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Indicate whether the statement is true or false.
1. The Social Security system is aimed at providing a minimum subsistence amount to individuals who are between jobs.
a.
True
b.
False
2. The most commonly used method of job evaluation is the point system.
a.
True
b.
False
3. From 2027, in the United States, individuals will not be able to retire with full benefits of the Social Security program
until they reach age 70.
a.
True
b.
False
4. The basic aim of the Affordable Care Act was to lower the number of uninsured employees.
a.
True
b.
False
5. Workers’ compensation is a nonmandated employee benefit.
a.
True
b.
False
6. Employee assistance plans are designed to help employees who require urgent medical support for family members in
case of accidents.
a.
True
b.
False
7. In the context of mandated employee benefits, the government pays the cost of workers’ compensation insurance.
a.
True
b.
False
8. External equity in compensation refers to comparisons made by employees to other employees performing similar jobs
within the same organization.
a.
True
b.
False
9. Bonuses are typically a function of the performance of the organization and are less dependent on the perceived
performance of the executive.
a.
True
b.
False
10. Pay compression is least likely to develop when the market rate for starting salaries increases at a rate faster than an
organization can raise pay for individuals who are already on the payroll.
a.
True
b.
False
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11. In the context of nonmandated employee benefits, contributions to private pension plans come solely from the
employer.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
12. In the context of nonmandated benefits, which of the following is an extra benefit that may or may not have any direct
financial value but is considered an important reward by employees?
a.
Social Security benefit
b.
A perquisite
c.
A bursary
d.
Workers’ compensation
13. Which of the following is the second step in the factor-comparison method for job evaluation in an organization?
a.
The comparison factors to be used are selected and defined.
b.
Benchmark or key jobs in the organization are identified.
c.
A job-comparison chart is developed to display benchmark jobs.
d.
The benchmark jobs in the organization are grouped into grades.
14. Which of the following statements is true of a maturity curve?
a.
It is used to identify benchmarks or key jobs in an organization.
b.
It is used to express the relationship between pay and job responsibilities.
c.
It is used when information on compensation paid to employees by other employers in a particular geographic
area or occupational group is collected.
d.
It is used when the annual increase in pay varies based on the actual number of years of service a person has
accumulated.
15. In the context of compensation, which of the following statements is true of external inequity?
a.
It occurs when lower-level employees in a firm receive fewer incentives than the top executives.
b.
Overpaying individuals for the value of their contributions can effectively solve external equity issues.
c.
Problems with external equity may result in dissatisfied and unhappy workers.
d.
The most commonly used source of information concerning external equity is job evaluation.
16. Which of the following statements is true of life-cycle benefits?
a.
They can be availed only at the end of an employee’s service with an organization.
b.
They refer to fitness workshops that help employees stay healthy.
c.
They include child-care and elder-care benefits.
d.
They are benefits that an employee’s family receives after the employee’s death.
17. Which of the following is the first step in the factor-comparison method for job evaluation in an organization?
a.
The job factors to be used are selected and defined.
b.
Benchmark or key jobs in the organization are identified.
c.
A job-comparison chart is developed to display benchmark jobs.
d.
All jobs in the organization are grouped into grades.
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18. Brenda, the chief technical officer of a telecommunications company, is a member of the Golden Scion Country Club,
one of the most exclusive country clubs in the United States. Having a membership in such country clubs is usually
expensive. It is, however, free of cost for Brenda as it is paid for by her company. In the given scenario, which of the
following options best describes the membership given to Brenda by her company?
a.
A remittance
b.
A perquisite
c.
A life-cycle benefit
d.
A hardship premium
19. In an organization, which of the following functions of compensation serves to indicate to employees what is
important to focus on by paying for certain kinds of activities or behaviors?
a.
Workload reduction
b.
Equity
c.
Market benchmarking
d.
Signaling
20. The third step in the factor-comparison method for job evaluation is:
a.
selecting and defining the comparison factors to be used.
b.
identifying benchmark or key jobs in an organization.
c.
developing a job-comparison chart to display the benchmark jobs in an organization.
d.
ranking the benchmark jobs in an organization on each compensable job factor.
21. In the context of nonmandated benefits, which of the following are targeted at different stages of an employee’s
existence?
a.
Wellness programs
b.
Defined contribution plans
c.
Life-cycle benefits
d.
Employee assistance plans
22. Which of the following is a form of a mandated benefit?
a.
Paid time off
b.
Workers’ compensation
c.
A wellness program
d.
A perquisite
23. Which of the following is true of an organization’s pay-for-knowledge approach?
a.
It most likely involves the hourly workers of an organization.
b.
It refers to an inexpensive method of improving employees’ skills.
c.
It aligns perfectly with an organization’s traditional incentive systems.
d.
It rewards employees for mastering information that relates to global issues.
24. Which of the following statements is true of the classification system as a job-evaluation method?
a.
It can easily accommodate changes in the value of various individual jobs in an organization.
b.
It is difficult to construct.
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c.
It assumes that a flexible relationship exists between job factors and their value to an organization.
d.
It is difficult to communicate to employees.
25. Identify a true statement regarding the skill-based pay approach.
a.
It involves compensating employees for learning specific material.
b.
It inhibits an organization’s flexibility in scheduling tasks to employees.
c.
It allows an organization to rotate employees through different jobs.
d.
It tends to incur significant costs to an organization.
26. In the context of compensations, perquisites are:
a.
mandated family health-care benefits.
b.
usually made available only to members of top management.
c.
benefits targeted at different stages in an employee’s life.
d.
paid for solely by the government.
27. Which of the following statements is true of the Fair Labor Standards Act?
a.
It makes vesting rights operational after 6 years of service at the most.
b.
It provides protection for the funding underlying pension plans.
c.
It allows an employee to carry a portion of his or her benefits to another job.
d.
It includes provisions for the minimum wage and overtime.
28. Which of the following is a problem of the Social Security system?
a.
Social Security benefits do not directly depend on the withholdings assessed against the employee who is
retiring.
b.
Individuals can avail full Social Security benefits as early as at the age of 55, which puts undue pressure on a
firm’s resources.
c.
The state often lacks a sufficient amount of funds needed to cover all retirees.
d.
It provides limited income to those retirees who do not have other sources of income, that is, no part-time
work or pension plans.
29. Which of the following is a disadvantage of using an above-market compensation strategy?
a.
It encourages voluntary turnover among employees.
b.
A firm using this strategy incurs high labor costs.
c.
It hinders a culture of elitism and competitive superiority.
d.
Employees in firms using this strategy experience external inequity.
30. Adopting an open pay system in an organization:
a.
gives rise to jealousy and resentment among employees.
b.
motivates low performers to work harder for better compensation.
c.
causes pay compression in the long run.
d.
causes high employee turnover.
31. Barry & Finch, a law firm in Connecticut, performs job evaluation by organizing different sets of jobs in the firm into
clusters called grades. The job evaluator then writes definitions and descriptions of each grade, which serves as a tool for
deciding the compensation for each job. Which of the following job-evaluation methods is Barry & Finch using in the
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given scenario?
a.
The classification system
b.
The market-basket analysis method
c.
The factor-comparison method
d.
The point system
32. In the context of compensation, which of the following statements is true of internal equity?
a.
It occurs when lower-level employees in a firm receive the same incentives as the top executives.
b.
Overpaying individuals for the value of their contributions can effectively solve internal equity issues.
c.
Problems with internal equity can result in conflict, feelings of mistrust, and low morale.
d.
Much of the information concerning internal equity comes from a pay survey.
33. Which of the following is an issue related to executive compensation?
a.
Little or no relationship seems to exist between the performance of an organization and the compensation paid
to its senior executives.
b.
Most senior executives are exempt from the perquisites provided by an organization to its employees.
c.
Executive compensation in the United States is far lower than that paid to senior executives in other countries.
d.
Executive compensation only involves incentive pay, which is based on the years of service in an organization
and commission from the clients brought to it.
34. Which of the following statements is true of the Employee Retirement Income Security Act (ERISA) of 1974?
a.
It prevents organizations from establishing private pension plans.
b.
It specifies which employees are covered by overtime provisions and which are exempt.
c.
It allows an employee to carry a portion of his or her benefits to another job.
d.
It makes vesting rights operational after 4 years of service at the most.
35. The Employee Retirement Income Security Act (ERISA) of 1974:
a.
prevents organizations from establishing private pension plans.
b.
provides protection for the funding underlying pension plans.
c.
includes provisions for minimum wages and child labor.
d.
makes vesting rights operational after 3 years of service at the most.
36. Which of the following statements is true of cafeteria-style benefits plans offered by organizations?
a.
Cafeteria-style benefits are funded jointly by the employer and the government.
b.
They typically take the form of referrals for employees with a disabled parent or one who needs constant care.
c.
Some evidence suggests that these programs can lead to increased satisfaction and reduced turnover.
d.
They are benefits targeted at different stages in an employee’s life.
37. Jennifer, an account manager in an automobile company, has work experience of 6 years and has become one of the
best employees of the company in the 2 years since joining. However, she resigns from her job when she finds out that
most of the new employees with only 2 or 3 years of experience in the company are paid the same salary as hers. In the
given scenario, Jennifer most likely resigns because of _____.
a.
pay compression
b.
wage elasticity
c.
pay inversion
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d.
external inequity
38. Identify a true statement regarding the efficiency wage theory.
a.
Organizations that spend more money on employee benefits experience high employee turnover.
b.
Organizations unwilling to spend on benefits successfully convince employees to work harder than before.
c.
Organizations willing to spend more money on total compensation attract better-qualified people.
d.
Organizations do not see any impact of social, cultural, and political forces on their benefits programs.
39. In the context of employment law, which of the following are guaranteed rights to receive pension benefits?
a.
Human rights
b.
Union rights
c.
Vesting rights
d.
Access rights
40. Donald, the CEO of a multinational organization, is given a reward by the organization in the form of a contract that
allows him to purchase 5 percent shares of the company anytime in the future at a predetermined price. Three years later,
Donald purchases those shares at half their market price. Additionally, he becomes more motivated to work toward
increasing the performance of the organization. In this scenario, Donald is given a _____.
a.
cafeteria-style benefits plan
b.
stock-option plan
c.
employee assistance plan
d.
life-cycle benefit
41. Which of the following is a disadvantage of the classification system for job evaluation?
a.
It assumes that a constant and inflexible relationship exists between job factors and their value to an
organization.
b.
It is difficult to construct.
c.
It provides rigid standards for compensation and cannot accommodate changes in the value of various
individual jobs in an organization.
d.
It is difficult to communicate to employees.
42. Tessy, a senior accountant at a private bank in Massachusetts, retired at the age of 62. Upon retirement, she received a
benefit amount from the bank. This benefit amount equaled the total sum of money she had added to her pension plan
each year plus the amount that the bank added to it every year. In this scenario, the sum of money that Tessy received post
retirement comes from the _____.
a.
Workers’ Compensation Insurance Program
b.
defined contribution plan
c.
cafeteria-style benefits plan
d.
Social Security program
43. Unlike pay-for-knowledge plans, skill-based pay plans:
a.
are more likely to be associated with hourly workers.
b.
reward employees for learning new material.
c.
reduce the flexibility of scheduling for management.
d.
have the potential to clash with more traditional incentive systems.
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44. The actual funding for Social Security benefits comes from the _____.
a.
incomes of legal children of retired employees
b.
withholdings of current employees
c.
last employers of retired employees
d.
contingency fund of the government
45. Identify a true statement regarding benefits programs.
a.
Organizations that do not spend much on employee benefits save money in the long run.
b.
Employees are more likely to be satisfied with firms that provide better benefits.
c.
Organizations unwilling to spend on benefits successfully convince employees to work harder.
d.
Employees are attracted to firms that ask employees to bear the costs of benefits.
46. Which of the following are designed to assist employees who have chronic problems with alcohol or drugs or who
have serious domestic problems?
a.
Employee assistance plans
b.
Cafeteria-style benefits plans
c.
Outbound training programs
d.
Early retirement programs
47. Which of the following is true of workers’ compensation?
a.
It is aimed at helping people who have chronic problems with alcohol or drugs.
b.
The exact premium paid for workers’ compensation insurance is a function of each employee’s salary.
c.
Employers pay the cost of workers’ compensation insurance.
d.
It is provided to people who are between jobs.
48. Which of the following is a life-cycle benefit offered by employers?
a.
Helping employees cope with chronic drug and alcohol problems
b.
Providing company-paid day-care facilities to employees
c.
Offering overseas assignment opportunities to employees
d.
Helping employees deal with domestic abuse problems
49. Which of the following is a job-evaluation technique that requires managers to quantify, in objective terms, the value
of the various elements of specific jobs?
a.
The market-basket analysis method
b.
The classification system
c.
The factor-comparison method
d.
The point system
50. Which of the following occurs when individuals with substantially different levels of experience, performance
abilities, or both in an organization are paid wages or salaries that are relatively equal?
a.
Pay compression
b.
Wage elasticity
c.
Pay inversion
d.
External inequity
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51. Which of the following is a difference between salaries and wages?
a.
Performance is the basis for wages, whereas time is the basis for salaries.
b.
Wages are paid to permanent employees, whereas salaries are paid to temporary employees.
c.
Wages are paid to managerial employees within a firm, whereas salaries are paid to operational and lower-
level employees within a firm.
d.
Waged employees are eligible for the overtime provisions of the Fair Labor Standards Act, whereas salaried
employees are not.
52. Organizations that practice pay secrecy:
a.
encourage greater camaraderie and teamwork among employees.
b.
experience pay inversion in the long run.
c.
believe an individual’s pay is not for public knowledge.
d.
motivate low performers to work harder for better compensation.
53. Which of the following refers to the extent to which the compensation of any individual in an organization is formally
made available to other individuals?
a.
Wage and salary administration
b.
Pay secrecy
c.
Pay inversion
d.
Pay compression
54. In the context of cafeteria-style benefits plans, which of the following refers to the fact that the employee most likely
to select a benefit is also most likely to use the benefit, which tends to drive up benefit costs?
a.
The Peltzman effect
b.
Blowback
c.
The cobra effect
d.
Adverse selection
55. Which of the following statements is true of pay surveys?
a.
Individual employees should not have access to the data collected from these surveys.
b.
They are the most commonly used source of information for internal equity.
c.
Large firms design their own pay surveys to get the exact data they need.
d.
The jobs that are the focus of these surveys should be niche jobs.
56. A leading placement consultancy firm gathered and presented information about the average compensation for
attorneys to its clients. This information included data on the compensation paid by other law firms in a specific
geographic region. The firm used this information to inform its clients about the companies that have the most external
equity. Which of the following methods has the placement consultancy firm most likely used to gather information about
compensation rates at different firms?
a.
Job evaluation
b.
A pay survey
c.
A maturity curve
d.
The point system
57. An HR manager at a cosmetics company invites the new employees to a meeting to discuss company policies and to
explain the benefits plan used by the company. As part of this benefits plan, he gives each employee a list of benefits and
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asks him or her to choose the benefits that he or she really wants. The company aims to increase employee satisfaction by
using this benefits plan. Which of the following benefits plans is the cosmetics company using in the given scenario?
a.
A defined contribution plan
b.
An employee assistance plan
c.
A cafeteria-style benefits plan
d.
A defined benefits plan
58. Brad, a manager at a new investment firm, is performing job evaluation. He selects 12 benchmark jobs in the firm and
then ranks each of these jobs against compensable job factors such as physical effort, responsibility, skill, and nature of
the working conditions. This ranking is based on job descriptions created during job analysis. Later, the management
meets as a group and develops a consensus on the assigned values for each job. In the given scenario, which of the
following systems or methods is Brad most likely using for job evaluation?
a.
The point system
b.
The classification system
c.
The factor-comparison method
d.
The market-basket analysis method
59. Grenstall Inc., a software development firm, has adopted a new job-evaluation system in which managers are asked to
objectively quantify the value of eight to ten compensable factors of each job in the organization. These compensable
factors are based on their importance to that particular job and may include skill, physical effort, mental effort, and
responsibility so forth. In this system, jobs are compared against a standard of key ratings. Which of the following job-
evaluation systems is Grenstall Inc. most likely using in the given scenario?
a.
The market-basket analysis method
b.
The classification system
c.
The factor-comparison method
d.
The point system
60. Which of the following is established to give senior managers of a company the option to buy the company shares in
the future at a predetermined, fixed price?
a.
The Social Security system
b.
A stock-option plan
c.
An employee assistance plan
d.
A life-cycle benefit
61. Which of the following statements is true of employee assistance plans?
a.
They focus on keeping employees from becoming sick rather than simply paying expenses when they do
become sick.
b.
They are typically voluntary, and referrals are confidential.
c.
They provide assistance to employees in learning new skills and material.
d.
They are made available only to members of top management or to certain especially valuable professionals
within the firm.
62. Briefly explain the steps involved in the classification system for job evaluation.
63. What are private pension plans? Briefly explain the two types of private pension plans.
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64. Discuss the various determinants of a firm’s compensation strategy.
65. Briefly explain pay secrecy, pay compression, and pay inversion in the context of wage and salary administration.
66. Differentiate between pay for knowledge and skill-based pay with examples.
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52. c
53. b
54. d
55. c
56. b
57. c
58. c
59. d
60. b
61. b
62. Answers will vary. An organization that uses a classification system for job evaluation attempts to group sets of jobs
together into classifications, often called grades. After classifying is done, each set of jobs is then ranked at a level of
importance to the organization. Importance, in turn, may be defined in terms of relative difficulty, sophistication, or
required skills and abilities necessary to perform that job. The third step is to determine how many categories or
classifications to use for grouping jobs. The most common number of grades is anywhere from 8 to 10, although some
organizations use the system with as few as 4 grades and some with as many as 18. Once the grades have been
determined, the job evaluator must write definitions and descriptions of each job class. These definitions and descriptions
serve as the standard around which the compensation system is built. Once the classes of jobs are defined and described,
jobs that are being evaluated can be compared with the definitions and descriptions and placed into the appropriate
classification. See 9-2: Determining What to Pay
63. Answers will vary. Private pension plans are prearranged plans that are administered by the organization that provides
income to the employee at her or his retirement. Contributions to the retirement plan may come from either the employer
or the employee, but in most cases they are supported by contributions from both parties.There are two basic types of
private pension plans: defined benefits plans and defined contribution plans. Under defined benefits plans, the size of the
benefit is precisely known and is usually based on a simple formula using input such as years of service and salary. This
type of plan is often favored by unions and is closely monitored under the Employee Retirement Income Security Act of
1974. Under defined contribution plans, the size of the benefit depends on how much money is contributed to the plan.
This money can be contributed by either the employer alone (noncontributory plans) or the employer and the employee
(contributory plans). See 9-6: Nonmandated Benefits
64. Answers will vary. Several different factors contribute to the compensation strategy that a firm develops. One general
set of factors has to do with the overall strategy of the organization itself. A clear and carefully developed relationship
should exist between a firm’s corporate and business strategies and its human resource strategy. This connection, in turn,
should also tie into the firm‘s compensation strategy. In addition to these general strategic considerations, several other
specific factors determine an organization’s compensation strategy. One obvious factor is simply the organization’s ability
to pay. An organization with a healthy cash flow or substantial cash reserves is more likely to be able to pay above-market
wages and salaries. On the other hand, if the organization suffers from a cash flow crunch, has few cash reserves, and is
operating on a tight budget, it may be necessary to adopt a below-market wage strategy. Another determinant is the
overall ability of the organization to attract and retain employees. For example, if the organization is located in an
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