⊚ true
⊚ false
13) A compa-ratio greater than 1 means that, on average, the rates exceed the intended
policy.
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⊚ true
⊚ false
14) The inherent financial insecurity built into variable plans may adversely affect
employees’ financial well-being, especially for lower-paid workers.
⊚ true
⊚ false
15) Pay policies are more open in the public sector than in the private sector.
⊚ true
⊚ false
16) Cost savings are the major potential advantage of outsourcing.
⊚ true
⊚ false
17) The marketing approach of communication tends to focus on explaining practices,
details, and the way pay is determined.
⊚ true
⊚ false
18) A key reason to communicate pay information is that the goodwill engendered by the act
of being open about pay may affect perceptions of pay equity.
⊚ true
⊚ false
19) If a pay system is not based upon work-related or business-related logic, it is probably
best to not conduct a formal compensation communication program.
⊚ true
⊚ false
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20) The most important components of a pay communication program are the business-
related and work-related rationales on which the pay systems are based.
⊚ true
⊚ false
MULTIPLE CHOICE – Choose the one alternative that best completes the statement or
answers the question.
21) Which of the following is a factor to control in order to manage labor costs in a simple
labor cost model?
A) Ethics
B) Communication
C) Employment
D) Behavior
22) Total compensation in many organizations makes up at least ________ of operating
expenses.
A) 80 percent
B) 70 percent
C) 60 percent
D) 50 percent
23) The average company match for 401(k) retirement plans is ________ on the dollar up to
6 percent of pay.
A) 50 cents
B) 40 cents
C) 30 cents
D) 20 cents
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24) A major advantage of a ________ is that it reduces benefits costs, something that the
other cost-cutting options ordinarily do not achieve.
A) reduction in work hours
B) furlough
C) pay cut
D) reduction in force
25) Bottom-up budgeting includes the process of distributing forecasting instructions and
worksheets where:
A) managers are trained in the concepts of a sound pay-for-performance policy.
B) firms furnish managers with the forms and instructions necessary to preplan
increases.
C) each manager’s forecast is examined and changes based on noted inequities are
recommended.
D) managers are presented statistical summaries of the forecasting data by each
department.
26) The ________ often comes into play if organizations target reductions among higher paid
employees because higher paid employees also tend to be older employees.
A) WHO
B) FMLA
C) OSHA
D) ADEA
27) If red circle rates become common throughout an organization, then:
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A) the employees are paid below the minimum range.
B) the design of the ranges and the evaluation of the jobs should be reexamined.
C) outstanding employees receive a number of rapid promotions and pay increases.
D) the organization’s labor costs become more flexible.
28) The percentage increase in average pay that is expected for an organizational unit or
company is called
A) a decentralized budget.
B) a bottoms-up budget.
C) a planned pay-level rise.
D) the current year’s rise.
29) ________ is the budgetary approach that begins with an estimate from the highest-
ranking executives of the pay increase budget for an entire organization.
A) Bottom-up budgeting
B) Top-down budgeting
C) Managerial plan
D) Executive estimate budgeting
30) Financially healthy employers may wish to maintain their competitive positions in the
labor market or share financial success through
A) increases in employees’ copay.
B) increases in deductibles for benefits.
C) bonuses and profit sharing.
D) decreases in base wages.
31) The denominator for calculating the current year’s pay rise is the
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A) average pay at the beginning of the year.
B) average pay at the end of the year.
C) average number of employees during the year.
D) average employment level.
32) The ________ recognizes the fact that when people leave an organization, they typically
are replaced by employees who earn a lower wage.
A) productivity effect
B) conflict effect
C) turnover effect
D) morale effect
33) HoldDesk, Inc. has an annual labor cost of $3,000,000. It has a turnover rate of 10
percent and a planned average increase of 5 percent. The turnover effect is
A) $10,000.
B) $45,000.
C) $15,000.
D) $30,000.
34) Changes in wages in labor markets are measured
A) using the producer price index.
B) using the modified balance sheet approach.
C) through pay surveys.
D) by examining the personal expenditure of each employee.
35) Which of the following is a measure of changes in prices of goods and services in the
product and service markets over time?
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A) Producer price survey
B) Product market competitor wage survey
C) Labor market competitor wage survey
D) Consumer price index
36) If Philadelphia has a CPI of 165 and Houston has a CPI of 145 and if both cities started
with bases of 100, it means that
A) prices have risen faster in Philadelphia since the base year than in Houston.
B) it essentially costs more to live in Philadelphia than in Houston.
C) it costs less to live in Houston than in Philadelphia.
D) pay in Philadelphia is, on average, 20 percent higher than in Houston.
37) When employees are paid more than the maximum of their pay grade, these rates are
called
A) red circle rates.
B) yellow circle rates.
C) blue circle rates.
D) green triangle rates.
38) A compa-ratio reflects the
A) rate paid for satisfactory performance.
B) relationship of actual salaries to the midpoint of the going rates in the market.
C) maximum value of red circle rates.
D) relationship of the average actual salary in each range to the midpoint of the range.
39) A compa-ratio of less than 1 means that, on average,
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A) employees are senior employees.
B) the turnover rate of the organization is low.
C) employees are high performers.
D) employees in a range are paid below the midpoint.
40) GronLan, Inc., a company with a majority of workers with high seniority, decides to hire
1,000 college graduates to meet the sudden productivity requirements generated by a growth in
the market. Which of the following statements is most likely to be happen in this situation?
A) The compa-ratio of the company will become greater than 1.
B) The average pay actually paid by the company will fall below its range midpoint.
C) The salary range midpoint of the company will become less than the compa-ratio.
D) The number of employees being paid red circle rates will increase.
41) MerTon, Inc. decides to reduce labor costs by using exit incentives to encourage some of
its senior, high-earning members to leave the organization. It replaces the employees who quit
with new employees and pays them low wages. Which of the following statements is most likely
true in this scenario?
A) The number of employees being paid red circle rates will increase.
B) The salary range midpoint of the company is less than the compa-ratio.
C) The salary range midpoint of the company is higher than the actual salary paid.
D) The compa-ratio of the company is greater than 1.
42) The European Union has issued the ________, which is significantly stronger than U.S.
regulations.
A) Minimum Wage Convention
B) Non-Retaliation for Disclosure of Compensation Information
C) Data Privacy Directive
D) Convention on Contingent Workers
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43) Which of the following statements about anchoring/framing is true?
A) It states that initial data strongly affect decisions/beliefs.
B) It is the reluctance to accept evidence that contradicts existing beliefs.
C) It refers to the tendency to follow fashions in programs/techniques.
D) It states that people discover patterns in random events.
44) The Web page for the compensation society is
A) Society for Human Resource Management.
B) American Compensation Association.
C) International Compensation and Benefits Society.
D) WorldatWork.
45) ________, designed for employees or managers, explain compensation policies and
practices, answer frequently asked questions, and explain how these systems affect their pay.
A) Communication portals
B) Enterprise resource planning systems
C) Cafeteria plans
D) Content delivery networks
46) ________, a software package, allows workers to make health-care choices, allocate
savings to 401(k)s or other savings vehicles, and access vacation schedules.
A) Manager self-service
B) Employee self-service
C) A cafeteria plan
D) An enterprise resource planning system
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47) A management strategy of giving separate organization units the responsibility to design
and administer their own compensation systems is
A) known as a centralized strategy.
B) known as a decentralized strategy.
C) the best approach to design.
D) rarely done in today’s organizations.
48) Which of the following is the basic question to ask to improve quality and ensure that
value is added by each technique and at each stage in the compensation system?
A) Who should do the activity?
B) How should the technique be redesigned?
C) Does each specific activity directly contribute to our objectives?
D) Should the activity be done in-house, or can others do it more effectively?
49) The major potential advantage of outsourcing is
A) an increased turnover rate.
B) an increased compa-ratio.
C) increased absenteeism.
D) increased cost savings.
50) Replacing merit grids with ________ eliminates the link between the pay increase and
the employees’ salary position in the range and performance rating.
A) bands
B) skill- or competency-based plans
C) job evaluation plans
D) bonuses
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SHORT ANSWER. Write the word or phrase that best completes each statement or
answers the question.
51) What are the potential problems associated with headcount reductions?
52) What is the top-down method of budgeting?
53) What is the turnover effect? Explain how it is calculated with an example.
54) What is the consumer price index (CPI)? Explain with an example.
55) Briefly summarize compa-ratios.
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Answer Key
Test name: chapter 18
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