Chapter 10Managing Compensation - SHC Staff Web Index

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					Chapter 10
Managing Compensation

1.   In the opening case in chapter 10, an experienced computer programmer complains
     that new hires start at Sigma, Inc. at 15% more than his salary. Dr. Smith’s answer
     reveals that Sigma’s compensation system is built on a(/an) ______ compensation
     a) balanced equity
     b) distributive justice
     c) labor market
     d) free market
     e) egalitarian

     Answer: c        C--Integration   Page: 328

2.   In the opening case in chapter 10, a secretary complains that janitors make more
     money than she does. Her complaints and Dr. Smith’s response show that Sigma’s
     compensation system:
     a) may lack internal equity.
     b) uses variable pay to induce performance.
     c) uses individual-based pay.
     d) stresses non-monetary rewards.
     e) is a decentralized pay system.

     Answer: a        C--Integration   Page: 328

3.   The compensation system of a company:
     a) has no bearing on the labor costs of the business.
     b) relates exclusively to attracting employees.
     c) has a direct relationship on labor costs and whether employees costs contribute
        or detract from business profitability.
     d) is free from all government regulation.
     e) all of the above

     Answer: c        M--Recall        Page: 328

4.   What is an HR department’s role in a firm’s pay allocation procedures?
     a) It should stay out of the compensation realm altogether.
     b) It should seek to maintain external pay equity.
     c) It should make all final decisions regarding pay decisions.
     d) All of the above
     e) None of the above

     Answer: b        E--Recall        Page: 328

                                                         Chapter 10 – Managing Compensation

5.   Compensation consists of a number of elements. An employee’'s base
     a) is that portion of an employee’'s pay mix designed to reward good performance.
     b) consists of a wide variety of programs, such as health insurance, time off, etc.
     c) is his/her fixed pay, and is generally the largest part of his/her total
        compensation package.
     d) is made up of the special “"extras”" or perks that are allocated, based on status,
        within the company.
     e) consists of the bonuses or profit sharing that underpin the employee’s total

     Answer: c        E--Recall          Page: 328

6.   Employees’ total compensation consists of which of the following?
     a) Base compensation, personnel costs, payroll.
     b) Payroll, base compensation, indirect compensation.
     c) Benefits, pay incentives, personnel costs.
     d) Base compensation, pay incentives, indirect compensation.
     e) Payroll, pay incentives, base compensation.

     Answer: d        E--Recall         Page: 328-329

7.   Perquisites, also called “perks”:
     a) are a special type of benefits, generally reserved for upper-level managers.
     b) are a special type of pay incentive, generally reserved for upper-level managers.
     c) make up 60% of employees’ total compensation.
     d) is another name for indirect compensation that includes health benefits,
        vacation and unemployment compensation.
     e) make up 30% of employees’ total compensation.

     Answer: a        M--Recall         Page: 329

8.   Indirect compensation in a pay mix consists of:
     a) the salary or hourly wage the employee receives on a regular basis.
     b) the variety of programs, such as health insurance, time off, etc., the employee
     c) the package of special perks an employees receives based on his/hetheir status
         in the company.
     d) that part of an employee’s’ pay designed to motivate good performance.
     e) incentives that may or may not be paid to an employee, such as bonuses.

     Answer: b        Moderate          Page: 329

Part V Compensation

9.    Employee earnings:
      a) correlate directly with employee job satisfaction.
      b) are the most important factor in whether a job candidate takes a job or not.
      c) don’t affect feelings of self -worth.
      d) are relatively easy to manage and take little consideration.
      e) indicate prestige, power, and employees’ self worth.

      Answer: e        M--Recall         Page: 329

10.   In order for a compensation system to work well, it must:
      a) enable the firm to achieve its objectives.
      b) ensure low employee turnover.
      c) follow an egalitarian strategy.
      d) be developed according to the individual business’ environment and
      e) a and d.

      Answer: e        M--Recall         Page: 329

11.   Cornilia is concerned that her roommate, who works for a different company,
      receives about 25% more pay and better benefits than Cornilia does for a very
      similar job. Cornilia’s concern reflects the compensation issue of:
      a) job versus individual pay.
      b) external equity.
      c) open versus secret pay administration.
      d) fixed versus variable pay.
      e) a and d.

      Answer: b        E--Application Page: 329

12.   The perceived fairness of what an employer pays, relative to what other employers
      pay for the same type of labor, is a description of:
      a) the distributive justice model of compensation.
      b) the labor market model of compensation.
      c) egalitarianism in compensation.
      d) internal equity in compensation.
      e) external equity in compensation.

      Answer: e         M--Recall         Page: 329

                                                         Chapter 10 – Managing Compensation

13.   A company designs its compensation system around the philosophy that an
      employees exchange their contributions to the company for a set of outcomes, i.e.,
      pay. As a consequence, employees feel fairly compensated when the ratio of their
      inputs and outputs is equivalent to those of other employees whose job demands are
      similar to their own. This company’'s compensation system is based on a _____
      compensation model.
      a) balanced equity
      b) labor market
      c) free market
      d) distributive justice
      e) Marxist

      Answer: d        C--Application Page: 330

14.   The dDistributive jJustice mModel:
      a) is the least common of the two compensation models.
      b) encourages employees to examine the companies and employees.
      c) encourages open rather than secret pay.
      ed) ensures that employees will receive above-market compensation.
      e) ensures secret pay.

      Answer: c        C--Integration    Page: 330

15. According to your text, which of the following questions is key in developing an
    effective compensation plan?
    a) How many employees are theire in a the company?
    b) Will the company compensate employees primarily with nonmonetary rewards
        or monetary rewards?
    c) What is the company’s market share?
    d) What is the average age of employees in the firm?
    d)e)             AAll of the above                                                        Formatted: Bullets and Numbering

      Answer: b        E--Recall         Page: 3230

16.   A company using a labor market-based model holds the philosophy that:
      a) employees exchange their contributions for pay.
      b) the wage rate for any given job is set at the point where the supply of labor
         equals the demand for that labor in the marketplace.
      c) internal equity is more important than external equity.
      d) egalitarian pay policies are more effective than elitist.
      e) nonmonetary rewards are more effective motivators than monetary rewards.

      Answer: b        C--Integration    Page: 330

Part V Compensation

17.   People based their decisions about what job they will hold based on:
      a) pay.
      b) nonmonetary rewards and the benefits offered.
      c) the perceived internal equity.
      d) job content, pay, and location.
      e) their career options and overall compensation.

      Answer: d        C--Integration    Page: 330-331

18.   You are trying to convince the management of Marcelle, Inc. to pay its employees
      the “going rate”, no more, and no less. You are trying to:
      a) reach external equity.
      b) reach internal equity.
      c) reduce Marcelle’s work force.
      d) increase Marcelle’s work force.
      e) create an elitist compensation program.

      Answer: a        M--Application Page: 331

19.   When a company chooses to pay above the going rate for employees:
      a) it may be unable to attract qualified workers.
      b) its labor costs decrease.
      c) employees will experience higher job satisfaction.
      d) it achieves external equity.
      e) it may not be able to charge competitive prices for its products and services.

      Answer: e        M--Integration    Page: 331

20.   Balancing equity is often a difficult issue in the management of compensation
      a) pay is a hygiene factor, not a motivator, so no matter what you do, you will
         never get higher productivity through compensation.
      b) EEOC regulations are extensive and complicated.
      c) internal and external equity often oppose one another.
      d) of the impact of the issue of fixed versus variable pay.
      e) of management’'s general reluctance to change pay structures.

      Answer: c        C--Integration    Page: 331

                                                         Chapter 10 – Managing Compensation

21.   Firms that emphasize external equity:
      a) generally have little need for innovation.
      b) are older, more established firms.
      c) are smaller and newer.
      d) often compensate employees with nonmonetary rewards, rather than monetary
      e) already maintain internal equity.

      Answer: c        E--Recall         Page: 331

22.   Variable compensation takes a variety of forms, including:
      a) health insurance.
      b) salary.
      c) hourly wages.
      d) profit sharing.
      e) life insurance, disability insurance, etc.

      Answer: d        E--Recall         Page: 332

23.   Variable compensation systems work best:
      a) with smaller, less well-established firms with younger employees.
      b) in difficult economies with high inflation.
      c) when the job market is flooded with qualified workers.
      d) in larger, established companies that need significant productivity
      e) with large employee workforces just after a major layoff.

      Answer: a        C--Integration    Page: 332

24.   On average, ____ of a U.S. employee’s pay is variable.
      a) 4%
      b) 5%
      c) 7%
      d) 8%
      e) 10%

      Answer: e        E--Recall         Page: 332

Part V Compensation

25.   According to your text, as employees’ base pay increases:
      a) their overall compensation is more stable.
      b) their variable pay decreases.
      c) their compensation is more likely to be performance-contingent compensation
         than membership-contingent compensation.
      d) their compensation is more likely to be membership-contingent compensation
         than performance-contingent compensation.
      e) their overall compensation is more subject to risk.

      Answer: e        M--Recall        Page: 332

26.   A performance-contingent compensation system bases pay upon:
      a) the number of hours during which employees perform their jobs.
      b) the value of the job performed.
      c) the skills used to perform the job.
      d) how much is produced on a particular job.
      e) how long the employee has been on the job.

      Answer: d        M--Recall        Page: 333

27.   Rose works for a home interiors company. She hostesses several parties a week
       and sells various kinds of home decorations. She receives a commission on all that
       she sells. RoTherese receives:
      a) fixed compensation.
      b) membership-contingent compensation.
      c) performance-contingent compensation.
      d) risk sharing rewards.
      e) none of the above

      Answer: c        M--Application Page: 333

28.   A membership-contingent compensation system pays employees:
      a) for the number of hours during which they perform their assigned jobs.
      b) on the basis of the value of the job they performs.
      c) on the basis of the skills used to perform their jobs.
      d) for how well they do their particular job.
      e) for what they know about their jobs.

      Answer: b        M--Recall        Page: 333

                                                            Chapter 10 – Managing Compensation

29.   Companies using performance-based compensation systems tend to be:
      a) Fortune 500 companies.
      b) publicly-held corporations.
      c) smaller, rapidly growing companies that face strong competitive pressures.
      d) larger firms with several layers of management that operate in relatively stable
      e) large firms that desire to break out of the “"pack”" and distinguish themselves
         from competitors.

      Answer: c         E--Recall          Page: 333

30.   A compensation system that assumes that employees’ should be compensated
       based upon their abilities, potential, and flexibility to performs multiple tasks is
       a(n) ___ -centered compensation system.
      a) performance
      b) membership
      c) individual
      d) equity
      e) job

      Answer: c         M--Integration     Page: 334

31.   A compensation system that assumes that the tasks being performed and the
      contribution of those tasks to the company are the best criteria for setting the wage
      is a ___-centered compensation system.
      a) performance
      b) membership
      c) individual
      d) equity
      e) job

      Answer: e         C--Integration     Page: 334

32.   An individual-centered compensation system:
      a) focuses on employees’ contribution and increases compensation based on the
         employee’'s ability to perform more duties or tasks successfully.
      b) assumes that the tasks being performed, and the contribution of those tasks to
         the company, provide the best criteria for setting the wage pay system.
      c) rewards the skills used on the job.
      d) pays based on the number of hours during which the employees perform their
         assigned job.
      e) stresses the value of the job performed.

      Answer: a         M--Recall          Page: 334

Part V Compensation

33.   Job-based pay policies work best in which of the following situations?
      a) Employee participation and teamwork are encouraged throughout the
      b) Employees have many opportunities to learn new skills.
      c) Employees’ jobs don’t change often.
      d) There are few opportunities for upward mobility within the organization.
      e) The firm’s work force is highly educated.

      Answer: c         E--Recall         Page: 334

34.   An individual-based pay policy works best in which of the following situations?
      a) Employees may have many opportunities to learn new skills.
      b) Employees are expected to move up “"through the ranks.”"
      c) Employee turnover is low and jobs don’'t change often.
      d) The company’'s technology is stable.
      e) Jobs are standardized within the industry.

      Answer: a         E--Recall         Page: 334

35.   One of the benefits of using skill-based pay is:
      a) labor costs increase.
      b) the work force becomes more specialized.
      c) the work force becomes more diversified.
      d) applicant selection is easier as job qualifications are more vague.
      e) none of the above

      Answer: c         M--Recall          Page: 334

36.   A pitfall of using a skill-based compensation system is:
      a) loss of labor specialization.
      b) greater difficulty in selecting applicants because job qualifications are less
      c) higher labor costs.
      d) it may lead to a more chaotic workplace.
      e) all of the above

      Answer: e         M--Recall         Page: 334

                                                        Chapter 10 – Managing Compensation

37.   If management wants the compensation system to reinforce a traditional
      organizational structure and stability within the company, a(/an) ____
      compensation system is the best choice.
      a) egalitarian
      b) elitist
      c) performance-based
      d) individual-centered
      e) labor market-based

      Answer: b        C--Integration   Page: 335

38.   Garden of the Gods’s (GOTG) employees are compensated according to their
      organizational -level, with upper-level managers receiving more compensation than
      lower-level managers. GOTG uses a(n) ______ pay system.
      a) elitist pay system
      b) egalitarian pay system
      c) externally equitable pay system
      d) internally equitable pay system
      e) knowledge-basedd pay system

      Answer: a        E--Application Page: 335

39.   The stockholders are concerned about the cost of perquisites. Management wants
      maximum flexibility to move people among jobs without having to adjust their
      compensation. Management also wants more joint-task accomplishment and better
      cooperation among employees. A(n) ______ compensation system will reinforce
      all these goals.
      a) an elitist pay system
      b) an individual-centered pay system
      c) a variable compensation system
      d) an egalitarian compensation system
      e) a job-centered compensation system.

      Answer: d        C--Application Page: 335

40.   Egalitarian compensation systems are:
      a) important to develop a more stable work force.
      b) more common in older businesses with mature products.
      c) problematic because this system tends to cause tension between co-workers.
      d) becoming increasingly popular.
      e) all of the above.

      Answer: d        E--Recall        Page: 335

Part V Compensation

41.   Elitist compensation systems are:
      a) becoming more prevalent in recent years.
      b) helpful in reducing barriers between different people who must work closely
      c) more common among newer, smaller businesses.
      d) more common in very competitive environments.
      e) most common in older firms with mature products.

      Answer: e        M--Recall        Page: 335

42.   Above-market compensation policies:
      a) create an impression of what it takes to succeed in the company.
      b) improve employee morale and reduce employee turnover.
      c) provide an incentive to produce, leading to greater innovation and productivity.
      d) affect employee cooperation and teamwork more than any other business
      e) reduce barriers between people who need to work closely together.

      Answer: b        M--Recall        Page: 336

43.   Companies who pay employees at rates above the market are generally:
      a) small start-up companies.
      b) very competitive in the market.
      c) companies who have been struggling financially.
      d) larger companies in less competitive industries.
      e) egalitarian.

      Answer: d        E--Recall        Page: 336

44.   Which of the following is an example of a company that would most likely pay
      below-market compensation?
      a) A small start-up company.
      b) A hotel that’'s part of a chain.
      c) A Giant Eagle, a corporation of grocery stores.
      d) A large, high-tech, unionized company.
      e) A large garment bag manufacturer located in the inner city.

      Answer: a        C--Integration   Page: 337

                                                       Chapter 10 – Managing Compensation

45.   Nonmonentary rewards may:
      a) cover generous benefit packages.
      b) include reinforcement of individual responsibility.
      c) involve recognition.
      d) communicate what it takes to succeed in a company.
      e) provide a company less flexibility than monetary rewards in compensating

      Answer: b       E--Recall        Page: 337

46.   A company can use nonmonetary rewards:
      a) to reinforce achievement and sales growth.
      b) in a volatile market with low job security.
      c) to foster an internal competitive climate.
      d) to develop responsibility among employees.
      e) to emphasize customer service and loyalty.

      Answer: e       M--Recall        Page: 337

47.   Companies that emphasize monetary rewards:
      a) are often found in volatile markets.
      b) tend to emphasize customer service over sales.
      c) have high job security.
      d) are attempting to create a cooperative atmosphere among the employees.
      e) all of the above

      Answer: a       E--Recall        Page: 337

48.   An emphasis on monetary rewards will generally reward a company with:
      a) greater customer service and loyalty.
      b) more achievement and responsibility by employees.
      c) an internal climate of cooperation among employees.
      d) long-term employee commitment.
      e) employees who place little emphasis on pay.

      Answer: b       M--Recall        Page: 337

49.   Companies that emphasize nonmonetary rewards more than monetary rewards:
      a) often have high turnovers in the work force.
      b) tend to emphasize sales over customer service.
      c) tend to emphasize customer service over sales.
      d) tend to be in a volatile market.
      e) all of the above.

      Answer: c       M--Recall        Page: 337

Part V Compensation

50.   The practice of openness in a compensation system generally leads to:
      a) greater pay dissatisfaction among employees.
      b) decreasing the cost of mistakes because they are readily and quickly fixed.
      c) managers being more careful in their decisions because they have to defend
         them more.
      d) greater compensation costs as managers try to win accolades from their
      e) greater pay differentials between employees as performance differences are

      Answer: c        M--Recall        Page: 339

51.   You have just been hired at Corpus Entertainment, Inc. (CEI) and as part of your
      contract, you sign an oath that you will not divulge information about your
      compensation to your co-workers or any other employee of CEI. You realize that
      the company has a(n) _______ pay policy.
      a) egalitarian
      b) flexible
      c) open
      c)d) monetary                                                                      Formatted: Bullets and Numbering
      e) secret

      Answer: e        E--Application    Page: 339

52.   The practice of secret pay in a compensation system generally leads to:
      a) managers being more careful in their compensation decisions because they have
         to defend them.
      b) an increase in the cost of mistakes in the pay pay-making decisions.
      c) greater pay dissatisfaction among employees.
      d) an egalitarian pay system.
      e) all of the above

      Answer: c        M--Recall        Page: 339

53.   Pay openness would work best in which of the following situations?
      a) Company A--high employee involvement and a culture of trust.
      b) Company B--managed from the top down but has managed to develop fairly
         high levels of commitment from employees.
      c) Company C--managers are not trained in performance appraisal but there are
         high levels of employee commitment.
      d) Company D--there are great differences in compensation between professional
         employees, based on education and experience.
      e) Company ED--emphasizes nonmonetary rewards.

      Answer: a        C--Integration   Page: 340

                                                         Chapter 10 – Managing Compensation

54.   Karen, president of a small restaurant chain, would like to centralize compensation
      decisions. She asks you about the pitfalls of such a move, and you respond that:
      a) it is likely that internal equity would not be maintained.
      b) it is likely that the company will not be able to defend itself legally.
      c) in a centralized system each manager can make compensation decisions, and
         this can lead to organizational chaos.
      d) external equity is difficult to maintain.
      e) it is only beneficial in times of greater economic prosperity.

      Answer: d        E--Application Page: 340

55.   Decentralizing pay decisions enables a company to:
      a) more effectively face legal challenges to compensation decisions.
      b) more effectively manage internal equity.
      c) better utilize the expertise of their compensation specialist.
      d) build a stronger link between pay and performance.
      e) better manage a fixed pay-based compensation system.

      Answer: d        M--Recall         Page: 340

56.   Which of the following is true regarding compensation systems?
      a) Nonmonetary rewards tend to predominate in companies concerned with
         external equity.
      b) External equity is easier to manage in decentralized pay systems.
      c) It is relatively easy to choose a compensation system once a firm’'s goals are
      d) The nine issues discussed in the text regarding compensation are interdependent
         with minimal influence on one another.
      e) Centralized pay systems work best in large, diverse, organizations.

      Answer: b        C--Integration    Page: 341

57.   When a work force is highly unionized:
      a) managers have more control over compensation issues.
      b) managers are restricted in their control over compensation issues.
      c) workers are likely to disagree with internal and external equity.
      d) pay is often subject to negotiation and bargaining.
      e) b and dd.

      Answer: e        M--Recall         Page: 341

Part V Compensation

58.   Bobcat International pays a range of salaries for retail workers. They can be paid
      anywhere from $5.50/hr to $8.50/hr. This range of pay is called a:
      a) pay grade scale.
      b) potential pay scale.
      c) pay range.
      d) payroll span.
      e) pay area.

      Answer: a        E--Application Page: 341

59.   Job-based compensation plans focus on the key component of:
      a) openness.
      b) the individual.
      c) equity.
      d) motivation.
      e) knowledge needed to perform the job.

      Answer: c        M--Recall         Page: 341

60.   The line, “"Grade 2, Clerk-Typist, $12.35 hr.,”" is from a:
      a) job-based pay structure.
      b) skill-based pay structure.
      c) decentralized pay system.
      d) below-market pay system.
      e) knowledge-based pay system.

      Answer: a        E--Integration    Page: 341-342

61.   Kora is reviewing her company’'s pay structure and sees, that “"Grade 3, Able to
      work independently and use WordPerfect software, $14.57 hr.”" Kora is reviewing
      a) job-based pay structure.
      b) skill-based pay structure.
      c) decentralized pay system.
      d) below-market pay system.
      e) knowledge-based pay system.

      Answer: b        E--Application Page: 341-342

                                                         Chapter 10 – Managing Compensation

62.   In building a job-based compensation plan, the job evaluation process is designed
      to assess:
      a) the relative contribution of different jobs to the organization.
      b) the relative value or contribution of individual employees to the organization.
      c) the external equity of the system.
      d) the specific tasks and duties required of the jobs in the plan.
      e) individual employee performance in specific jobs.

      Answer: a        M--Recall         Page: 342

63.   The design of job-based compensation pay plans begins with:
      a) a job description.
      b) classifying jobs.
      c) creating a job hierarchy.
      d) conducting a job analysis.
      e) writing job specifications.

      Answer: d        M--Recall         Page: 343

64. Michele is determining the value of different jobs in a medium-sized contracting
    company. She is:
    a) performing job analysis.
    b) conducting a job evaluation.
    c) trying to achieve internal equity.
    c)d)             determining job specifications.                                          Formatted: Bullets and Numbering
    d)e)             none of the above

      Answer: a        C--Application Page: 343

65.   The head of HR has asked you to gather information about the tasks, duties, and
      responsibilities of specific jobs. He wants you to perform:
      a) perform a job evaluation.
      b) perform job analysis.
      c) perform a dDistributive jJustice mModel.
      d) perform a comparable worth assessment.
      e) determine job specifications.

      Answer: b        M--Application Page: 343

Part V Compensation

66.   Job specifications:
      a) consist of worker characteristics necessary for successful performance.
      b) require the rating of each position described.
      c) list all the compensable factors of a particular job.
      d) focus on skill sets necessary to perform a task.
      e) identify, define, and describe each job in terms of its duties, responsibilities,
         and working conditions.

      Answer: a         C--Integration    Page: 343

67.   Job descriptions:
      a) consist of worker characteristics necessary for successful performance.
      b) require the rating of each position described.
      c) list all the compensable factors of a particular job.
      d) focus on skill sets necessary to perform a task.
      e) identify, define, and describe each job in terms of its duties, responsibilities,
         and working conditions.

      Answer: e         C--Integration    Page: 343

68.   Once job specifications and descriptions are created, the next step in developing a
      compensation system is:
      a) conducting a job analysis.
      b) creating a job hierarchy.
      c) rating jobs.
      d) assigning individual pay.
      e) establishing final pay policy.

      Answer: c         E --Recall        Page: 344

69.   Carlos is reviewing the knowledge, problem- solving skills, and accountability for a
      particular job. He is reviewing:
      a.) job specifications.
      b) compensable factors.
      c) a job description.
      d) a job hierarchy.
      e) benchmarks for that job.

      Answer: b         M--Application Page: 345

                                                              Chapter 10 – Managing Compensation

70.   The Hay Guide Chart Profile Method of weighing compensable factors in a job is
      best used when establishing a:
      a) skill-based compensation system.
      b) job-based compensation system.
      c) performance-centered compensation system.
      d) variable pay compensation system.
      e) membership-centered compensation system.

      Answer: b         M--Recall         Page: 345

71.   The NMTS Associates National Position Evaluation Plan gives the highest possible
      points to which compensable factor?:
      a) kKnowledge.
      b) pProblem -solving.
      c) aAccountability.
      d) Eexperience.
      e) sSkill.

      Answer: d         C--Integration    Page: 345

72.   Both the National Position Evaluation Plan and the Hay Guide Chart Profile
      Method share:
      a) the same compensable factors.
      b) the use of a scale of numbers and degrees.
      c) an emphasis on experience over other factors.
      d) a utility for establishing compensation for skill-based jobs.
      e) the same job hierarchy.

      Answer: b         M--Recall         Page: 345

73.   A job hierarchy in a compensation plan is built on:
      a) the job specifications, descriptions, and ratings.
      b) the job classification by pay grade.
      c) the final pay policies of the company.
      d) a ranking system.
      e) an external market survey.

      Answer: a         M--Recall         Page: 346

Part V Compensation

74.   When conducting a job evaluation, it is important to remind employees that:
      a) your focus is on the value of the tasks, not their individual performances.
      b) you are looking at their individual performance in specific jobs.
      c) the process will only establish your company’'s stance as far as external equity
         is concerned.
      d) external data must also be collected in order to establish the job’'s position in
         the job hierarchy.
      e) knowledge and skill are equally important in your assessment.

      Answer: a        C--Integration    Page: 347

75.   If a company uses a committee to sort job descriptions into grades without using a
      point system, the company is using a _____ system for its job -evaluation.
      a) ranking
      b) factor
      c) classification
      d) policy
      e) skill-based

      Answer: c        M--Recall         Page: 347

76.   An important tool for companies seeking to maintain external equity is the use of:
      a) job analysis.
      b) job hierarchies.
      c) the Hay or NMTA rating scales.
      d) market survey data.
      e) job specifications.

      Answer: d        M--Recall         Page: 347

77.   Internal job evaluations can have several benefits over using market evaluations,
      a) the fact that market evaluations may not contain information on jobs that are
          unique to the firm.
      b) the fact that market evaluations are hard to access.
      c) the relative inexpensiveness of internal job evaluations.
      d) the amount of time that will be saved in performing internal job evaluations.
      e) a and d

      Answer: a        M--Recall         Page: 348

                                                           Chapter 10 – Managing Compensation

78.   In order to tie job -evaluation data and external wage/salary data together, a
      company needs to:
      a) achieve individual equity.
      b) establish a job hierarchy.
      c) have an open compensation system.
      d) benchmark key jobs.
      e) use a skill-based compensation system.

      Answer: d         M--Recall         Page: 348

79.   When management is discussing whether to lead, lag, or pay the “"going rate”" for
      a job, they are deciding:
      a) whether to be egalitarian or elitist.
      b) if they want to have an open or secret compensation system.
      c) which element they want to emphasize in compensation--monetary or
          nonmonetary rewards.
      d) how to balance internal equity.
      e) their company’'s pay policy.

      Answer: e         M--Recall         Page: 349

80.   As the HR director, you are reviewing the comparability of pay of each employee
      within a range for particular jobs. You are:
      a) applying market survey data.
      b) rating individual jobs.
      c) reviewing individual equity.
      d) conducting a job analysis.
      e) assessing internal equity.

      Answer: c         M--Application Page: 350

81.   Job-based compensation systems have a number of disadvantages or drawbacks,
      such as:
      a) difficult to set- up and administrate.
      b) subjectivity and arbitrariness.
      c) leaving too little leeway for management discretion.
      d) being biased against managerial jobs.
      e) being too flexible and intuitive regarding judgments regarding key job

      Answer: b         M--Recall         Page: 350

Part V Compensation

82.   Job-based compensation:
      a) is less appropriate at higher levels in a firm.
      b) is the most objective of all compensation systems.
      c) is less bureaucratic and inflexible than other systems.
      d) takes into account the nature of the business.
      e) has less bias toward women than skill-based compensation systems.

      Answer: a        M--Recall        Page: 350

83.   Job-based compensation plans have the advantage of:
      a) being objective, data-based systems.
      b) having a bureaucratic and definitive structure.
      c) appearing rational and systematic, thereby minimizing employee complaints.
      d) focusing on the three most important compensable factors, depth, breadth, and
         vertical skills.
      e) tying compensation costs closely to profits.

      Answer: c        M--Recall        Page: 350

84.   When implementing a job-based compensation plan, it is best that a company:
      a) focus on tactical, immediate issues.
      b) narrow each job’'s pay range.
      c) avoid job banding.
      d) involve employees.
      e) minimize the variable portion of an employee’'s pay.

      Answer: d        M--Integration   Page: 351

85.   When setting up a job-based pay plan, it is important for a firm to:
      a) have a relatively flat management hierarchy.
      b) develop the plan independent of employee input.
      c) use an external consulting firm to ensure objectivity.
      d) differentiate among depth, horizontal, and vertical skills.
      e) establish a way for employees to improve pay without moving into

      Answer: e        M--Recall        Page: 352

                                                          Chapter 10 – Managing Compensation

86.   A skill-based approach to compensation is built on which of the following
      a) Workers are paid for performing well-defined jobs.
      b) The greater the variety of job-related skills a worker possesses, the more he/she
         should be paid.
      c) Each job must be very clearly described with highly defined tasks.
      d) The primary objective is to allocate pay so that the most important jobs
         command the highest pay.
      e) The job is the most important element to consider in setting compensation.

      Answer: b        M--Recall         Page: 352

87.   Skill-based pay plans pose some risks to the organization, such as:
      a) increasing employees’ frustration when they hit the top of the pay structure.
      b) not fitting higher levels of the organization.
      c) bias against women and minorities.
      d) not taking into account the nature of the business.
      e) being more subjective and arbitrary than job-based pay plans.

      Answer: a        M--Recall         Page: 353

88.   The compensation law that affects most pay structures in the United .States. is:
      a) Executive Order 11246.
      b) the Fair Labor Standards Act.
      c) the Civil Rights Act of 1991.
      d) the Internal Revenue Tax Code.
      e) the Equal Pay Act.

      Answer: b        M--Recall         Page: 353

89.   Compensation law identifies two categories of employees, exempt and non-exempt.
      Which of the following is an example of a non-exempt employee?
      a) A manager.
      b) A salesperson.
      c) An HRM professional.
      d) An hourly employee on the production line.
      e) A retail store supervisor.

      Answer: d        E--Recall         Page: 353

Part V Compensation

90.   An exempt employee:
      a) is one who receives at least minimum wage and overtime pay.
      b) works as a temporary employee.
      c) is more costly to a firm than a nonexempt employee.
      d) is not covered by the Fair Labor Standards Act.
      e) works part -time rather than full -time.

      Answer: d        M--Recall         Page: 353

91.   The Equal Pay Act prohibits compensation discrimination between men and
      women doing substantially the same job, except when:
      a) the pay differential is due to gender.
      b) the titles of the jobs in question are different.
      c) there is no apparent disparate impact from the practice.
      d) the base pay for the job is minimum wage.
      e) seniority or productivity are the basis for the differential.

      Answer: e        M--Recall         Page: 354


Table Case 10.1
A company is reviewing its compensation system. The president wants employees to be
paid wages and benefits comparable to competitors. He wants to be as fair as possible. He
also wants to have maximum flexibility in being able to move people around to different
jobs, as the company needs to, without having to worry about adjusting their pay. The
Finance VP suggests that the company should tie compensation costs more closely to
productivity and profit. When profits are down, compensation costs should be reduced as
well. She also believes that employees should be paid for what they produce, not for their
time, and the compensation program should apply to all equally. The VP of HRM
suggests that the key to the company’'s success is their employees. People should be paid
for their skills or knowledge, not just because they are fulfilling certain jobs. He also
feels that it would be simpler to implement a compensation system by level rather than by

92.   Refer to Table Case 10.1. The company president is expressing a concern about:
      a) external equity.
      b) labor market- based wages.
      c) individual equity.
      d) distributive justice.
      e) internal equity.

      Answer: a        Moderate          Page: 329-330

                                                          Chapter 10 – Managing Compensation

93.   Refer to Table Case 10.1. The Finance VP would most likely favor a(/an):
      a) fixed pay system.
      b) variable pay system.
      c) membership-based system.
      d) individual-centered system.
      e) egalitarian compensation system.

      Answer: b        Moderate          Page: 332-333

94.   Refer to Table Case 10.1. The compensation system that would meet the
      president’'s concerns about fairness and flexibility would be a(/an) _____
      compensation system.
      a) fixed pay
      b) variable pay
      c) membership-based
      d) performance-based
      e) skill-based

      Answer: e        Moderate          Page: 334

95.   Refer to Table Case 10.1. The HRM VP’'s thoughts about how to pay employees
      best fits a compensation system that:
      a) pays a fixed salary or wage.
      b) offers variable pay, such as bonuses and commissions.
      c) focuses on the employee rather than the specific job.
      d) is performance -based.
      e) pays employees for the time they put in, and for their seniority.

      Answer: c        Moderate          Page: 334

96.   Refer to Table Case 10.1. The president, VP of HRM, and VP of Finance would all
      agree on a(/an):
      a) egalitarian view of compensation.
      b) elitist view of compensation.
      c) labor market compensation model.
      d) individual-centered pay system.
      e) external equity compensation system.

      Answer: a        Moderate          Page: 335

Part V Compensation

Table Case 10.2
O’Donnell International is updating its job-based compensation system. A key concern is
internal equity. The HRM team is doing the job evaluations. Sean is responsible for
gathering and organizing information concerning the tasks and duties of specific jobs.
Susie is to determine the prerequisites for the successful accomplishment of each job
analyzed. Jeff, Martha, and three line managers will work together to determine the
compensable factors in each of the lower-level jobs evaluated. The HR director, the
pPresident, and two VP’'s will review the information on management jobs in order to
determine the compensable factors in each. They will also put the jobs into a job
hierarchy, highest to lowest, based on the committee’'s overall judgment as to the value
of the jobs.

97.   Refer to Table Case 10.2. The best tool for addressing O’Donnell’s key concern is:
      a) a market survey.
      b) the Hay system.
      c) to conduct a job evaluation.
      d) to benchmark.
      e) to initiate a TQM program.

      Answer: c         Moderate          Page: 342-343

98.   Refer to Table Case 10.2. Sean’s responsibility is to:
      a) conduct the job evaluations.
      b) write the job descriptions.
      c) identify the components of the job specifications.
      d) rate the worth of the jobs.
      e) create a job hierarchy.

      Answer: a         Easy              Page: 342-343

99.   Refer to Table Case 10.2. Susie’s responsibility relates to:
      a) conducting the job evaluations.
      b) writing the job descriptions.
      c) identifying the components of the job specifications.
      d) rating the worth of the jobs.
      e) creating a job hierarchy.

      Answer: c         Challenging       Page: 343-344

                                                          Chapter 10 – Managing Compensation

100. Refer to Table Case 10.2. For Jeff and Martha to accomplish their task, they need
     a) conduct the job evaluations.
     b) write the job descriptions.
     c) identify the components of the job specifications.
     d) rate the worth of the jobs.
     e) create a job hierarchy.

      Answer: d        Moderate          Page: 344

101. Refer to Table Case 10.2. The best tool for Jeff and Martha’s team to use in order
     to accomplish their responsibilities would be:
     a) the NMTA Associates National Position Evaluation Plan.
     b) a Hay Guide.
     c) a ranking system.
     d) a classification system.
     e) a market survey.

      Answer: a        Challenging       Page: 345-346

102. Refer to Table Case 10.2. The best tool for the HR director, the pPresident, and
     their team to use in order to accomplish their responsibilities, would be:
     a) the NMTA Associates National Position Evaluation Plan.
     b) a Hay Guide.
     c) a ranking system.
     d) a classification system.
     e) a market survey.

      Answer: b        Moderate          Page: 345

Table Case 10.3
You are conducting a class on compensation lay for your middle managers. You begin by
explaining the difference between exempt and non-exempt employees in the eyes of the

One topic you discuss is the issue of comparable worth, explaining what the term means
in comparison to the issue of equal pay. You tell the managers that there are certain
situations where the Equal Pay Act does not apply and they need to be aware of those

During your lecture, you begin to call on managers to discuss the material they were to
read before the class began. You’'ve just finished reviewing the key points on each of the
above issues.

Part V Compensation

103. Refer to Table Case 10.3. You call on a middle manager and ask, “"What
     businesses are covered by the FSLA?"” The correct answer is:
     a) all U.S. employers.
     b) any employer with more than 1 employee or more than $500,000 in sales
     c) employers with more than 35 employees.
     d) an employer with a federal contract.
     e) any company with more than 25 employees or more than $1,000,000 in annual

      Answer: b        Challenging     Page: 353

104. Refer to Table Case 10.3. Your managers’' employment status in terms of the
     FSLA is that:
     a) they are all non-exempt employees.
     b) they are personally covered by the overtime provisions of the law.
     c) they are covered by minimum wage law.
     d) they are not covered by the law.
     e) only the women managers are covered by the law.

      Answer: d        Moderate        Page: 343

105. Refer to Table Case 10.3. The issue of comparable worth you are discussing is
     covered by which law?
     a) The Equal Pay Act.
     b) The Civil Rights Act of 1991.
     c) The FSLA.
     d) The Comparable Worth Act of 1978.
     e) Executive Order 11246.

      Answer: a        Easy            Page: 354

106. Refer to Table Case 10.3. You ask your managers to explain what they’ve learned
     about comparable worth and they tell you that:
     a) it is the same as the equal pay issue covered under the Equal Pay Act.
     b) it is a racial discrimination issue—that minorities and Caucasians must be paid
        the same for the same job.
     c) it refers to paying men and women the same for performing essentially similar
     d) it requires that women and minorities have equal earning opportunities within a
     e) it requires that all employers pay at least a minimum wage of $4.25 an hour to
        all employees regardless of gender, sex, etc.

      Answer: c        Easy            Page: 355

                                                         Chapter 10 – Managing Compensation

Table Case 10.4
Christopher is the VP of the clothing company Harrison, Inc. HR is in the process of re-
designing the company’s compensation system since Harrison has gone international.
Christopher believes that employees should be paid in direct response to what the
employees contribute to the company. Joanna, an upper-level manager, agrees and also
believes that employees who hold higher positions in the company should be paid
considerably more than those who hold subordinate positions. Mark, the head of HR,
encourages Christopher to make sure that employees are being paid at a comparable rate
to employees who are performing the same job at other apparel companies.

Christopher believes that the company needs to have greater flexibility in moving people
among jobs without having to adjust their compensation. The management also wants
more joint-task accomplishment and better cooperation among employees.

107. Refer to Table Case 10.4. According to his comments, it is likely that Christopher
     would support:
     a) the Distributive Justice Model.
     b) the Labor Market Model.
     c) establishing equity for both internal and external pay.
     d) paying employees at less than the going rate.
     e) centralizing pay decisions.

     Answer: a         Moderate         Page: 330

108. Refer to Table Case 10.4. Joanna believes in:
     a) balancing external equity.
     b) an egalitarian pay system.
     c) an elitist pay system.
     d) skill-based compensation.
     e) nonmonetary rewards.

     Answer: c         Easy             Page: 335

109. Refer to Table Case 10.4. A compensation system that will meet management’s
     goals of work force flexibility and cooperation between employees is a(n):
     a) an elitist pay system.
     b) an individual-centered pay system.
     c) a variable compensation system.
     d) an egalitarian compensation system.
     e) a job-centered compensation system.

     Answer: d         Challenging      Page: 335

Part V Compensation

110. Refer to TableCase 10.4. Mark is encouraging:
     a) internal equity.
     b) an egalitarian system.
     c) ensuring comparable worth within the company.
     d) external equity.
     e) following a lLabor mMarket Mmodel.

      Answer: d        Easy             Page: 331-332

111. Refer to TableCase 10.4. After performing a point factor job analysis, HR reports
     to Christopher that assistant administrators are receiving considerably less
     compensation than line -supervisors, even though they are performing similar jobs
     with very similar skills. Christopher realizes that:
     a) this is perfectly acceptable, since the assistant administrators are exempt
         employees and the line -supervisors are nonexempt employees.
     b) the employees are of comparable worth, but are not being compensated
     c) this problem can be fixed by achieving external equity.
     d) this is simply a factor of fixed pay.
     e) this is a typical egalitarian pay systems.

      Answer: b        Moderate         Page: 355


112. Job compensation directly affects how much labor costs detract from or contribute
     to business profitability.

      Answer: True     Easy             Page: 327-328

113. The benefits portion of an employee’'s pay averaged 41% of the total compensation
     package in 1994.

      Answer: True     Moderate         Page: 329

114. Pay incentives make up the greatest percentage of total compensation for

      Answer: False    Easy             Page: 329

115. The perceived fairness of an employee’'s pay relative to what other employees are
     being paid for the same labor describes the concept of internal equity.

      Answer: True     Moderate         Page: 329

                                                          Chapter 10 – Managing Compensation

116. Compensation may be based on a number of models. The distributive justice model
     of pay equity holds that the wage rate for a given occupation is set at a point where
     the labor supply and labor demand are equally distributed.

      Answer: False    Challenging       Page: 330

117. Balancing equity ensures that employees with seniority will receive greater
     compensation than more recent hires.

      Answer: False    Moderate          Page: 331

118. The primary reason variable pay is the norm in U.S. industry is because it
     correlates labor costs with production cost, enhancing a company’'s competitive

      Answer: False    Moderate          Page: 332

119. As an employee’s’ base pay increases, it is likely that the percentage of variable
     pay that he or she receives will decrease.

      Answer: False    Moderate          Page: 332

120. Membership-contingent compensation provides a similar wage to every employee
     in a given group, so long as they perform their job satisfactorily.

      Answer: True     Easy               Page: 333

121. The relative emphasis placed on performance versus membership depends largely
     on the organization’'s culture and beliefs of top management.

      Answer: True     Moderate          Page: 333

122. A job-based pay system works best where jobs don’'t change often, when a great
     deal of training is required to learn a job, and when employees expect to move up
     through the system over time.

      Answer: True     Easy              Page: 334

123. Azzi recently went through company training on using a new computer system, in
     addition,and she has recently received her Associates of Arts degree in Accounting.
     Her company is raising her salary in response to her new abilities and is giving her
     new, related responsibilities. The company probably uses a job-based pay system.

      Answer: False     Challenging       Page: 334

Part V Compensation

124. An egalitarian pay system strives to place most of their employees under the same
     compensation plan, while elitist pay systems establish different compensation plans
     based on employees’ organizational level.

      Answer: True     Easy              Page: 335

125. Below-market compensation is more prevalent at larger companies in less
     competitive industries.

      Answer: False    Challenging      Page: 336-337

126. Most Americans feel that pay is the most important consideration in accepting or
     staying at a job.

      Answer: False    Challenging      Page: 337

127. Organizations that emphasize nonmonetary rewards are often trying to encourage
     and reinforce individual achievement and responsibility among employees.

      Answer: False    Moderate         Page: 337

128. Open pay policies tend to lead to greater dissatisfaction among employees as
     employees compare compensation with each other.

      Answer: False    Moderate         Page: 339

129. In a company where pay decisions are decentralized, the managers of each unit
     often have the responsibility of determining compensation for employees.

      Answer: True     Easy             Page: 340

130. Skill-based pay assumes that workers should be paid according to how flexible or
     capable they are at performing multiple tasks.

      Answer: True     Moderate         Page: 334

131. The first step in achieving pay equity for job-based compensation plans is
     conducting a job analysis.

      Answer: True     Easy             Page: 343

132. Compensable factors are concrete terms relating to the necessary education, skill,
     and work experience for compensation at a particular level.

      Answer: False    Challenging      Page: 345

                                                            Chapter 10 – Managing Compensation

133. Calvin’s compensation committee is evaluating the worth of a group of managerial
     level jobs. Between the Hay and NMTS systems, his best choice would be the Hay

      Answer: False     Challenging        Page: 345-346

134. A job hierarchy lists jobs in order of their importance to an organization.

      Answer: True      Easy               Page: 346

135. In order to achieve external equity, a company must first benchmark key jobs.

      Answer: True      Moderate           Page: 348

136. Job-based compensation is more subjective than it is objective.

      Answer: True      Challenging        Page: 350

137. It is not the employees’ perceptions of equity that count; it is the reality of equity.

      Answer: False     Moderate           Page: 350-351

138. Job banding entails replacing narrowly defined job descriptions with broad
     categories of related jobs.

      Answer: True      Moderate           Page: 351

139. In skill-based compensation plans, employees acquire depth skills when they learn
     self-management abilities, such as scheduling, organizing, etc.

      Answer: False     Moderate           Page: 352

140. Some companies, in order to dodge costs related to the Fair Labor Standards Act,
     will claim more exempt employees than nonexempt employees.

      Answer: False     Challenging        Page: 353

141. While the Fair Labor Standards Act dictates that employers pay workers overtime
     for each hour they work over 40 hours in a week, it does not dictate the rate they
     must be paid. Employers may pay anywhere from 1/2 to 1 times their regular wage.

      Answer: False     Moderate           Page: 354

Part V Compensation

142. The term “comparable worth” means essentially the same thing as equal pay: —that
     men and women must be paid the same wage for the same job.

      Answer: False    Challenging       Page: 355


143. The package of quantifiable rewards an employee receives for his/her labors is
     called _______.

     Answer: total compensation

                               Moderate Page: 329

144. _______ is a program designed to reward employees for good performance.

     Answer: Pay incentive Moderate Page: 329

145. _______ is the perceived fairness of the pay structure within a firm.

     Answer: Internal equity

                               Moderate Page: 329

146. A pay plan in which most employees are part of the same compensation system is
     referred to as a(n) _______.

     Answer: egalitarian pay system

                               Moderate Page: 335

147. A(n) _______ is a pay plan in which different compensation systems are established
     for employees or groups at different organizational levels.

     Answer: elitist pay system

                               Moderate Page: 335

148. _______ are work-related criteria that an organization considers most important in
     assessing the relative value of different jobs.

     Answer: Compensable factors

                               Moderate Page: 345

                                                           Chapter 10 – Managing Compensation

149. A listing of jobs in order of their importance to the organization, from highest to
     lowest is referred to as a(n) _______.

     Answer: job hierarchy Easy            Page: 346

150. A job that is similar or comparable in content across firms is called a(n) _______.

     Answer: benchmark job or key job

                              Easy         Page: 348

151. _______ is the perceived fairness of individual pay decisions.

     Answer: Individual equity

                              Moderate Page: 350

152. The practice of replacing narrowly defined job descriptions with broader categories
     or related jobs is referred to as _______.

     Answer: job banding      Moderate Page: 351

153. The _______ is the fundamental compensation law in the United .States. that
     requires employers to record earnings and hours worked by all covered employees,
     and to report this information to the U.S. Department of Labor.

     Answer: Fair Labor Standards Act (FLSA)

                              Moderate Page: 353

154. Most professional, administrative, executive, and outside sales jobs fall into the
     category of _______.

     Answer: exempt (employees)

                              Moderate Page: 354

155. An employees who is covered by the provisions of the FLSA is referred to as a(n)

     Answer: nonexempt employee

                              Moderate Page: 354

Part V Compensation

156. _______ is a pay concept or doctrine that calls for comparable pay for jobs that
     require comparable skills, effort, and responsibility and have comparable working
     conditions, even if the job content is different.

     Answer: Comparable worth

                             Moderate Page: 355

157. The code of tax laws that affects how much of their earnings employees can keep
     and how benefits are treated for tax purposes, is called the _______.

     Answer: Internal Revenue Code (IRC)

                             Moderate Page: 356

158. Define the concepts of internal and external equity, describing two basic models a
     company may use, and explain how the objectives of internal and external equity
     can conflict.

      Summary of suggested answer -
       Definitions--internal equity, perceived fairness of pay structure within a
         company. External equity, perceived fairness of pay structure used by an
         employer versus other employers’' compensation for the same labor.
       Models--Distributive justice, employees exchange effort for pay and the ratio
         of input to output must be perceived as fair.
       Labor market--you pay what you must to get employees, supply and demand
         of labor determines wages.
       Conflict--you have to pay new employees more than existing ones to attract
         them. Desire to be fair to existing employees requires periodic pay structure
         adjustments. Emphasis should be on external equity.

      Moderate         Page: 329-332

                                                         Chapter 10 – Managing Compensation

159. A company designing a compensation plan needs to make several decisions.
     Explain a company’'s pay options in terms of: fixed versus variable pay,
     performance versus membership, and individual versus job-based system.

     Summary of suggested answer -
      Fixed versus variable--fixed is base pay, little variation in compensation.
        Compensation costs are constant. Risk is reduced for employee and employer.
        Trades income security for income potential. Variable are bonuses,
        commissions, etc. Costs of compensation are tied to profit. Increases risk, also
        increases earnings potential. Employee has a direct stake in company’'s success.
      Performance versus membership--performance pay is tied to employee’s's
        contribution to the company. Types--piece rate, commissions, etc.
      Membership pay--all employees in same job receive same pay. Basically paid
        for time put in.
      Job versus individual--Job uses the tasks and duties performed as the basis for
        pay. Works best in stable situations, standardized jobs, etc. Individual is either
        knowledge- or skill-based pay, the individual contribution is the basis of pay.
        One increases pay by doing the job better. Works best with educated workforce,
        dynamic market/organization when there is limited upward mobility.

     Challenging      Page: 332-334

160. Describe the reasons a company would choose below-market or above-market
     compensation policy and the advantages and disadvantages of open versus secret
     pay policies.

     Summary of suggested answer -
     General factors that affect a company’'s compensation strategy are:
      Wworkers’' alternative employment opportunities and the cost to the company
        of the strategy.
      Above-market compensation is more prevalent in large companies in less
        competitive industries, when there is a high level of employment in the
      Below-market compensation tends to be prevalent among small, young,
        nonunionized companies that often operate in economically depressed areas and
        tend to have a higher proportion of women and minorities in the workforce.
      At-market wages are typical in well-established and highly competitive

     Moderate         Page: 336-337

Part V Compensation

161. The process of achieving internal equity involves six steps. Enumerate and explain
     this process.

      Summary of suggested answer -
       Steps--1) job analysis, 2) job description, 3) job specifications, 4) rate worth, 5)
         establish job hierarchy, and 5) classify jobs by grade level.
       Contribution--1) identifies compensated duties and responsibilities. 2) records
         job duties, responsibilities, working conditions, and requirements. 3) identifies
         prerequisites for successful job completion. 4) uses point factors to weight jobs.
         5) places job in rank order against other jobs based on point factors. 6) places
         jobs in grades and assigns value and therefore compensation.

      Easy              Page: 342-347

162. Explain impact of FSLA and the Equal Pay Act, explaining what each law covers
     and how it affects employers.

      Summary of suggested answer -
       FSLA--defines exempt and non-exempt. Sets minimum wage. Dictates
         overtime pay requirements.
       Equal Pay Act--prohibits pay discrimination between men and women. There
         are four exceptions—-seniority, better job performance, productivity, and shift
         differential pay. Raises the issue of comparable worth.

      Easy              Page: 353-354


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