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Chapter 8—Variable Pay, Executive Compensation, and Benefits
MULTIPLE CHOICE
1. Variable pay is _____.
a.
compensation that is tied to the employee’s performance
b.
compensation that is tied to the employee’s seniority
c.
compensation that is tied to the employee’s ethnicity
d.
compensation that is tied to the employee’s qualification
2. Which of the following is the best example of variable pay?
a.
Basic pay
b.
Conveyance allowance
c.
Severance pay
d.
Incentive
3. In a straight piece-rate system, wages are determined by:
a.
dividing the number of units produced by the piece rate for one unit.
b.
multiplying the number of units produced by the piece rate for one unit.
c.
adding the piece rate for one unit by the number of units produced.
d.
dividing the piece rate for one unit by the number of units produced.
4. A differential piece-rate system pays employees:
a.
one piece-rate wage for all units produced irrespective of employee productivity or work
output.
b.
one piece-rate wage for units produced up to a standard output and the employee is not
paid for units produced over the standard.
c.
one piece-rate wage for units produced up to a standard output and the employee is
compensated through nonmonetary incentives for units produced over the standard.
d.
one piece-rate wage for units produced up to a standard output and a higher piece-rate
wage for units produced over the standard.
5. Which of the following is an example of massive kinked bonus?
a.
A sponsor rewarding an athlete only in the case of victory at an event
b.
An organization that gives a one piece-rate wage for all units produced irrespective of
employee productivity
c.
A sponsor rewarding an athlete for participation in an event
d.
An organization rewarding an employee for referring someone who is later hired
6. Which of the following best exemplifies spot bonus?
a.
An organization giving a one piece-rate wage for all units produced irrespective of
employee productivity
b.
An organization rewarding an employee for installing a software upgrade, which was a
very demanding task
c.
A sponsor rewarding an athlete for participation in an event
d.
An organization rewarding an employee for referring someone who is later hired
7. Which of the following is true of spot bonuses?
a.
They are only given in the form of nonmonetary incentives.
b.
They can be awarded only during appraisals.
c.
They can be given for extra time worked.
d.
They are given to a team and not to individual employees.
8. Which of the following is the most commonly used frequency of distributing team/group incentives?
a.
Monthly
b.
Semiannually
c.
Annually
d.
Quarterly
9. Gainsharing is the system of _____.
a.
treating all employees as equals irrespective of their productivity and the gains they bring
b.
sharing with employees the gains in profits and productivity equally
c.
rating employees on the basis of their productivity and the profits they bring
d.
sharing with employees greater-than-expected gains in profits and productivity
10. The focus of gainsharing is to _____.
a.
decrease discretionary efforts
b.
decrease pay variances
c.
increase discretionary efforts
d.
increase pay variances
11. Team Spark LLC, a producer of consumer goods, practiced gainsharing. After organizational
restructuring, the management has decided to replace gainsharing plans with a piece-rate system.
Which of the following is true of Team Spark LLC?
a.
It provided group incentives; now it provides individual incentives.
b.
It provided individual incentives; now it provides group incentives.
c.
It provided group incentives; now it provides organizational incentives.
d.
It provided individual incentives; now it provides organizational incentives.
12. Which of the following is typically classified as an organizational incentive?
a.
Commissions
b.
Group team results
c.
Employee stock plans
d.
Cost reductions
13. AirCar LLC, a producer of consumer electronics, provided its employees an annual bonus. After a
change in management, the company has decided to replace bonuses with a stock option plan. Which
of the following statements is true of AirCar LLC?
a.
It provided group incentives; now it provides organizational incentives.
b.
It provided individual incentives; now it provides group incentives.
c.
It provided individual incentives; now it provides organizational incentives.
d.
It provided organizational incentives; now it provides individual incentives.
14. Group Viewer LLC, a software company, provides profit sharing plans for its employees. After
organizational restructuring, the management has decided to replace the profit sharing plan with
commissions for each employee. Which of the following is true of Group Viewer LLC?
a.
It provided individual incentives; now it provides group incentives.
b.
It provided individual incentives; now it provides organizational incentives.
c.
It provided group incentives; now it provides individual incentives.
d.
It provided organizational incentives; now it provides individual incentives.
15. RedCat LLC, a footwear manufacturing company, practiced gainsharing. After organizational
restructuring, the management has decided to replace gainsharing with profit sharing. Which of the
following is true of RedCat LLC?
a.
It provided individual incentives; now it provides group incentives.
b.
It provided organizational incentives; now it provides individual incentives.
c.
It provided individual incentives; now it provides organizational incentives.
d.
It provided group incentives; now it provides organizational incentives.
16. Which of the following statements is true of discretionary efforts?
a.
It is the difference between the amount of effort a person has exerted and the minimum
amount of effort that he or she needs to exert to keep from being fired.
b.
It is the difference between the maximum amount of effort a person can exert and the
minimum amount of effort that he or she needs to exert to keep from being fired.
c.
It is the difference between the maximum amount of effort a person can exert and the
amount of effort a person has exerted while on-the-job.
d.
It is the difference between the amount of effort a person has exerted and the maximum
amount of effort that a person can exert while on-the-job.
17. Leah LLC, a producer of sporting goods, provided its employees with a stock option plan. After
organizational restructuring, the management has decided to replace the stock option plan with profit
sharing. Which of the following is true of Leah LLC?
a.
It provided organizational incentives; now it provides individual incentives.
b.
It provided organizational incentives; now it provides group incentives.
c.
It provided organizational incentives; now also it provides the same.
d.
It provided individual incentives; now also it provides the same.
18. Which of the following is a disadvantage of profit sharing plans?
a.
Employees must trust that management will accurately disclose financial and profit
information.
b.
Employees are taxed heavily on the income that they generate from profit sharing plans.
c.
Employees cannot access the funds that they receive from profit sharing plans for up to
three years.
d.
Employers get little or no rebate on income tax for choosing profit sharing plans.
19. Stock option plans give employees the right to purchase:
a.
an unlimited number of shares of company stock at a specified exercise price for a limited
period of time.
b.
an unlimited number of shares of company stock at a specified exercise price for an
unlimited period of time.
c.
a fixed number of shares of company stock at a specified exercise price for a limited
period of time.
d.
a fixed number of shares of company stock at a specified exercise price for an unlimited
period of time.
20. In a stock option plan, if the market price of the stock exceeds the exercise price, _____.
a.
employees can then exercise the option and buy the stock
b.
employees have to purchase the stock at the new price
c.
employees have to forfeit their claims to the company shares
d.
employees will make a loss through stock ownership
21. Which of the following is an advantage of establishing employee stock ownership plans?
a.
Employees are not dependent on the employers for their retirement benefits.
b.
Firms can receive favorable tax treatment.
c.
Firms have lesser control over organizational productivity.
d.
The employees can purchase shares of company stock for an unlimited period of time.
22. Which of the following is a metric of sales programs in variable pay plans?
a.
Return on investment
b.
Turnover costs
c.
Accident rates
d.
Increase in market share
23. Which of the following is a metric of human resources in variable pay plans?
a.
Revenue growth
b.
Employee satisfaction
c.
Customer satisfaction
d.
Return on investment
24. According to the provisions of the _____, publicly listed companies now must allow shareholders to
vote on executive compensation.
a.
Sarbanes-Oxley Act
b.
Dodds-Frank Act
c.
Lilly Ledbetter Fair Pay Act
d.
Walsh-Healy Public Contracts Act
25. The “clawbacks” provision in the _____ allows a company to recover any incentive-based pay that
was paid out during the prior three years if it would not have been paid under restated financial
statements.
a.
Sarbanes-Oxley Act
b.
Dodds-Frank Act
c.
Lilly Ledbetter Fair Pay Act
d.
Walsh-Healy Public Contracts Act
26. _____ are special benefits—usually noncash items—for executives.
a.
Executive Salaries
b.
Base Salaries
c.
Perquisites
d.
Golden Parachutes
27. _____ refer to the compensation given to an executive if he or she is forced to leave an organization.
a.
Perquisites
b.
Golden parachutes
c.
Commissions
d.
Short-term incentives
28. Employee benefits can be constructively viewed as a(n):
a.
intangible plan that does not affect the costs borne by a company.
b.
government-mandated instrument.
c.
cultural necessity.
d.
tool for competitive advantage.
29. In developed countries, _____ are far more likely to provide compulsory health plans for people,
regardless of employment status.
a.
privately owned organizations
b.
governments
c.
non-governmental organizations
d.
unions
30. A flexible benefits plan typically:
a.
allows employees to contribute a percentage of their basic pay to buy benefits in addition
to the employer’s basic package.
b.
continuously updates the benefit options provided by an employer according to the
demands and requirements of employees.
c.
provides flexibility in choosing the time of the year when employees would like to make
use of the benefits provided to them.
d.
allows employees to select the benefits they prefer from options established by the
employer.
31. A situation in which only higher-risk employees choose and use certain benefits under a flexible
benefits plan provided by employers is referred to as _____.
a.
concentration of risk
b.
perceived vulnerability
c.
adverse selection
d.
skewed distribution effect
32. Which of the following is a disadvantage of providing flexibility in benefit choice?
a.
The flexible benefits plans do not cover higher-risk employees.
b.
There is a risk that employees may choose an inappropriate benefits package.
c.
The flexible benefits plans are typically discriminatory in nature.
d.
There is a risk that these plans would increase the attrition rate.
33. Which of the following statements is true of part-time employees?
a.
Anti-discrimination laws enable part-time employees to receive the same benefits as full-
time employees are offered.
b.
Most employers do not provide any part-time employee benefits, except some paid time
off.
c.
Part-time employees typically make no effort to attain benefits because they are covered
by their spouse’s or parents’ insurance policies.
d.
Most employers provide part-time employees medical benefits, but no time-off benefits
because these employees already work on a short schedule.
34. A problem with providing flexibility in benefit choice is that:
a.
it does not cover higher-risk employees.
b.
it increases the risk of adverse selection by employees.
c.
it is typically discriminatory in nature.
d.
it increases attrition rates.
35. A vendor that provides administrative services to an organization is referred to as _____.
a.
part-time employee.
b.
whistle-blower.
c.
mediator.
d.
third-party administrator
36. Dennis, the HR head of a company, is trying to convince the top management of the company to
approve a wellness program. Which of the following, if true, would be a strong argument in favor of
the program?
a.
The program would exempt the company from other employee benefits.
b.
The program would help in employee retention.
c.
The program would be a contribution to the society.
d.
The program would reduce the number of existing lawsuits against the company.
37. Cost sharing plans:
a.
involve employers sharing the costs of government-mandated health insurance plans with
the government.
b.
require employees to pay a larger proportion of their health benefits costs.
c.
require insurance firms to share profits with employers who purchase insurance plans.
d.
allow employees to track their benefits balances as and when required.
38. Medicare is the health insurance program that was implemented by the government in 1965 to provide
medical care primarily for:
a.
disabled workers.
b.
government employees.
c.
people over the age of 65.
d.
cancer patients.
39. Which of the following is a legally-required employee benefit that employers must provide?
a.
Wellness programs
b.
Unemployment compensation
c.
Education assistance
d.
Public-service leave
40. Which of the following best describes workers' compensation?
a.
Compensation provided to workers after retirement
b.
Benefits provided to persons injured on the job
c.
Benefits provided to workers who survive terminal diseases
d.
Total pay package that includes both basic wages and benefits
41. Jim, a 23 years old factory worker, was seriously injured when a hammer fell on his head while he was
at his work station. Jim hadn’t worn his safety helmet at the time of the accident even though the
safety rules of the company necessitate the use of safety helmets at all times. Which of the following is
true?
a.
Jim can claim Social Security benefits.
b.
Jim will not receive workers’ compensation because he is responsible for the injury.
c.
Jim will receive severance payment when he returns to work after his injuries are healed.
d.
Jim will receive workers’ compensation even though he is responsible for the injury.
42. Workers' compensation programs are typically funded:
a.
at the expense of the employer.
b.
at the expense of all the stake holders.
c.
by the value-added taxes levied by the federal government on specific goods.
d.
by the contributions made to state governments by both employees and employers.
43. During times of widespread economic hardship:
a.
employees who are not actively seeking employment become ineligible for unemployment
compensation.
b.
the government might increase the number of weeks during which workers receive
unemployment compensation.
c.
employers stop contributing to unemployment compensation funds.
d.
weekly payments as part of the unemployment compensation are reduced by half.
44. Every company is required to pay an unemployment tax that is based on the:
a.
type of industry and its seasonal fluctuations in employment.
b.
total number of employees covered under workers’ compensation.
c.
employer’s total payroll cost.
d.
number of claims filed by ex-employees.
45. Claudia, a legal assistant, has been vested by her employer after having worked with the employer for
ten years. This implies that:
a.
she will receive the amounts contributed by both the employer and herself when she
retires.
b.
she can transfer her entire pension fund balances to a new employer’s plan if she moves to
a new company.
c.
she will receive the maximum amount of pension available under her company’s
retirement plan when she retires.
d.
she will receive the funds her employer has contributed to the retirement plan only if she is
a member of the company while retiring.
46. Which of the following is true of defined benefit pension plans?
a.
The investment risk is borne by the employee.
b.
The amount of benefit paid at retirement is pre-determined.
c.
They are most common in private sector and nonunionized workforces.
d.
They typically do not guarantee benefits.
47. A pension plan in which retirement benefits are based on the accumulation of annual company
contributions plus interest credited each year is called a(n) _____ plan.
a.
auto-enrollment
b.
defined benefit
c.
cash balance
d.
defined contribution
48. What is the minimum retirement age for employees to receive maximum Social Security benefits?
a.
64
b.
65
c.
66
d.
67
49. According to the 1986 amendment to the Age Discrimination in Employment Act (ADEA):
a.
most employees cannot be forced to retire at a specific age.
b.
workers should contribute to the defined benefit plans.
c.
equal treatment should be given to older workers in severance situations.
d.
employers can be sued by employees for age discrimination.
50. Which of the following is true about the Older Workers Benefit Protection Act (OWBPA)?
a.
It has set the maximum retirement age for employees to be eligible for retirements benefits
at 60 years.
b.
The Age Discrimination in Employment Act was enacted in 1990 as an amendment to the
OWBPA.
c.
It sets forth certain conditions that must be met when older workers are offered early
retirement.
d.
The Older Workers Benefit Protection Act did not cover employees in the government
sector.
51. Which of the following is a provision of the Affordable Care Act?
a.
Requires firms with 30 or more employees to provide health care coverage
b.
Requires only employers to contribute and maintain a minimum essential coverage
c.
Extends dependent coverage up to age 26
d.
Eliminates coverage for preventive services
52. Meredith, the general manager of an IT firm, is planning to introduce certain new strategies to control
and reduce the health care benefit costs to her company. Which of the following is most likely to be
included in her list of strategies?
a.
Decreasing copayments
b.
Eliminating high-deductible plans
c.
Switching to consumer-driven health plans
d.
Avoiding managed care
53. Linda works in a company that pays for the medical insurance of all its employees. However, every
time she visits her physician, she is charged $25. Her medical insurance covers the rest of the fee. This
is an example of:
a.
managed care.
b.
consumer-driven health plan.
c.
a copayment.
d.
an HMO.
54. Which of the following is one of the approaches taken by employers offering health care benefits to
control and reduce their costs?
a.
Decreasing deductibles and copayments
b.
Decreasing high-deductible plans
c.
Increasing employee contributions
d.
Providing unlimited family coverage
55. _____ typically consists of approaches that monitor and reduce medical costs through restrictions and
market system alternatives.
a.
Utilization review
b.
Managed care
c.
A medical review program
d.
A medical option plan
56. Preferred provider organizations (PPO) and health maintenance organizations (HMO) _____.
a.
primarily aim at reducing health care costs paid by employees by putting the burden on the
employers
b.
does not provide health care services to the private sector organizations
c.
increase the cost borne by companies providing health care benefits
d.
are the most common forms of managed care
57. In a _____, an employer makes contributions to help employees cover their health-related expenses.
a.
consumer-driven health plan
b.
cash balance plan
c.
self-directed health plan
d.
managed care plan
58. What are the requirements of the Consolidated Omnibus Budget Reconciliation Act (COBRA) with
respect to health care?
a.
Employers with more than 50 employees must provide medical insurance for all full-time
employees.
b.
Most employers with 20 or more employees must offer extended health care coverage to
certain groups of plan participants.
c.
Widowed or divorced spouses and dependent children of former or current employees
need not be offered health care coverage.
d.
Employees who are terminated need not be offered health care coverage.
59. The Health Insurance Portability and Accountability Act (HIPAA):
a.
requires employers with more than 50 employees to provide medical insurance for all full-
time employees.
b.
requires employers to offer health coverage to contingent workers if the workers pay 50%
of the employer’s cost.
c.
states that employers must offer extended health care coverage to employees even after
they leave the organization.
d.
allows employees to switch health insurance from one company to another to get new
health coverage, regardless of preexisting conditions.
60. _____ is the federal law that ensures the privacy of employee medical records.
a.
HIPAA
b.
ADEA
c.
ERISA
d.
FMLA
61. Karen, a diabetic patient, has quit her job as an internal auditor with a bank and has joined another
company as the assistant CFO. Which of the following laws would enable Karen to switch her health
insurance plan from her former employer to her new employer?
a.
ERISA
b.
FMLA
c.
ADEA
d.
HIPAA
62. How do insurance plans offered by employers benefit employees even when employers do not pay any
of the costs?
a.
Companies that do not contribute to insurance costs must offer special benefits instead.
b.
Employees are offered insurance plans at lower rates through group programs.
c.
Employers, though they appear to have no costs, make some indirect legal contribution.
d.
The amount paid by employees are tax-free only when employers make no contribution.
63. Glen, a line manager, is informed that his company would be introducing a stock purchase plan for
employees. This implies that:
a.
the employer will provide company stocks to employees as incentives.
b.
Glen will be given a few company stocks for free, which he can later sell at the market
rate.
c.
Glen can buy shares in the company at a discount.
d.
Glen would be provided financial counseling on the purchase and sale of stocks.
64. Which of the following is a voluntary employee benefit that employers may provide in addition to
legally required benefits?
a.
Medical plans
b.
Workers’ compensation
c.
Education assistance
d.
Social security
65. The Worker Adjustment and Retraining Notification Act (WARN) of 1988:
a.
requires employers to give 20 days’ notice of mass layoff or plant closings.
b.
requires employers to give 30 days’ notice of mass layoff or plant closings.
c.
mandates the payment of severance pay to employees.
d.
does not mandate the payment of severance pay to employees.
66. Which of the following statements is true of the Family and Medical Leave Act?
a.
It requires that employers allow employees to take a maximum of 12 weeks of paid leave
for caring for a spouse, child, or parent with a serious health condition.
b.
It requires that employers allow employees to take a maximum of 12 weeks of unpaid,
job-protected leave for foster care placement of a child.
c.
It requires that employers allow employees to take a maximum of 12 weeks of unpaid
leave during the birth of a child but not for the adoption of a child.
d.
It requires that employers allow employees to take a maximum of 12 weeks of paid, job-
protected leave babysitting their 5–7 year old children during their vacations.
67. The Family and Medical Leave Act of 1993 requires that employers allow eligible employees to take
a maximum of _____ during any 12-month period.
a.
12 weeks of paid leave
b.
24 weeks of paid leave
c.
12 weeks of unpaid leave
d.
24 weeks of unpaid leave
68. The Family and Medical Leave Act (FMLA) defines a _____ as one requiring in-patient care or
continuing treatment by a health care provider, for medical problems that exist beyond three
days.
a.
medical leave event
b.
serious health condition
c.
life-threatening illness
d.
qualifying event
69. Why do a relatively low percentage of men take paternity leave?
a.
Men who are not single parents are not covered in the Family and Medical Leave Act.
b.
Employers can deny FMLA leave if the employee is not replaceable, and men tend to hold
jobs that are more critical than women do.
c.
It is not considered socially acceptable for men to stay home for child-related reasons.
d.
Only one parent per family can take FMLA leave and they are usually taken by the
mother.
70. Clara, a receptionist, goes to work despite being sick to earn extra pay for not taking any sick leave.
The extra pay she’ll receive is called:
a.
sick leave rebate.
b.
benefit pay.
c.
well pay.
d.
sick-leave pay.
71. A program that combines sick leave, vacations, and holidays into a total number of hours or days that
employees can take off with pay is called a(n) _____ plan.
a.
consolidated time off
b.
flexible benefits
c.
accumulated leave
d.
paid time-off
TRUE/FALSE
1. Variable pay plans attempt to provide tangible rewards, or incentives, to employees for performance
beyond normal expectations.
2. Nonfinancial rewards cannot be used as incentives in pay-for-performance plans.
3. The most common means of providing individual variable pay are profit sharing plans and employee
stock plans.
4. Under a straight piece-rate system, wages are determined by dividing the number of units produced by
the piece rate for one unit.
5. A differential piece-rate system pays employees one piece-rate wage for units produced up to a
standard output and a higher piece-rate wage for units produced over the standard.
6. The focus of gainsharing is to increase “discretionary efforts.”
7. Profit sharing distributes some portion of organizational profits to employees.
8. The most prevalent forms of organization-wide incentives are piece-rate systems, sales commissions,
and individual bonuses.
9. A stock option plan gives employees the right to purchase an unlimited number of shares of company
stock at a specified exercise price for a limited period of time.
10. Employee stock ownership plan is a plan designed to give employees significant stock ownership by
their employers.
11. According to the Dodds-Frank Act, publicly listed companies now must allow shareholders to vote on
executive compensation.
12. The “clawbacks” provision in Dodds-Frank Act allows a company to recover any incentive-based pay
that was paid out during the prior three years if it would not have been paid under restated financial
statements.
13. Supplemental benefit plans are plans that are available to nonexecutive employees.
14. Perquisites (Perks) are special benefits, usually noncash items, for executives.
15. Compensation given to an executive if he or she is forced to leave an organization is called golden
parachute.
16. Most benefits, except for paid time off, are taxed as income to employees.
17. Developed nations are far more likely to provide compulsory, government-sponsored health plans for
all citizens.
