CHAPTER 9—MANAGING COMPENSATION
TRUE/FALSE
1. Indirect compensation includes healthcare benefits and commissions.
2. Companies are more heavily scrutinized than they have been historically by shareholders, government,
and the public for how much they pay their people.
3. Strategic compensation is the compensation of employees in ways that enhance motivation and growth
while concurrently aligning their efforts with the goals of the organization.
4. Strategic compensation is the term used for all of the processes used to determine the market rates to
pay employees.
5. If rates of pay are high, thereby creating a large applicant pool, organizations may choose to raise their
selection standards.
6. Raising selection standards and hiring better-qualified employees can reduce training costs.
7. Some research shows that most Americans believe that large bonuses at Wall Street should be
prohibited.
8. Rewarding an employee’s past performance is not a goal of strategic compensation policy.
9. Among the goals of strategic compensation policy are rewarding past performance, attracting new
employees, and reducing turnover.
10. A formal statement of compensation policy would typically include the rate of pay within the
organization and whether it is to be above, below, or at the prevailing community rate.
11. Pay-for-performance programs have little if any effect on employee productivity.
12. While most managers agree that pay should be linked to performance, employees do not.
13. Pay equity is achieved when employees’ compensation is equal to the value of the work they perform.
14. Expectancy theory predicts that people expect to be paid as much or more than individuals in a similar
job class.
15. The expectancy theory of motivation predicts that one’s level of motivation depends on the
attractiveness of the rewards sought by employees and the probability of obtaining those rewards.
16. The compensation scorecard creates a comparative tool within the organization that can reinforce
desired outcomes that are unique to the company’s strategy.
17. Managers in companies with compensation scorecards often struggle to know if the promotions, raises,
bonuses, and pay adjustments they make are in line with the rest of the organization and its strategy.
18. Pay secrecy is still prevalent in organizations despite its negative effect on motivation and employee
trust.
19. Employees who earn pay for hourly work are referred to as salary earners.
20. Nonexempt employees are not covered by overtime requirements under the Fair Labor Standards Act
and are therefore nonexempt.
21. Nonexempt employees are covered by the Fair Labor Standards Act and must be paid at the rate of
1-1/2 times their regular pay rate for hours worked over 40 in the workweek.
22. Exempt employees are not covered by the overtime provisions of the Fair Labor Standards Act.
23. Under the Fair Labor Standards Act, the majority of hourly workers involved in interstate commerce
are considered nonexempt.
24. Internal factors that influence wage rates include the worth of a job and the employer’s ability to pay.
25. The worth of a job is determined formally through the wage and salary survey.
26. The worth of a job, as it is determined by its comparative worth with jobs in other firms, is an external
factor in the wage mix.
27. American President Obama enacted a five-year freeze on federal salaries to help the government
achieve its objectives of reducing the deficit.
28. A critical concern for a successful pay-for-performance system is the perceived fairness
of the pay decision.
29. Pay levels are limited in part by profitability of the firm and productivity of employees.
30. Wage survey data can be obtained from government sources, trade associations, and professional
groups, or organizations can conduct their own surveys.
31. The consumer price index tracks the change in price over time of a “market basket” of goods and
services.
32. The consumer price index is available in separate indexes by size of city and region of the country.
33. Real wages represent the difference between wage increases and cost-of-living increases.
34. Wages of unionized employees are generally higher than those of nonunion employees.
35. Job evaluation is a non-systematic, qualitative process of determining the relative worth of jobs in
order to establish a comparison with the prevailing market and regional value of a job within a job
family.
36. The job ranking system ranks jobs on the basis of relative worth and can be done by a single person
familiar with all jobs.
37. Job ranking is a simple method that provides a precise measure of each job’s worth.
38. The job classification system is a quantitative job evaluation procedure that determines a job’s relative
value by calculating the total points assigned to it.
39. The job classification system is used commonly by smaller employers.
40. The point system of job evaluation permits jobs to be evaluated quantitatively based on compensable
factors.
41. Compensable factors include skills, efforst, responsibilities, and working conditions.
42. Point manuals contain job descriptions and the number of points assigned to each job type.
43. A point manual can be used to determine the external equity of a job.
44. The Hay profile method is useful for evaluating jobs of all types and levels.
45. The three factors that constitute the evaluation in the Hay profile method are knowledge, mental
activity, and accountability.
46. Employers refer to the area from which they obtain certain types of workers as the labor market.
47. Equity theory is also referred to as distributive fairness.
48. The National Compensation Survey published by the Bureau of Labor Statistics can provide local,
regional, and national compensations statistics.
49. An advantage of published wage surveys is compatibility with the organization’s jobs.
50. For employees, pay equity is achieved when the compensation received is equal to
the value of the work performed.
51. The wage curve represents the wages paid to jobs after adjustment for cost-of-living.
52. Managers will group similar jobs into a pay grade in order to help with the setting of wages for all
jobs.
53. The number of grades within a wage structure follows a pattern determined by the Hay Group.
54. Employees are likely to accept a promotion if succeeding rate ranges are larger in size.
55. Steps within a rate range allow pay increases based on merit or seniority.
56. Red circle rates are above the maximum for the pay range and are often frozen until the range shifts
upward due to inflation.
57. When employees are paid according to the skills and knowledge they have rather than the specific jobs
they perform, they are paid according to competence-based compensation.
58. One of the major criticisms of job-based compensation systems is that they often fail to reward
employees for their skills or the knowledge they possess.
59. Competence-based pay may more effectively reinforce an organizational culture of involvement and
empowerment.
60. A major benefit of job-based compensation systems is that they encourage employees to learn new
skills and capabilities.
61. An advantage of competence-based pay from the employee’s perspective is that there is no limit to
what they can earn by learning new skills.
62. A major criticism of competence-based pay systems is that after achieving the top wage, employees
may be reluctant to continue their educational training.
63. Broadbanding refers to collapsing many traditional salary grades into a few wide salary bands.
64. Broadbands create more concern by employees with pay grades and steps.
65. Pay secrecy seems to be an accepted practice in many organizations.
66. The Davis-Bacon Act of 1931 mandates that all Federal Employees on projects worth more than
$20,000 be paid at a wage equal to the prevailing rate and at 1.5 times the rate for overtime.
67. Under the Walsh-Healy Act, employers must exclude any bonuses or incentive payments that may be a
part of the employee’s total earnings.
68. The Fair Labor Standards Act has four major provisions. The provisions are concerned with minimum
wage rates, overtime payments, equal rights, and child labor.
69. When time-off is given in exchange for overtime work, it must be given hour-for-hour of the number
of hours worked overtime.
70. Because management positions are more difficult to evaluate and involve certain demands
not found in jobs at the lower levels, some organizations do not attempt to include them in their job
evaluation programs for hourly employees.
71. The employer must pay an employee for whatever work the employee must or is allowed to perform,
even if it is not specifically expected or requested.
72. Outside salespeople, along with executives and administrators, are exempt from overtime provisions
under the Fair Labor Standards Act.
73. Seniority, merit, and individual incentive plans are factors affected under the Equal Pay Act.
74. Wages paid above the range maximum are called blue square rates.
75. Competence-based pay systems represent a fundamental change in the attitude of
management regarding how work should be organized and how employees should be
paid for their work efforts.
76. Broadbanding expands the traditional salary grades into broader salary bands.
77. A compensation scorecard can cloud the transparency of how people are rewarded and makes
managers responsible for how they spend company money.
78. The Davis-Bacon Act is the oldest of the three federal wage laws.
MULTIPLE CHOICE
1. Which of the following is an example of a nonfinancial compensation?
a.
bonuses
b.
commissions
c.
health insurance
d.
employee recognition programs
2. _____ encompasses employee wages and salaries, incentives, bonuses, and commissions.
a.
Nonfinancial compensation
b.
Indirect compensation
c.
Direct compensation
d.
Component compensation
3. _____ comprises the many benefits supplied by employers.
a.
Aesthetic compensation
b.
Nonfinancial compensation
c.
Direct compensation
d.
Indirect compensation
4. _____ includes employee recognition programs, rewarding jobs, organizational support,
work environment, and flexible work hours to accommodate personal needs.
a.
Financial compensation
b.
Nonfinancial compensation
c.
Direct compensation
d.
Indirect compensation
5. In certain manufacturing environments, compensation is as high as _____ of total costs and even
higher for many service organizations.
a.
25 percent
b.
40 percent
c.
60 percent
d.
75 percent
6. A Bloomberg National Poll showed that more than _____ of
Americans thought big bonuses should be banned for Wall Street companies that
took taxpayer bailouts.
a.
10 percent
b.
30 percent
c.
50 percent
d.
70 percent
7. Pay-for-performance programs:
a.
tie rewards to firm profitability
b.
are easy to implement and measure
c.
tie rewards to employee effort
d.
result in negligible increases in output
8. The term pay-for-performance can encompass all of the following except:
a.
merit pay.
b.
base salary.
c.
cash bonuses.
d.
gainsharing plans.
9. Which of the following compensation options would not qualify under the term pay-for-performance?
a.
seniority based pay
b.
group incentive
c.
pay banding
d.
gainsharing plans
10. Which of the following is NOT a common goal of a strategic compensation policy?
a.
To reward employees’ past performance
b.
To mesh employees’ past performance with organizational goals
c.
To remain competitive in the labor market
d.
To attract new employees
11. The fact that people make comparisons to others is central to:
a.
expectancy theory
b.
the need for pay secrecy
c.
pay-for-performance programs
d.
equity theory
12. When the organization pays wages that are relatively equal to that of other employers for similar work,
this is the basis of:
a.
comparable worth
b.
external equity
c.
compensable factors
d.
equal pay
13. The concept that employees should exert greater work effort if they have reason to expect it will result
in a valued reward forms the basis of:
a.
expectancy theory
b.
equity theory
c.
instrumentality
d.
internal equity
14. Instrumentality refers to:
a.
wage rates of acceptable level
b.
development of both internal and external pay equity
c.
wage rates above the pay range maximum
d.
rewards that are valued and motivate employees
15. There is reason to believe that pay secrecy can do all of the following except:
a.
generate distrust in the compensation system.
b.
reduce employee motivation.
c.
inhibit organizational effectiveness.
d.
generate feelings of commitment.
16. Employees whose compensation is calculated on the basis of weekly, biweekly, or monthly periods are
classified as:
a.
salaried employees.
b.
hourly employees.
c.
management employees.
d.
white-collar employees.
17. In ____, employees are paid according to the number of units they produce.
a.
hourly work
b.
piecework
c.
commission
d.
production work
18. Employees covered by the overtime provisions of the Fair Labor Standards Act are labeled:
a.
protected workers.
b.
nonexempt employees.
c.
salaried workers.
d.
exempt employees.
19. Under the Fair Labor Standards Act, exempt employees:
a.
are required to be paid at 1-1/2 times their regular pay rate for hours worked in excess of
40 hours in a week.
b.
must be paid 1-1/2 times their regular hourly wage for time worked in excess of eight
hours in a day.
c.
are those employees not covered by the overtime provisions of the Act.
d.
include most hourly personnel employed in interstate commerce.
20. The exempt or nonexempt status of employees is determined by:
a.
the National Labor Relations Board.
b.
the Secretary of Labor.
c.
the Office of Programs and Budgets.
d.
the U.S. Department of Labor.
21. Which of the following is an internal factor that can influence the rates at which employees are paid?
a.
labor market conditions
b.
collective bargaining
c.
the employer’s ability to pay
d.
the cost of living
22. Which of the following is an external factor that can influence the rates at which employees are paid?
a.
the worth of the job
b.
the employees’ relative worth
c.
the employer’s ability to pay
d.
the cost of living
23. A survey by Mercer, found that more than ____ of private-sector companies nationwide were
awarding pay increases in 2011.
a.
98 percent
b.
76 percent
c.
54 percent
d.
32 percent
24. Equity theory is also known as:
a.
procedural justice
b.
Distributive fairness
c.
administrative justice
d.
moral justice
25. An employee’s relative worth can be determined by:
a.
job analysis
b.
labor market conditions
c.
wage-rate surveys
d.
an effective performance appraisal system
26. Pay levels are limited in part by:
a.
the organization’s profits and the productivity of employees
b.
collective bargaining limitations
c.
strategic compensation planning
d.
the mobility of employee skills
27. The measure of the average change in prices over time in a fixed “market basket” of goods and
services is known as:
a.
a cost-of-living allowance.
b.
a cost-of-living adjustment.
c.
the consumer price index.
d.
the inflation index.
28. Clauses found in labor agreements that periodically adjust compensation rates upward to help
employees maintain their purchasing power are known as:
a.
maintenance clauses.
b.
escalator clauses.
c.
roll-up clauses.
d.
guarantee clauses.