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Appendix B-201
| Appendix B – Chapter Exercises
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2. Motivating employee performance, fosters a feeling of equity, and provides direction to their
efforts
3. supporting, communicating, and reinforcing an organization's culture, values, and competitive
strategy
4. Complying with government laws/ regulations
FLSA, EPA, Title VII and numerous other laws/regs
5. Cost structure reflecting the organization's ability to pay
2. The policy-capturing analysis established that there is a violation of the Equal Pay Act.
Working Conditions - This encompasses two factors: (1) physical surroundings like
temperature, fumes, and ventilation; and (2) hazards.
Establishment - The prohibition against compensation discrimination under the EPA applies
only to jobs within an establishment. An establishment is a distinct physical place of business
rather than an entire business or enterprise consisting of several places of business.
Appendix B-202
| Appendix B – Chapter Exercises
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Pay differentials are permitted when they are based on seniority, merit, quantity or quality of
production, or a factor other than sex. These are known as "affirmative defenses" and it is the
employer's burden to prove that they apply.
The policy-capturing evidence does not indicate a violation of the EPA (or Title VII).
3. The results of the “policy capturing” study established that there is a violation of Title VII.
Also FALSE. The policy-capturing evidence does not indicate a violation of Title VII.
4. If the state follows the recommendations, what impact will the policy have upon private
sector compensation?
5. To create internal equity faster and more cheaply, the consultants could have recommended
reducing the pay of "overpaid” jobs or workers. What are the implications of this action
based on research? Could you do this if there was an Equal Pay Act violation?
Although this is of course an option, a collective bargaining agreement may prohibit implementation
and the repercussions of this program would have to be anticipated (e.g., high turnover in these
Appendix B-203
| Appendix B – Chapter Exercises
6. Explain exactly how the pay equity study determined that female-dominated jobs were
“underpaid” and that some male-dominated jobs were found to be “overpaid.” What does
the term policy-capturing mean in terms of this pay equity study?
Actual pay was regressed onto the ratings of the pay factors (e.g., knowledge, experience, supervision,
writing, information gathering) for each of the 300 positions. The mathematical predictive weight was
thus revealed for each factor and a regression equation was formed which best predicted actual pay
for all 300 positions. This equation was then applied to the female-dominated and minority-
7. Conduct research on the status of the “Paycheck Fairness Act.” If this legislation is or were to
become law, do the findings reported in this study indicate illegal discrimination under this
legislation?
On January 29, 2009, President Obama signed the Lilly Ledbetter Fair Pay Act of 2009 ("Act"), which
supersedes the Supreme Court's decision in Ledbetter v. Goodyear Tire & Rubber Co., Inc., 550 U.S.
618 (2007). Ledbetter had required a compensation discrimination charge to be filed within 180 days
Appendix B-204
| Appendix B – Chapter Exercises
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Under the Act, an individual subjected to compensation discrimination under Title VII of the Civil
Rights Act of 1964, the Age Discrimination in Employment Act of 1967, or the Americans with
Disabilities Act of 1990 may file a charge within 180 (or 300) days of any of the following: when a
discriminatory compensation decision or other discriminatory practice affecting compensation is
adopted; when the individual becomes subject to a discriminatory compensation decision or other
discriminatory practice affecting compensation; or when the individual's compensation is affected by
the application of a discriminatory compensation decision or other discriminatory practice, including
each time the individual receives compensation that is based in whole or part on such compensation
decision or other practice.
The Act has a retroactive effective date of May 28, 2007, and applies to all claims of discriminatory
compensation pending on or after that date.
As of March, 2009, no form of the Paycheck Fairness Act had become law. In 2008, The Fair Pay Act,
was introduced in the Senate by Sen. Tom Harkin (D-IA) and in the House of Representatives by Del.
Eleanor Holmes Norton (D-DC). The bill as written is designed “ to address the problem of lower
wages in female-dominated fields by requiring equal pay between comparable jobs that are
segregated on the basis of sex or race.” It is not clear whether the findings of the policy-capturing
study would indicate illegal discrimination under this legislation?
NOTE: A March 1, 2009 NEW YORK TIMES article by HANNAH FAIRFIELD entitled “Why Is Her
Paycheck Smaller?” drew these conclusions based on the most recent Bureau of Labor Statistics data.
• Nearly every occupation has the gap — the seemingly unbridgeable chasm between the size of
the paycheck brought home by a woman and the larger one earned by a man doing the same
job.
• It doesn't matter where the job lies on the income spectrum: all but a handful fall below the
bar of equal pay. The percentage gap is about the same for lower-wage workers, like medical
assistants, as it is for higher-wage workers, like physical therapists.
Appendix B-205
| Appendix B – Chapter Exercises
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
most lucrative occupations, like medicine and law, women have migrated to specialties that
earn less than others. A female doctor, for example, may choose family practice over surgery.
• "Desire for a certain flexibility or a certain lifestyle drives career choices," said Stephanie
Boraas, an economist at the Bureau of Labor Statistics. "Women often choose jobs that have
more flexible hours, which can work well with child care."But why do men who are bus drivers
or insurance agents, jobs with similar numbers of men and women, earn more money than
their female counterparts?
The article concluded that “To push employers to reduce discrimination, President Obama has signed
a bill expanding a worker's right to sue for wage inequalities. The bill was named after Lilly Ledbetter,
an Alabama woman who, at the end of a 19-year career as a supervisor in a tire factory, found that
she had been paid less than her male colleagues. Ms. Ledbetter is now the face of wage inequality,
but she is hardly alone: female managers of production workers earn nearly 30 percent less than male
managers.”
Appendix B-206
| Appendix B – Chapter Exercises
Exercise 10.3
Developing an Employee Benefits Program
Christine Hagan
Objectives . The purpose of Exercise 10.3 is to have students experience developing an employee
benefits program within budgetary guidelines. Students are asked to evaluate the advantages and
disadvantages of each of the benefits offered and ultimately defend the plan they have
recommended.
Description . This case involves the opening of a national service center near Las Vegas, Nevada. The
organization has a goal to be a “preferred employer” for the new service center and wants a total
benefit package to attract and retain valued employees, especially customer service representatives.
There is no single right or wrong answer to this exercise. Students should be given considerable
latitude and encouraged to think creatively. As they are doing this exercise, students should be
encouraged to think about the choices they are making and the advantages and disadvantaged of
each choice. For example, many students may immediately opt for a Cafeteria Plan, but they should
be aware of the additional administrative costs and complexities these plans may generate. Students
must also be certain to include government-mandated benefits (FICA, FUTA, Workers’ Compensation),
and they should use the information provided in the case concerning area time off practices. Students
should also be attentive to the different metrics that are present in Exhibit 10.3.3 (most are annual
costs, some are payroll percentages and a few are daily rates).
Appendix B-207
| Appendix B – Chapter Exercises
Table 10.3.1
Answers to Form 10.3.1
1. Structure a benefits program that you think would be most effective for the customer
service associates to be hired by USA Credit. Assume an average wage of $10.50 per hour
and a workweek of 40 hours. A benefits budget of 38 percent of salary has been approved.
If needed, assume that 70 percent of the customer service associates will require family
coverage.
Before costing alternative plans, students must first calculate the benefits budget using an average
wage of $10.50 per hour, and a benefits budget of 38% of salary.
Astute or advanced students may question, if Wolfson can fill jobs for an average of $10 per hour (i.e.,
the lower figure in consultant Birch’s salary recommendation), whether he can spend the base salary
savings on benefits. Although Wolfson should obtain approval for this, students who detect this
should be permitted to use a higher benefits budget:
$21,840 + $8,300 = $30,140 total compensation expenditure authorized
Appendix B-208
| Appendix B – Chapter Exercises
In calculating various benefit configurations, the possibilities are virtually limitless. For illustrative
purposes, the following represents the costs of a basic benefits program consisting of government-
mandated programs, health care for employee and their families (medium level), life insurance for
Defined contribution pension plan 3 % X 21,840 = 655.20
EAP (to help control health care costs) .5% X 21,840 = 109.20
Appendix B-209
| Appendix B – Chapter Exercises
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Time off Programs:
Vacation: 10 days @ 62/day = 620.00
As can be seen from the above scenario, the employee would pay for all family coverage. Although
the various combinations are limitless, some of the more common alternatives may include the
following:
Reduce Defined Contribution pension plan to 1.5%-2% and permit employees to voluntarily
match the contributions. Then, add a low dental (HMO) or tuition reimbursement, or allow the
company to pay part of the family premium costs. (Remember the assumption presented in
the case that an estimated 70% of the workforce will require family coverage.)
choice.
Appendix B-210
| Appendix B – Chapter Exercises
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Astute or advanced students may note that, with a cafeteria plan, pre-tax contributions may
be used to purchase some benefits and may be used to set aside child care costs, even if the
organization does not subsidize such costs.
2. What were the trade-offs you made in deciding on your recommendations?
Students should recognize that - as in the case with real-world business - the cost of benefits is
extremely high. Students will be forced to provide some coverages in lieu of others. They must also be
sensitive to the fact that these are not highly paid people and a $1500+ contribution for family
coverage represents a sizeable percentage of base pay. In the sample plan above, the provision of a
capability is quite good.
3. Assume that Andy Wolfson is interested in a cafeteria benefits approach. He has heard,
however, that when people are permitted to select their own coverages, unit costs may rise
(called “adverse selection”). In other words, in cafeteria benefits, the averaging effect of
users versus nonusers across employee populations declines as people opt out of programs
that they are not likely to use in favor of benefits that they are very likely to use. How might
Andy deal with this problem in designing a cafeteria benefits plan?
Adverse selection can be a problem in cafeteria benefits plans as individual employee selections (and,
probably, plan utilization rates) reflect individual needs. For example, without the “healthy”
employees included in the health care plan, the average cost of medical insurance may increase
significantly. Time off costs may also go up as the “healthy” employees (who don’t select health care
Appendix B-211
| Appendix B – Chapter Exercises
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
or increased costs when they install cafeteria plans, but they probably monitor their costs very closely
in order to make certain that such a trend does not begin.
4. What additional information concerning this situation would have enabled you to provide
better recommendations?
A good bit of additional information would be helpful. We don’t have specific information concerning
the practices of other organizations concerning group benefits plans (Do they offer medical, life,
pensions, LTD, etc. and how long are the waiting periods? Do other area employers offer cafeteria
plans?). The information concerning time off is very sketchy - it appears to be an educated guess on
the part of a local consultant. Considering the expenses involved, more specific information should be
5. How will you decide whether or not your benefits program is an effective one? Describe the
procedure that you would use. What specific criteria would you use?
When benefits programs are considerably better than those offered by other organizations, they can
be an attractive incentive for individuals to seek employment there and to stay with a firm. One way
to judge effectiveness would be to see whether this package assists us in recruiting qualified workers
to staff the new facility. Recruiters should be encouraged to keep detailed records concerning
Appendix B-212
| Appendix B – Chapter Exercises
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
would value could provide useful insights. As employees leave, a well-structured exit interview
program that seeks information concerning the reason for resignation is useful. When employees
resign in order to join another firm, specific information about the pay and benefits offered by the
organization to which they are going could indicate actual or perceived shortcomings in USA Credit’s
programs.
Appendix B-213
| Appendix B – Chapter Exercises
CHAPTER 11 – CHAPTER EXERCISES
Chapter Exercise 11.1
The Design of a PFP System for Mega Manufacturing
E. Brian Peach and M. Ronald Buckley
Objectives. The purpose of Exercise 11.1 is to demonstrate to the student some of the variables that
need to be considered when implementing a PFP system. In addition to variables that affect pay
systems at the operating level, sometimes there are organizational level variables that have an effect
on pay practices.
Description. This is an exercise that requires an integration of material from Chapters 9-11. Students
must take positions on five issues related to the PFP system(s) at Mega. After reading Chapter 11,
students will need about two hours of out-of-class preparation for the Individual Analysis (Part A).
Allow about one hour for the Group Analysis (Part B).
The difficulty of changing to a PFP system will be compounded by the variables that arise during and
after the implementation phase. The two memos to Ellen (Exhibits 11.1.1 and 11.1.2) highlight some
typical problems with implementation. The memo from Don Walker introduces budgetary constraints
and organizational deadlines as new factors in the development of the system. The memo from Bill
Idrey introduces several typical problems that PFP systems can effectively address (if properly
implemented and maintained). Students should include in their discussion the process of overcoming
employee and supervisory resistance to change, the need for learning new skills, and how to deal with
positions whose contribution is hard to measure or perceived as marginal by other workers.
The second comment in Idrey's note brings up the problem of group performance measures.
Students should recognize and address the fact that there is no feasible method of quality checking
production for each production step.
Appendix B-214
| Appendix B – Chapter Exercises
For the third comment, many students may elect to pay more for the "higher status" production
steps. Discussion should cover the fact that these steps may be used as a proxy for increased pay (i.e.,
better performers get to work on these steps).
The class discussion on the problem should be allowed to jump around. The point to be learned is
that the multitude of variables, which come about in a PFP system increase the difficulty, associated
with PFP implementation. The instructor should stress that PFP can be implemented but only with
adequate preparation and forethought.
STRONG ANSWER
he chapter indicated that incentive plans should consider the firm's organizational strategy, culture,
and position in the marketplace, and may be indicated if the following five situations existed: (1) high
labor costs, (2) a high level of cost competition in the marketplace, (3) relatively slow advance of
TABLE 11.1.1
Answers to Form 11.1.1
1. Is an incentive program appropriate? Explain your position.
Mega's overall strategy emphasizes pay for performance, and the new assembly process lends itself
2. If so, should there be one, two, or several plans?
Appendix B-215
| Appendix B – Chapter Exercises
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
There probably should be at least two incentive plans, one for the assembly workers and the other for
management. Management is responsible for the overall introduction and management of the new
product line and its pay should be tied to overall plant success.
3. Who should be included?
Anyone whose productivity level would reasonably be improved through incentives and whose output
4. What should be the basis for incentive payments?
The assembly of switches consists of a series of steps, and the supervisors of the various steps must
5. What kind of incentives should be included?
There are two types of group incentives, profit sharing and gainsharing. Because this is a new
product, there is no benchmark to be used for a gainsharing program. Profit sharing could be used,
but its remoteness from the immediate job, combined with the diffusion of responsibility for success,
Appendix B-216
| Appendix B – Chapter Exercises
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
payoffs to the employees would be based on actual savings accruing to Kanto. Special recognition
programs (e.g., suggestion of the day, weekly and monthly awards) and other publicity actions to
keep the program in the attention of employees should be used in addition to awarding cash
payments. Widespread participation and some show of actual rewards received, however small, will
convince employees of the program's benefits.
RESPONSES TO IDREY'S MEMO
1. There is a problem in getting the supervisors to learn the required new skills. Ellen must know
whether the supervisors are qualified to perform the new job requirements. If the answer to this
question is no, then remedial steps must be taken to train them or to hire appropriate personnel.
2. If Kanto is being graded on number and quality of output of switching assemblies, and their
parts are defective, no incentive system can remedy the situation. Mega must either upgrade the
3. In many cases, job analysis is imperfect. A reanalysis of the tasks should be accomplished to
4. What is too strict in terms of Ms. Inggold? If she is following specifications in checking
Appendix B-217
| Appendix B – Chapter Exercises
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
motivates her to efficiently and accurately pass correctly assembled switches and reject improper
switches.
5. This relates back to who should be included in the incentive system. Design & Fabrication
should be placed on a separate incentive system and receive bonuses based on useful suggestions
A WEAK ANSWER TO THE EXERCISE
An incentive system is appropriate because the new assembly has small groups that need to work
together. The plan should be some sort of gainsharing with bonuses based on each group's
Ellen Lennet:
Ellen is under pressure from her boss to get the incentive system in and save an extra 3%. Perhaps a
suggestion program directed toward saving money with benefits paid from savings would help get the
3%.
Appendix B-218
| Appendix B – Chapter Exercises
Exercise 11.1
Assessment Questions
1. What were the key variables you considered in your selection of an individual- or group-
based PFP system?
Even though the manufacturing process can be broken down into steps of individual skills, the key is
in the quality process. It is in the quality process that groups of specifically skilled individuals will have
2. What changes in organizational characteristics would seriously affect your
recommendations?
If the switching product could lend itself to the same type of manufacturing processes the Kanto plant
has had in the past, where workers have little involvement with each other, the recommendation
3. What circumstances would lead you to conclude that a PFP system would not be in the best
interests of the organization?
If employees viewed that their efforts did not match the outcome (the incentive) the PFP system
would more than likely not be in the organization’s best interest. In order for PFP systems to succeed
Appendix B-219
| Appendix B – Chapter Exercises
Chapter Exercise 11.2
Pay for Performance at Dee’s Personalized Baskets
Objectives. The purpose of Exercise 11.2 is to have students consider the various options for PFP
systems and to consider those options in the context of other components of the system such as
performance measurement and managerial training. In addition, students must also construct a
methodology for evaluating the effects of the program.
Description. This exercise requires the student to consider pay for performance with consideration
given to discussion on training and development in Chapter 8 and performance appraisal in Chapter 7.
Principles from these chapters must be integrated with the prescriptions for pay for performance
discussed in Chapter 11. The Individual Analysis (Part A) requires about two hours of out-of-class
preparation in addition to reading the chapter and reviewing the materials on training evaluation
(Chapter 8). The Group Analysis (Part B) requires at least 45 minutes in order for each group to
review members' responses to Form 11.2.1. Table 11.2.1 presents recommended responses to each
of the questions on Form 11.2.1.
Table 11.2.1
Answers to Form 11.2.1
1. What type(s) (if any) of PFP systems do you recommend for Dee’s? Be as specific as possible
and consider all jobs. What (if any) additional information would help you develop the most
effective PFP system? (You may take a position against all PFP systems but make sure you
explain why.)
The information provided in the case suggests the implementation of an individual piece rate system
that links individual performance with pay since such individual measurement can be done reliably and
the work tasks are not particularly interdependent. A “Quality” performance measure (per basket) is
Appendix B-220
| Appendix B – Chapter Exercises
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
This approach may also create an adversarial relationship with any coworkers, who are not included in
the incentive plan, many of whom provide support services (maintenance, purchasing, communications,
etc.) that are required for individual performance.
2. Describe the chronology of steps for implementing the PFP system or explain why you are
opposed to a PFP system for this situation.
The "basics" of the PFP system should be provided for all managers who are to participate in the
system. Presumably the decision about who is to participate is based on an "organizational analysis" of
the strategic goals of the organization that the PFP system is to support. Based on "individual
assessments" of managerial skills, some managers may be targeted for more intensive training based on
experiential methods.
3. Jessica Harrison, Dee’s President, read an airline magazine article about gainsharing and was
impressed. She thinks it’s a perfect approach for motivating the basket assemblers. How
does gainsharing work, what conditions are necessary and what does the research say
about its effects? What would you say to Ms. Harrison about whether gainsharing is (or is
not) a good PFP approach for Dee’s.
Piece-rate superior for this circumstance. The level of aggregation is critical- individual, group/unit, or
organization level. Use individual measurement when you can clearly measure individual outcomes
Note Power Points with these pertinent comments
