Compensation 5th Edition Test Bank

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ExamName___________________________________MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.1)Which of the following is NOT a form of cash compensation?1)A)allowancesB)pensionsC)stock optionsD)financial planningE)insuranceAnswer:CExplanation:A)B)C)D)E)2)Which of the following is NOT a benefit component of total compensation?2)A)relational returnsB)cost-of-living adjustmentC)allowancesD)incentivesE)merit increaseAnswer:CExplanation:A)B)C)D)E)3)Which of the following best describes cost-of-living adjustment?3)A)one-time payments for meeting previously established performance objectivesB)consolidated pay which is not subject to any change regardless of the cost-of-livingC)percentage increment to base pay provided to all employees regardless ofperformanceD)compensation to provide for items that are in short supplyE)increment to base pay in recognition of past work behaviourAnswer:CExplanation:A)B)C)D)E)1

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4)Which of the following is a work/life program?4)A)health insuranceB)cost-of-living adjustmentC)stock optionsD)employment InsuranceE)telecommutingAnswer:EExplanation:A)B)C)D)E)5)________ refer to one-time payments for meeting previously established performanceobjectives.5)A)AllowancesB)Merit incrementsC)Relational returnsD)Cost-of-living adjustmentsE)IncentivesAnswer:EExplanation:A)B)C)D)E)6)Which of the following is a form of relational return?6)A)life InsuranceB)monitory incentivesC)allowancesD)benefitsE)recognition and statusAnswer:EExplanation:A)B)C)D)E)2

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7)________ refers to the compensation given to purchase items that are in short supply.7)A)AllowanceB)IncentiveC)Cost-of-living adjustmentD)Variable payE)WageAnswer:AExplanation:A)B)C)D)E)8)External competitiveness refers to:8)A)the relative importance of jobs within a companyB)inflationary pressure caused by external market factorsC)comparison of compensation with that of competitorsD)competitiveness between different departments in a companyE)comparison of product prices with that of competitorsAnswer:CExplanation:A)B)C)D)E)9)Which of the following pay policies lays emphasis on performance?9)A)Employee contributionsB)ManagementC)Administration of the pay systemD)Internal alignmentE)External competitivenessAnswer:AExplanation:A)B)C)D)E)3

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10)All forms of financial returns and tangible services and benefits that employees receiveas part of an employment relationship are known as ________.10)A)relational returnsB)merit payC)compensationD)base payE)total rewardsAnswer:CExplanation:A)B)C)D)E)11)Which of the following is true of the present value perspective?11)A)It creates an external competitiveness through future promises.B)It assesses the present value of a company to offer stock options to employees.C)It considers today's initial offers to employees.D)It considers future bonuses, merit increases, and promotions.E)It establishes a limit on the amount spent on benefits.Answer:DExplanation:A)B)C)D)E)12)Total compensation does NOT include:12)A)base payB)insurance benefitsC)allowancesD)relational returnsE)incentivesAnswer:DExplanation:A)B)C)D)E)4

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13)Which of the following best describes allowances?13)A)percentage increment to base pay provided to all employees regardless ofperformanceB)one-time payments for meeting previously established performance objectivesC)compensation to provide for items that are in short supplyD)pay calculated at an annual or monthly rateE)programs that help employees better integrate their work and life responsibilitiesAnswer:CExplanation:A)B)C)D)E)14)A merit increase is best described as:14)A)a one-time reward for past performance that does not increase base pay.B)an increment to base pay that recognizes past work behaviour.C)compensation given to provide for items that are in short supply.D)psychological returns employees believe they receive in the workplace.E)percentage increment to base pay provided to all employees regardless ofperformance.Answer:BExplanation:A)B)C)D)E)15)Pay for executives should supposedly to be tied to:15)A)the financial needs of the employeeB)the company's financial performanceC)the company's growth potentialD)the cost of living indexE)the company's reputationAnswer:BExplanation:A)B)C)D)E)5

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16)Which of the following statements is true about the forms of pay?16)A)Unlike relational returns, total compensation typically refers to the psychologicalreturns people believe they receive in the workplace.B)Base pay tends to reflect the value of the work or skills and generally ignoresdifferences attributable to individual employees.C)Relational returns are more transactional than total compensation.D)Merit increases refer to the same percentage increase that everyone receivesregardless of performance in order to maintain pay levels relative to increases in thecost of living.E)Base pay, incentives, and cost-of-living adjustments are the typical relationalreturns.Answer:BExplanation:A)B)C)D)E)17)Internal alignment may be achieved by:17)A)paying below-market base wages but offering training and rapid promotionB)compensating employees at above-market ratesC)comparing pay between jobs or skill levels inside a single organizationD)creation of cross-functional departmentsE)matching competitors' wage ratesAnswer:CExplanation:A)B)C)D)E)18)Which of the following best describes relational returns?18)A)programs that help employees better integrate their work and life responsibilitiesB)the psychological returns people believe they receive in the workplaceC)all rewards received by employees, including cash compensation, benefits, andpsychological returnsD)one-time payments for meeting previously established performance objectivesE)all forms of financial returns and tangible services that employees receive as part ofan employmentAnswer:BExplanation:A)B)C)D)E)6

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19)________ include psychological aspects of work such as recognition and status,challenging work, and learning opportunities.19)A)Relational returnsB)Subjective returnsC)Cognitive returnsD)Compensational returnsE)Qualitative returnsAnswer:AExplanation:A)B)C)D)E)20)An incentive payment:20)A)is part of an employee's base wage.B)is non-taxable and therefore highly preferred by employees.C)is made to provide for items that are in short supply.D)ties pay increases directly to an employee's performance.E)refers to psychological returns employees believe they receive in the workplace.Answer:DExplanation:A)B)C)D)E)21)Which of the following refers to pay calculated at an hourly rate?21)A)total rewardB)salaryC)merit increaseD)compensationE)wageAnswer:EExplanation:A)B)C)D)E)7

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22)Which of the following is true of internal alignment?22)A)It places greater emphasis on performance than the other policies.B)It relates to comparison of compensation with that of competitors.C)It compares pay between jobs inside a single organization.D)It does not influence the company's compensation objectives.E)It uses incentive programs as a technique to implement the policy.Answer:CExplanation:A)B)C)D)E)23)Which of the following is NOT part of an employee's total compensation?23)A)health insuranceB)paid vacationC)payD)cost-of-living adjustmentsE)relational returnsAnswer:EExplanation:A)B)C)D)E)24)________ includes cash compensation, benefits, and relational returns.24)A)Total compensationB)Total incentiveC)Total rewardD)Total base payE)Total cash benefitAnswer:CExplanation:A)B)C)D)E)8

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25)________ as a pay objective involves abiding by various federal, provincial, andterritorial compensation laws and regulations.25)A)EfficiencyB)FairnessC)ComplianceD)CompetitivenessE)AlignmentAnswer:CExplanation:A)B)C)D)E)TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.26)Procedural fairness is the fairness of the process used to make a decision about pay.26)Answer:TrueFalseExplanation:27)Merit pay is a one-time payment for meeting previously established performanceobjectives.27)Answer:TrueFalseExplanation:28)Pay relationships within the organization affect employee decisions to stay with theorganization.28)Answer:TrueFalseExplanation:29)Total compensation includes psychological aspects of work such as recognition andstatus, challenging work, and learning opportunities.29)Answer:TrueFalseExplanation:30)Allowances are rewards given to employees based on their performance.30)Answer:TrueFalseExplanation:31)Total compensation only includes salary and incentives; not benefits.31)Answer:TrueFalseExplanation:32)When executive pay is excessive relative to company performance, profits are divertedaway from stockholders to the executives.32)Answer:TrueFalseExplanation:9

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33)External competitiveness refers to pay comparisons between different skill levels in anorganization.33)Answer:TrueFalseExplanation:34)Making contributions to Workers' Compensation is at discretion of the employer.34)Answer:TrueFalseExplanation:35)While external competitiveness directly affects efficiency, it does not affect fairness.35)Answer:TrueFalseExplanation:36)Incentives may be long-term or short-term.36)Answer:TrueFalseExplanation:37)Cost-of-living adjustment refers to percentage increment to base pay provided toemployees based on their performance.37)Answer:TrueFalseExplanation:38)Compensation objectives provide standards for evaluating the effectiveness of the paysystem.38)Answer:TrueFalseExplanation:39)Base pay is the cash compensation an employer pays for the work performed.39)Answer:TrueFalseExplanation:ESSAY. Write your answer in the space provided or on a separate sheet of paper.40)Why is compensation important to managers?Answer:Managers have a stake in compensation: It directly influences their success in two ways: (1)compensation is a major expense, and (2) a manager uses it as a way to influence employeebehaviour and consequently improve organization performance.41)What are the two major categories of total rewards?Answer:Total compensation and relational returns42)What is base pay? Distinguish between a wage and a salary.Answer:Base pay is the cash compensation an employer pays for the work performed. Base pay tends toreflect the value of the work or skills and generally ignores differences attributable to individualemployees.A distinction is often made between a wage and a salary, with salary referring to pay that iscalculated at an annual or monthly rate rather than hourly which is the basis for wage.10

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43)Explain the two major categories of total rewards.Answer:The two major categories of total rewards are relational returns and total compensation. Therelational returns (development opportunities, status, opportunity to belong, challenging work,and so on) are the psychological returns people believe they receive in the workplace.Total compensation is more transactional and includes pay received directly as cash (e.g., base,merit increases, incentives, cost-of-living adjustments) and indirectly as benefits (e.g.,pensions, medical insurance, programs to help balance work and life demands).44)Why is executive pay in Canada of special interest to stockholders?Answer:In Canada, pay for executives should supposedly be tied to the financial performance of thecompany. When executive pay is excessive relative to company performance, profits arediverted away from stockholders to the executives.45)List the three basic objectives of a compensation system.Answer:Efficiency, fairness and compliance to rules and regulations.46)What is procedural fairness?Answer:Procedural fairness is concerned with the processes used to make decisions about pay. Itsuggests that the way a pay decision is made may be as important to employees as the result ofthe decision.47)What are the basic building blocks of a pay model?Answer:A pay model contains three basic building blocks: (1) the strategic compensation objectives,(2) the strategic policies that form the foundation of the compensation system, and (3) thetechniques of compensation.48)What are long-term incentives?Answer:Long-term incentives are intended to focus employee efforts on multi-year results. Typically,they are in the form of stock ownership or options to buy stock at specified, advantageousprices.49)What does base pay reflect?Answer:Base pay tends to reflect the value of the work or skills and generally ignores differencesattributable to individual employees.11

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Answer KeyTestname: C11)C2)C3)C4)E5)E6)E7)A8)C9)A10)C11)D12)D13)C14)B15)B16)B17)C18)B19)A20)D21)E22)C23)E24)C25)C26)TRUE27)FALSE28)TRUE29)FALSE30)FALSE31)FALSE32)TRUE33)FALSE34)FALSE35)FALSE36)TRUE37)FALSE38)TRUE39)TRUE40)Managers have a stake in compensation: It directly influences their success in two ways: (1) compensationis a major expense, and (2) a manager uses it as a way to influence employee behaviour and consequentlyimprove organization performance.41)Total compensation and relational returns42)Base pay is the cash compensation an employer pays for the work performed. Base pay tends to reflect thevalue of the work or skills and generally ignores differences attributable to individual employees.A distinction is often made between a wage and a salary, with salary referring to pay that is calculated at anannual or monthly rate rather than hourly which is the basis for wage.12

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Answer KeyTestname: C143)The two major categories of total rewards are relational returns and total compensation. The relationalreturns (development opportunities, status, opportunity to belong, challenging work, and so on) are thepsychological returns people believe they receive in the workplace.Total compensation is more transactional and includes pay received directly as cash (e.g., base, meritincreases, incentives, cost-of-living adjustments) and indirectly as benefits (e.g., pensions, medicalinsurance, programs to help balance work and life demands).44)In Canada, pay for executives should supposedly be tied to the financial performance of the company.When executive pay is excessive relative to company performance, profits are diverted away fromstockholders to the executives.45)Efficiency, fairness and compliance to rules and regulations.46)Procedural fairness is concerned with the processes used to make decisions about pay. It suggests that theway a pay decision is made may be as important to employees as the result of the decision.47)A pay model contains three basic building blocks: (1) the strategic compensation objectives, (2) thestrategic policies that form the foundation of the compensation system, and (3) the techniques ofcompensation.48)Long-term incentives are intended to focus employee efforts on multi-year results. Typically, they are inthe form of stock ownership or options to buy stock at specified, advantageous prices.49)Base pay tends to reflect the value of the work or skills and generally ignores differences attributable toindividual employees.13

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ExamName___________________________________MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.1)Which of the following is a step in the formulation of the total compensation strategythat deals with employee or union needs?1)A)implementing strategyB)mapping a total compensation strategyC)reassessing the fitD)implementing cultural and regulatory changesE)assessing total compensation implicationsAnswer:EExplanation:A)B)C)D)E)2)Internal alignment suggests that:2)A)both smaller and larger pay differences among jobs inside an organization can affectresults.B)paying higher than the average wage offered by competitors can affect results.C)rather than focusing on only one dimension of the pay strategy, such as pay forperformance or internal pay differences, all dimensions need to be consideredtogether.D)performance-based pay can affect results.E)embedding compensation strategy within the broader HR strategy affects results.Answer:AExplanation:A)B)C)D)E)3)A pay strategy is a source of competitive advantage:3)A)if it rarely aligns.B)if it seldom provides value.C)if it offers stock options.D)if it differentiates.E)if it defers taxes.Answer:DExplanation:A)B)C)D)E)1

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4)A supporting compensation approach for an innovator:4)A)stresses delighting customers and bases employee pay on how well they do this.B)stresses doing more with less by minimizing costs and specifying in greater detailexactly how jobs should be performed.C)focuses on system control and work specifications.D)places less emphasis on evaluating skills and jobs and more emphasis on incentivesdesigned to encourage innovations.E)seldom stresses on innovations or risk taking.Answer:DExplanation:A)B)C)D)E)5)According to the pay model, the strategic compensation decisions regarding managementinvolve:5)A)how total compensation should be positioned against competitors.B)how compensation should support the business strategy and be adaptive to thecultural and regulatory pressures in a global environment.C)how open and transparent the pay decisions should be to all employees.D)how the different types and levels of skills and work should be paid within theorganization.E)how pay increases should be based.Answer:CExplanation:A)B)C)D)E)6)According to the pay model, the strategic compensation decisions regarding externalcompetitiveness involve:6)A)how total compensation should be positioned against competitors.B)how open and transparent the pay decisions should be to all employees.C)how compensation should support the business strategy and be adaptive to thecultural and regulatory pressures in a global environment.D)how the different types and levels of skills and work should be paid within theorganization.E)how pay increases should be based.Answer:AExplanation:A)B)C)D)E)2

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