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Compensation, Fifth Canadian Edition Test Bank

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    Exam Name___________________________________ 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) allowances B) pensions C) stock options D) financial planning E) insurance Answer: C Explanation: A) B) C) D) E) 2) Which of the following is NOT a benefit component of total compensation? 2) A) relational returns B) cost-of-living adjustment C) allowances D) incentives E) merit increase Answer: C Explanation: 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 objectives B) consolidated pay which is not subject to any change regardless of the cost-of-living C) percentage increment to base pay provided to all employees regardless of performance D) compensation to provide for items that are in short supply E) increment to base pay in recognition of past work behaviour Answer: C Explanation: A) B) C) D) E) 1

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    4) Which of the following is a work/life program? 4) A) health insurance B) cost-of-living adjustment C) stock options D) employment Insurance E) telecommuting Answer: E Explanation: A) B) C) D) E) 5) ________ refer to one-time payments for meeting previously established performance objectives. 5) A) Allowances B) Merit increments C) Relational returns D) Cost-of-living adjustments E) Incentives Answer: E Explanation: A) B) C) D) E) 6) Which of the following is a form of relational return? 6) A) life Insurance B) monitory incentives C) allowances D) benefits E) recognition and status Answer: E Explanation: 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) Allowance B) Incentive C) Cost-of-living adjustment D) Variable pay E) Wage Answer: A Explanation: A) B) C) D) E) 8) External competitiveness refers to: 8) A) the relative importance of jobs within a company B) inflationary pressure caused by external market factors C) comparison of compensation with that of competitors D) competitiveness between different departments in a company E) comparison of product prices with that of competitors Answer: C Explanation: A) B) C) D) E) 9) Which of the following pay policies lays emphasis on performance? 9) A) Employee contributions B) Management C) Administration of the pay system D) Internal alignment E) External competitiveness Answer: A Explanation: A) B) C) D) E) 3

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    10) All forms of financial returns and tangible services and benefits that employees receive as part of an employment relationship are known as ________. 10) A) relational returns B) merit pay C) compensation D) base pay E) total rewards Answer: C Explanation: 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: D Explanation: A) B) C) D) E) 12) Total compensation does NOT include: 12) A) base pay B) insurance benefits C) allowances D) relational returns E) incentives Answer: D Explanation: 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 of performance B) one-time payments for meeting previously established performance objectives C) compensation to provide for items that are in short supply D) pay calculated at an annual or monthly rate E) programs that help employees better integrate their work and life responsibilities Answer: C Explanation: 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 of performance. Answer: B Explanation: A) B) C) D) E) 15) Pay for executives should supposedly to be tied to: 15) A) the financial needs of the employee B) the company's financial performance C) the company's growth potential D) the cost of living index E) the company's reputation Answer: B Explanation: 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 psychological returns people believe they receive in the workplace. B) Base pay tends to reflect the value of the work or skills and generally ignores differences attributable to individual employees. C) Relational returns are more transactional than total compensation. D) Merit increases refer to the same percentage increase that everyone receives regardless of performance in order to maintain pay levels relative to increases in the cost of living. E) Base pay, incentives, and cost-of-living adjustments are the typical relational returns. Answer: B Explanation: A) B) C) D) E) 17) Internal alignment may be achieved by: 17) A) paying below-market base wages but offering training and rapid promotion B) compensating employees at above-market rates C) comparing pay between jobs or skill levels inside a single organization D) creation of cross-functional departments E) matching competitors' wage rates Answer: C Explanation: 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 responsibilities B) the psychological returns people believe they receive in the workplace C) all rewards received by employees, including cash compensation, benefits, and psychological returns D) one-time payments for meeting previously established performance objectives E) all forms of financial returns and tangible services that employees receive as part of an employment Answer: B Explanation: 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 returns B) Subjective returns C) Cognitive returns D) Compensational returns E) Qualitative returns Answer: A Explanation: 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: D Explanation: A) B) C) D) E) 21) Which of the following refers to pay calculated at an hourly rate? 21) A) total reward B) salary C) merit increase D) compensation E) wage Answer: E Explanation: 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: C Explanation: A) B) C) D) E) 23) Which of the following is NOT part of an employee's total compensation? 23) A) health insurance B) paid vacation C) pay D) cost-of-living adjustments E) relational returns Answer: E Explanation: A) B) C) D) E) 24) ________ includes cash compensation, benefits, and relational returns. 24) A) Total compensation B) Total incentive C) Total reward D) Total base pay E) Total cash benefit Answer: C Explanation: A) B) C) D) E) 8

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    25) ________ as a pay objective involves abiding by various federal, provincial, and territorial compensation laws and regulations. 25) A) Efficiency B) Fairness C) Compliance D) Competitiveness E) Alignment Answer: C Explanation: 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: True False Explanation: 27) Merit pay is a one-time payment for meeting previously established performance objectives. 27) Answer: True False Explanation: 28) Pay relationships within the organization affect employee decisions to stay with the organization. 28) Answer: True False Explanation: 29) Total compensation includes psychological aspects of work such as recognition and status, challenging work, and learning opportunities. 29) Answer: True False Explanation: 30) Allowances are rewards given to employees based on their performance. 30) Answer: True False Explanation: 31) Total compensation only includes salary and incentives; not benefits. 31) Answer: True False Explanation: 32) When executive pay is excessive relative to company performance, profits are diverted away from stockholders to the executives. 32) Answer: True False Explanation: 9

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    33) External competitiveness refers to pay comparisons between different skill levels in an organization. 33) Answer: True False Explanation: 34) Making contributions to Workers' Compensation is at discretion of the employer. 34) Answer: True False Explanation: 35) While external competitiveness directly affects efficiency, it does not affect fairness. 35) Answer: True False Explanation: 36) Incentives may be long-term or short-term. 36) Answer: True False Explanation: 37) Cost-of-living adjustment refers to percentage increment to base pay provided to employees based on their performance. 37) Answer: True False Explanation: 38) Compensation objectives provide standards for evaluating the effectiveness of the pay system. 38) Answer: True False Explanation: 39) Base pay is the cash compensation an employer pays for the work performed. 39) Answer: True False Explanation: 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 employee behaviour and consequently improve organization performance. 41) What are the two major categories of total rewards? Answer: Total compensation and relational returns 42) 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 to reflect the value 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 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. The relational 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 the company. When executive pay is excessive relative to company performance, profits are diverted 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. It suggests that the way a pay decision is made may be as important to employees as the result of the 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) the techniques 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, advantageous prices. 49) What does base pay reflect? Answer: Base pay tends to reflect the value of the work or skills and generally ignores differences attributable to individual employees. 11

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    Answer Key Testname: C1 1) C 2) C 3) C 4) E 5) E 6) E 7) A 8) C 9) A 10) C 11) D 12) D 13) C 14) B 15) B 16) B 17) C 18) B 19) A 20) D 21) E 22) C 23) E 24) C 25) C 26) TRUE 27) FALSE 28) TRUE 29) FALSE 30) FALSE 31) FALSE 32) TRUE 33) FALSE 34) FALSE 35) FALSE 36) TRUE 37) FALSE 38) TRUE 39) TRUE 40) 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 employee behaviour and consequently improve organization performance. 41) Total compensation and relational returns 42) Base pay is the cash compensation an employer pays for the work performed. Base pay tends to reflect the value 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 an annual or monthly rate rather than hourly which is the basis for wage. 12

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    Answer Key Testname: C1 43) The two major categories of total rewards are relational returns and total compensation. The relational 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) 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 from stockholders 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 the way 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) the strategic policies that form the foundation of the compensation system, and (3) the techniques of compensation. 48) 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, advantageous prices. 49) Base pay tends to reflect the value of the work or skills and generally ignores differences attributable to individual employees. 13

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    Exam Name___________________________________ 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 strategy that deals with employee or union needs? 1) A) implementing strategy B) mapping a total compensation strategy C) reassessing the fit D) implementing cultural and regulatory changes E) assessing total compensation implications Answer: E Explanation: A) B) C) D) E) 2) Internal alignment suggests that: 2) A) both smaller and larger pay differences among jobs inside an organization can affect results. 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 for performance or internal pay differences, all dimensions need to be considered together. D) performance-based pay can affect results. E) embedding compensation strategy within the broader HR strategy affects results. Answer: A Explanation: 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: D Explanation: 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 detail exactly 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 incentives designed to encourage innovations. E) seldom stresses on innovations or risk taking. Answer: D Explanation: A) B) C) D) E) 5) According to the pay model, the strategic compensation decisions regarding management involve: 5) A) how total compensation should be positioned against competitors. B) how compensation should support the business strategy and be adaptive to the cultural 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 the organization. E) how pay increases should be based. Answer: C Explanation: A) B) C) D) E) 6) According to the pay model, the strategic compensation decisions regarding external competitiveness 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 the cultural and regulatory pressures in a global environment. D) how the different types and levels of skills and work should be paid within the organization. E) how pay increases should be based. Answer: A Explanation: A) B) C) D) E) 2

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    7) Mapping a total compensation strategy includes setting objectives and specifying policies on ________. 7) A) HR systems B) contributions C) employee/union needs D) core culture/values E) social and political context Answer: B Explanation: A) B) C) D) E) 8) Managing the links between the compensation strategy and the pay system as well as people's perceptions and behaviours is vital to implementing a(n): 8) A) association perspective. B) pay strategy. C) organizational hierarchy. D) planned perception. E) strategic alliance. Answer: B Explanation: A) B) C) D) E) 9) Which of the following is the first step in the development of the total compensation strategy? 9) A) reassessing the fit B) realigning as strategy changes C) assessing total compensation implications D) mapping a total compensation strategy E) implementing strategy Answer: C Explanation: A) B) C) D) E) 3

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    10) According to the steps involved in formulating a total compensation strategy, which of the following is the step that follows the assessment of total compensation implications? 10) A) implementing strategy B) mapping a total compensation strategy C) implementing cultural and regulatory changes D) reassessing the fit E) realigning as conditions change Answer: B Explanation: A) B) C) D) E) 11) Which of the following organizational practices assumes that paying higher than the average paid by competitors can affect results? 11) A) employee contributions B) internal alignment C) managing compensation D) compensation strategy E) external competitiveness Answer: E Explanation: A) B) C) D) E) 12) Which of the following organizational practices assumes that rather than focusing on only one dimension of the pay strategy, such as pay for performance or internal pay differences, all dimensions need to be considered together? 12) A) internal alignment B) external competitiveness C) managing compensation D) compensation strategy E) employee contributions Answer: C Explanation: A) B) C) D) E) 4

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    13) A focus on compensation decisions that help the organization gain and sustain competitive advantage is known as ________. 13) A) strategic perspective B) strategic alliance C) association perspective D) competitive heterogeneity E) planned perception Answer: A Explanation: A) B) C) D) E) 14) According to the pay model, the strategic compensation decisions regarding objectives involve: 14) 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 the cultural and regulatory pressures in a global environment. D) how pay increases should be based. E) how the different types and levels of skills and work should be paid within the organization. Answer: C Explanation: A) B) C) D) E) 15) Which of the following is a step in the development of the total compensation strategy that involves the choosing of techniques to fit the strategy? 15) A) assessing total compensation implications B) implementing strategy C) implementing cultural and regulatory changes D) reassessing the fit E) mapping a total compensation strategy Answer: B Explanation: A) B) C) D) E) 5

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    16) Which of the following is a step in the development of the total compensation strategy that deals with competitive dynamics? 16) A) reassessing the fit B) implementing strategy C) mapping a total compensation strategy D) assessing total compensation implications E) implementing cultural and regulatory progress Answer: D Explanation: A) B) C) D) E) 17) Which of the following is the final step in the development of the total compensation strategy? 17) A) implementing strategy B) assessing total compensation implications C) reassessing the fit D) mapping a total compensation strategy E) implementing cultural and regulatory changes Answer: C Explanation: A) B) C) D) E) 18) A customer-focused business strategy: 18) A) stresses new products and short response times to market trends. B) places less emphasis on evaluating skills and jobs and more emphasis on incentives designed to encourage innovations. C) focuses on business practice or process that results in better performance than one's competitors. D) stresses doing more with less by minimizing costs, encouraging productivity increases, and specifying in greater detail exactly how jobs should be performed. E) stresses delighting customers and bases employee pay on how well they do this. Answer: E Explanation: A) B) C) D) E) 6

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    19) Which of the following is a step in the formulation of the total compensation strategy that deals with setting objectives and specifying policies on alignment, competitiveness, contributions, and management? 19) A) deciding on a total compensation strategy B) implementing cultural and regulatory changes C) reassessing the fit D) assessing total compensation implications E) implementing strategy Answer: A Explanation: A) B) C) D) E) 20) Which of the following pay strategies is a source of competitive advantage? 20) A) a pay strategy that adds value and is difficult for employers to imitate B) a pay strategy that ignores individual attitudes and preferences C) a pay strategy that emphasizes on work/life programs over cash compensation and giving only limited bonuses and no stock awards D) a pay strategy that specifies low base pay and high job security E) a pay strategy that overemphasizes on outstanding employee performance and commitment Answer: A Explanation: A) B) C) D) E) 21) A business practice or process that results in better performance than one's competitors is known as ________. 21) A) association perspective B) strategic alliance C) planned perception D) strategic perspective E) competitive advantage Answer: E Explanation: A) B) C) D) E) 7

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    22) According to the steps involved in the formulation of a total compensation strategy, which of the following is the next step after deciding on a total compensation strategy? 22) A) realigning as conditions change B) realigning as strategy changes C) reassessing the fit D) assessing total compensation implications E) implementing strategy Answer: E Explanation: A) B) C) D) E) 23) Periodic reassessment of a compensation strategy's fit to changing conditions is needed to: 23) A) design work so that employees have opportunities to work independently without collaboration with others. B) defer taxes by putting pay into retirement funds. C) set objectives on alignment, competitiveness, contributions, and management. D) continuously learn, adapt, and improve. E) specify the four policies on alignment, competitiveness, contributions, and management. Answer: D Explanation: A) B) C) D) E) 24) Which of the following statements is true about assessing the total compensation implications? 24) A) Pay can neither play a supporting role, as in the high performance approach, nor can it take the lead and be a catalyst for change. B) A pay system reflects the values that guide an employer's behaviour and underlie its treatment of employees. C) A highly centralized and confidential pay system controlled by a few people in a corporate unit will support a highly decentralized, flexible, open organization. D) The pay system seldom mirrors a company's image and reputation. E) Internationally, the role of unions in pay determination seldom varies. Answer: B Explanation: A) B) C) D) E) 8

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    25) Personal satisfaction in work accomplished, security, advancement opportunity, and means to share in the company success are fostered by a company's ________. 25) A) competitive dynamics B) core culture and values C) patronage concentration D) social and political context E) competitive heterogeneity Answer: B Explanation: A) B) C) D) E) TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 26) Pay systems mirror a company's image and reputation. 26) Answer: True False Explanation: 27) A compensation strategy emerges from the pay decisions that an organization makes. 27) Answer: True False Explanation: 28) The underlying premise of the support business strategy is that the greater the alignment between the organization and the compensation system, the more effective the organization. 28) Answer: True False Explanation: 29) All organizations that pay people have a written compensation strategy. 29) Answer: True False Explanation: 30) Government relations to influence laws and regulations are never a part of compensation strategies. 30) Answer: True False Explanation: 31) Of the three tests of competitive advantage N align, differentiate, add value N align is the most difficult. 31) Answer: True False Explanation: 32) Pay strategies need to be adapted to the nature of the union-management relationship. 32) Answer: True False Explanation: 9

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    33) An unstated compensation strategy is inferred from an organization's compensation practices. 33) Answer: True False Explanation: 34) Trial and error play a major role in developing a compensation strategy. 34) Answer: True False Explanation: 35) Union interests are part of the environmental pressures that help shape compensation strategies. 35) Answer: True False Explanation: 36) Taking a strategic perspective requires a focus on compensation decisions that helps the organization gain and sustain competitive advantage. 36) Answer: True False Explanation: 37) The pay strategy is not influenced by how well it fits with other HR systems in the organization. 37) Answer: True False Explanation: 38) When business strategies change, pay systems should remain the same. 38) Answer: True False Explanation: 39) Managing total compensation strategically means fitting the compensation system to the business and environmental conditions. 39) Answer: True False Explanation: ESSAY. Write your answer in the space provided or on a separate sheet of paper. 40) What is meant by a strategic perspective? Answer: Strategic perspective refers to a focus on compensation decisions that help the organization gain and sustain competitive advantage. 41) What does the "best fit" perspective on compensation suggest? Answer: The "best fit" perspective on compensation suggests that compensation be aligned, or fit, with the specific business strategy adopted by the organization, given its environment, in order to maximize competitive advantage. The "best practices" perspective suggests there is one set of best pay practices that can be applied universally across situations and strategies, attracting superior employees who then create a winning strategy. 10

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    42) Describe the last step of developing a total compensation strategy. Answer: The fourth step, reassess and realign, closes the loop of the total compensation strategy. This step recognizes that the compensation strategy must change to fit changing conditions. Thus, periodic reassessment of the fit is needed to continuously learn, adapt, and improve. Managing the links between the compensation strategy (grand policy decisions) and the pay system (procedures for paying people) as well as to people's perceptions and behaviours is vital to implementing a pay strategy. 43) What three tests determine whether a compensation strategy is providing a competitive advantage to the organization? Answer: Three tests determine whether a pay strategy is a source of competitive advantage. They are: (1) Does the pay strategy align? (2) Does the pay strategy differentiate? (3) Does the pay strategy add value? 44) List the aspects of alignment of the pay strategy. Answer: Alignment of the pay strategy includes three aspects: (1) alignment with the business strategy, (2) alignment externally with the economic and socio-political conditions, and (3) alignment internally with the overall HR system. 45) What is meant by context in the process of formulating a total compensation strategy? Answer: Context refers to a wide range of factors, including legal and regulatory requirements, cultural differences, changing workforce demographics, expectations, and so on. Governments are major stakeholders in determining compensation. Hence, government relations to influence laws and regulations may also be part of compensation strategies. From a strategic perspective, managers of compensation may try to shape the socio-political environment as well as be shaped by it. 46) Describe the process of developing a total compensation strategy. Answer: The four steps to develop a total compensation strategy are: (1) assess total compensation implications, including competitive dynamics, core culture/values, social and political context, employee/union needs, and the role of pay in overall HR strategy; (2) create a total compensation strategy from the five decisions in the pay model that include setting objectives and specifying the four policies on alignment, competitiveness, contributions, and management; (3) implement the compensation strategy; and (4) reassess and realign the strategy. 47) Define competitive advantage. Answer: Competitive advantage refers to a business practice or process that results in better performance than one's competitors. 11

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    48) How do employee preferences influence the formulation of an organization's total compensation strategy? Answer: The simple fact that employees differ is easily overlooked in formulating a compensation strategy. Individual employees join the organization, make investment decisions, design new products, assemble components, and judge the quality of results. Individual employees receive the pay. A major limitation of contemporary pay systems is the degree to which individual attitudes and preferences are ignored. Offering more choice is one approach. Older, highly paid workers may wish to defer taxes by putting their pay into retirement funds, whereas younger employees may have high cash needs to buy a house, support a family, or finance an education. Dual-career couples who are over insured medically may prefer to use more of their combined pay for child care, automobile insurance, financial counselling, or other benefits such as flexible schedules. Employees who have young children or dependent parents may desire dependent care coverage. However, preferences are notoriously unstable, changing according to the economic and personal conditions people face. 49) Describe the relationship between virtuous and vicious circles. Answer: Some studies suggest that performance-based pay works best when the organization is performing well. An organization with increasing profits or market share is able to pay larger incentives in the form of bonuses and stock awards which is reflected in employee attitudes and work behaviours, which in turn improves their performance and ultimately results in better organizational performance. The circle gains upward momentum. Contrarily when organization performance declines, say in a recessionary period, performance-based pay plans do not pay off; there are no bonuses, and the value of stock declines N with potentially negative effects on organizational performance. Declining organizational performance increases the risks facing employees N risks of demotions, wage cuts, and even layoffs. Declining employee attitudes may speed the downward spiral, creating a vicious circle. 12

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    Answer Key Testname: C2 1) E 2) A 3) D 4) D 5) C 6) A 7) B 8) B 9) C 10) B 11) E 12) C 13) A 14) C 15) B 16) D 17) C 18) E 19) A 20) A 21) E 22) E 23) D 24) B 25) B 26) TRUE 27) TRUE 28) TRUE 29) FALSE 30) FALSE 31) FALSE 32) TRUE 33) TRUE 34) TRUE 35) TRUE 36) TRUE 37) FALSE 38) FALSE 39) TRUE 40) Strategic perspective refers to a focus on compensation decisions that help the organization gain and sustain competitive advantage. 41) The "best fit" perspective on compensation suggests that compensation be aligned, or fit, with the specific business strategy adopted by the organization, given its environment, in order to maximize competitive advantage. The "best practices" perspective suggests there is one set of best pay practices that can be applied universally across situations and strategies, attracting superior employees who then create a winning strategy. 13

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    Answer Key Testname: C2 42) The fourth step, reassess and realign, closes the loop of the total compensation strategy. This step recognizes that the compensation strategy must change to fit changing conditions. Thus, periodic reassessment of the fit is needed to continuously learn, adapt, and improve. Managing the links between the compensation strategy (grand policy decisions) and the pay system (procedures for paying people) as well as to people's perceptions and behaviours is vital to implementing a pay strategy. 43) Three tests determine whether a pay strategy is a source of competitive advantage. They are: (1) Does the pay strategy align? (2) Does the pay strategy differentiate? (3) Does the pay strategy add value? 44) Alignment of the pay strategy includes three aspects: (1) alignment with the business strategy, (2) alignment externally with the economic and socio-political conditions, and (3) alignment internally with the overall HR system. 45) Context refers to a wide range of factors, including legal and regulatory requirements, cultural differences, changing workforce demographics, expectations, and so on. Governments are major stakeholders in determining compensation. Hence, government relations to influence laws and regulations may also be part of compensation strategies. From a strategic perspective, managers of compensation may try to shape the socio-political environment as well as be shaped by it. 46) The four steps to develop a total compensation strategy are: (1) assess total compensation implications, including competitive dynamics, core culture/values, social and political context, employee/union needs, and the role of pay in overall HR strategy; (2) create a total compensation strategy from the five decisions in the pay model that include setting objectives and specifying the four policies on alignment, competitiveness, contributions, and management; (3) implement the compensation strategy; and (4) reassess and realign the strategy. 47) Competitive advantage refers to a business practice or process that results in better performance than one's competitors. 48) The simple fact that employees differ is easily overlooked in formulating a compensation strategy. Individual employees join the organization, make investment decisions, design new products, assemble components, and judge the quality of results. Individual employees receive the pay. A major limitation of contemporary pay systems is the degree to which individual attitudes and preferences are ignored. Offering more choice is one approach. Older, highly paid workers may wish to defer taxes by putting their pay into retirement funds, whereas younger employees may have high cash needs to buy a house, support a family, or finance an education. Dual-career couples who are over insured medically may prefer to use more of their combined pay for child care, automobile insurance, financial counselling, or other benefits such as flexible schedules. Employees who have young children or dependent parents may desire dependent care coverage. However, preferences are notoriously unstable, changing according to the economic and personal conditions people face. 14

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    Answer Key Testname: C2 49) Some studies suggest that performance-based pay works best when the organization is performing well. An organization with increasing profits or market share is able to pay larger incentives in the form of bonuses and stock awards which is reflected in employee attitudes and work behaviours, which in turn improves their performance and ultimately results in better organizational performance. The circle gains upward momentum. Contrarily when organization performance declines, say in a recessionary period, performance-based pay plans do not pay off; there are no bonuses, and the value of stock declines N with potentially negative effects on organizational performance. Declining organizational performance increases the risks facing employees N risks of demotions, wage cuts, and even layoffs. Declining employee attitudes may speed the downward spiral, creating a vicious circle. 15

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    Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) With respect to the criteria used to determine the number of levels of work and differentials, ________ refers to the worth of the work: its relative contribution to the organization objectives. 1) A) content B) endowment C) return D) contribution E) value Answer: E Explanation: A) B) C) D) E) 2) ________ refer to the pay variances between job levels in an organization. 2) A) Factor levels B) Earmarks C) Job benchmarks D) Anomalies E) Differentials Answer: E Explanation: A) B) C) D) E) 3) ________ refers to the pay relationships between the jobs/skills/competencies within a single organization. 3) A) Total cash B) Internal equity C) Total alignment D) External alignment E) Base pay Answer: B Explanation: A) B) C) D) E) 1

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    4) ________ change(s) the value of jobs on the team and hence changes the job structure. 4) A) Self-management B) Procedural justice C) Employee redressal D) Labour intensity E) Ergonomic policies Answer: A Explanation: A) B) C) D) E) 5) Which of the following is an external factor that influences internal structures? 5) A) culture and custom B) cost implication C) employee acceptance D) human capital E) HR policy Answer: A Explanation: A) B) C) D) E) 6) A major influence on internal structures, the education, experience, knowledge, abilities, and skills that people possess is referred to as: 6) A) labour intensity B) human capital C) capital goods D) capital formation E) cultural diversity Answer: B Explanation: A) B) C) D) E) 2

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