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Compensation Management V1A
Assignment A
Q .1 What is Employees Compensation? State its two components? Explain the vario
us steps involved in establishing pay rates?
Q .2 Give overview of legislations affecting compensation?
Q .3 What are different elements of managerial compensation?
Q .4 Outline the main employees services benefits?
Q .5 What is goal sharing? Why organizations introduce goal sharing?
Q .6 Define Benefits and Incentives? Classify them? State its merits and demerit
Q .7 State the differences between absenteeism and retention? Explain the proces
s, advantages and limitations of retention management
Q .8 Explain performance based rewards and compensation schemes? Also explain co
mpetency mapping?
Assignment B
Case Detail:
Case Study- Seat of the pants
Gaurav cleaning centers doesn t have a formal wage structure nor does it have rat
e ranges or use compensable factors. Wage rates are based mostly on those prevai
ling in the surrounding community and tempered with an attempt on the part of Ga
urav to maintain some semblance of equity between what workers with different re
sponsibilities in the stores are paid.
Needless to say, Gaurav doesn t make any formal surveys when determining what his
company should pay. He peruses the want ads almost every day and conducts inform
al surveys among his friends in the local chapter of the laundry and cleaners tr
ade association. While Gaurav has taken a seat-of-the-pants approach to paying the
employees, his salary schedule has been guided by several basic pay policies wh
ile many of his colleagues adhere to a policy of paying absolutely minimum rates
, Gaurav has always followed a policy of paying his employees about 10%above wha
t he feels are the prevailing rates, a policy that he believes reduces turnover
while fostering employee loyalty. Of somewhat more concern to Pragati is her fat
her s informal policy of paying men about 20% more than women for the same job. He
r father s explanation is, they are stronger and can work harder for longer hours a
nd besides they all have families to support.
1. Is the company at the point where it should be setting up a formal salary str
ucture based on a complete job evaluation? Why?
2. Gaurav policy of paying 10%more than the prevailing rates a sound one and how
could that be determined?
Case Study- Health care
Business or Employees
By February 2004 strike by southern Delhi grocery workers against the state s majo
r supermarket chains was almost 5 month old because so many workers were strikin
g (70,000) and because of the issues involved, unions and employers across the c
ountry were closely following the negotiations. Indeed, grocery union contracts
were said to expire in several cities later in 2004, and many believed the Delhi
settlement-assuming one was reached-would set a pattern.
The main issue was employee benefits, and specifically how much (if any) of the
employees health care costs the employees should pay themselves. Based on their e
xisting contract, southern Delhi grocery workers had unusually good health benef
its. For example they paid nothing toward their health insurance premiums, and p
aid only Rs 420 co-payments for doctor visits .However, supporting these excelle
nt health benefits cost the big Southern Delhi grocery chain over Rs168 per hour

per worker.
The big grocery chains were not proposing cutting health care insurance benefits
for their existing employees. Instead, they proposed putting any new employees
hired after the new contract went into effect into a separate insurance pool, an
d contributing Rs56.7 per hour for their health insurance coverage. That meant n
ew employee s health insurance would cost each new employee perhaps Rs420 per week
. And, if that Rs420 per week wasn t enough to cover the cost of health care, then
the employees would have to pay more or do without some of their benefits.
It was difficult situation for all the parties involved. For the grocery chain e
mployers sky rocketing health care cost per undermining their competitiveness; a
nd the current employees feared any step down the slippery slope that might even
tually mean cutting their own health benefits. The unions did not welcome a situ
ation in which they d end up representing two classes of employees, one(the existi
ng employees) who had excellent health insurance benefits, another(newly hired e
mployees)whose benefits were relatively meager and who might therefore be unhapp
y from the moment they took their jobs and joined the union.
Please give your answer in at least 25 words and press save and continue button.

Assume you are mediating this dispute. Discuss three creative solutions
you would suggest for how the grocers could reduce the health insurance benefits
and the cost of their total benefits package without making any employees pay m
From the grocery chains point of view, what is the downside of having tw
o classes of employees, one of which has superior health insurance benefits? How
would you suggest they handle the problem?

Assignment C
Question No. 1
All of the following are compensation objectives of the organization EXCEPT
legal compliance with relevant laws and regulations.
internal, external and individual equity for employees.
the lowest total cost of compensation among direct competitors.
performance enhancement for the organization
Question No. 2
If an organization s competitive strategy relies on long-term relationships with t
he clients who purchase the organization s goods and services, the organization sh
ould reward its employees from its executives to its sales staff with incentives
based on
quarterly sales.
annual profits.
prices of its stocks in daily trading.
a rolling five-year measure of financial performance
Question No. 3
Compensation is one of the organization s largest expenditures. Compensation philo
sophies and systems vary from one organization to the next. Why is that?
There is no one right way

to compensate employees. Many systems will work equally

well in any organization.

Different organizations have different organizational objectives and strategies
Legal requirements mandate different types of compensation systems depending on
the organization s industry.
Organizations depend heavily on consultants to design their compensation system
s, and each consulting firm has its own system.
Question No. 4
Which of the following is NOT a non-monetary reward?
training and development programs.
matching stock purchase plans.
career management services.
employee recognition.
Question No. 5
A compensation philosophy in which each employee who has gained another year of
seniority should have an increase in pay is called the ____ philosophy.
the equity-based
Question No. 6
____ are payments directly calculated on the amount of time worked.
Question No. 7
The two basic compensation philosophies, which should be seen as opposite ends o
f a continuum, are the ____ and the ____ orientations.
competency, productivity
exempt; non-exempt
entitlement; performance
market-driven, equity-driven
Question No. 8
Amber is the manager of a popular clothing store. She regularly works over 40 ho
ur a week. But when new styles are coming in requiring new displays, she may put
in as many as 60 hours a week. Amber s paycheck is the same regardless of the num
ber of hours she has worked. Amber is paid on a/an
total compensation arrangement.
incentive compensation program.
wage system.
salary basis.

Question No. 9
Which type of compensation is linked directly to individual, team, or organizati
onal performance?
variable pay
direct pay
Question No. 10
A/an ____ is an indirect reward given to an employee or group of employees becau
se they are members of the organization.
Question No. 11
In an organization with a performance-oriented philosophy,
employees only get raises if their productivity has been satisfactory or better
all employees can at least count on an annual cost-of-living adjustment to thei
r salaries.
bonuses are based on what other companies in the industries are paying.
marginal performers tend to be satisfied with their compensation.
Question No. 12
Justin is an hourly employee of Furnace Brick, a company that manufactures a spe
cial high-heat-resistant brick for industrial kilns. Justin is unhappy with the
new compensation system introduced by the company s new plant manager and HR direc
tor. This system has eliminated the practice of annual raises, the Christmas bon
us, and raises based on seniority for a new system that ties every employee s rais
e to how well Furnace Brick is performing in the market. Moreover, the plant man
ager has announced that twenty percent of the employees in the plant will receiv
e no raise at all this year, regardless of the company s performance. Furnace Bric
k has moved from a/an ____ compensation philosophy, to a/an____ compensation phi
wage-based, salary-based
paternalistic, competitive
entitlement, performanc
meet-the-market, lag-the-market
Question No. 13
Jack and Jerry are twins. Both started working at competing firms in the same in
dustry. Jack and Jerry were given exactly the same starting salary. They have be
en with their companies for ten years, and both have identical positions and ide
ntical performance ratings. Both Jack and Jerry are consistently average perform
ers. Jack works at a company with an entitlement compensation philosophy. Jerry
works at a company with a pay-for-performance compensation philosophy. The two c
ompanies are identical in revenue and profitability. They allocate the same budg

et amount for employee raises each year. All other factors remaining equal, whic
h of the following statements is most likely to be true?
Jerry will have a higher salary than Jack.
Jack will have a higher salary than Jerry.
Jerry and Jack will have identical salaries.
Jerry and Jack will have identical levels of pay satisfaction.
Question No. 14
At Artistic Floral Creations, the non-managerial employees all receive the same
pay increase every year. Usually this increase is about 5%, but some years it ha
s been as high as 10% depending on changes in the cost-of-living. Artistic Flora
l Creations has a/an ____ philosophy of compensation.
total rewards
Question No. 15
Simon is outraged that his co-worker Missy was given a raise. Simon believes Mi
ssy got the raise because she married the chairman of the board s son. Simon s sense
of ____ has been violated.
compensatory equity
distributive justice
external equity
procedural justice
Question No. 16
In terms of procedural justice, the process of determining base pay, allocating
pay increases, and measuring performance all must be seen by employees as
Question No. 17
Amanda is upset because she makes the same salary as Carl does, even though Aman
da has 18 clients and Carl has only 11 clients. Amanda is making a judgment abou
discriminatory compensation.
procedural justice.
internal equity.
external equity.
Question No. 18
Typical compensation appeals procedures require the employee to discuss the prob
lem first with
the organizational ombuds.

the EEOC.
the HR department.
his/her supervisor.
Question No. 19
Organizations that have specific policies about where they wish to position them
selves in the labor market use a/an ____ strategy.
labor market

Question No. 20
Abundance Nurseries needs large numbers of unskilled employees every spring and
summer to plant, maintain, and harvest the flower fields. Abundance is located i
n an area where there is a large supply of unskilled workers, and it has few pro
blems recruiting workers as needed. It would be reasonable for Abundance Nurseri
es to position its pay for these workers in the ____ -quartile of the labor mark
Question No. 21
A company that structures its compensation system so that half of its competitor
s pay their employees more than it does and half of its competitors pay less tha
n it does is using a ____ the market strategy.
Question No. 22
A third-quartile approach is a compensation strategy
in which the company pays higher wages than its competitors do.
to pay below the average in the labor market.
where one-third of the competitors in the labor market pay higher wages than wh
at the company does.
in which the company pays the median of what its competitors pay.
Question No. 23
Larry has decided to go back to his hometown of Mellonburg and set up an archite
ctural design business for green homes. Mellonburg is a depressed farming communit
y of 1,351 residents. It is 20 miles from the nearest restaurant, 70 miles from
the nearest Starbucks coffee shop, and the local schools are the worst in the st
ate. The winters are severe, the summers are oppressive. Few single people live
there, and the social and cultural life is negligible. In order to attract good
quality architects, Larry will probably

need to ignore the market compensation for architects and pay the architects on
an entitlement basis.
be able to lag the market significantly in pay because of the low cost of livin
have pay more than the market because of the unappealing location.
make market comparisons irrelevant by hiring the architects as independent cont

Question No. 24
Paul is a single parent. He received consistently high performance appraisals fr
om his employer, until the company went bankrupt. Now, Paul is looking for a new
job. As the recruiter at MilqueMaid Chocolate, you are very interested in Paul
. But, your firm has a lag-the-market compensation strategy. You know that Paul
has had an offer from a firm that has a meet-the-market strategy. You are not a
uthorized to offer Paul a market-level salary. Your best way to lure Paul to Mi
lqueMaid is to
point out MilqueMaid s broad-based
emphasize MilqueMaid s entitlement
discuss the method that MilqueMaid
discuss MilqueMaid s broadband pay

performance incentive programs.

compensation philosophy.
used to determine its quartile strategy.

Question No. 25
An organization can benefit from a properly designed and implemented competencybased pay system through
lower overall labor costs.
reduction of overtime costs by the move to an all-salaried workforce.
greater workforce skills and knowledge.
higher employee satisfaction with pay
Question No. 26
In a competency-based pay system employees are paid
on the skills and knowledge they have, whether they use these or not.
according to their job performance, measured either by quality or quantity.
on the basis of their scores on annual competency tests.
on whether they have added value to the organization in the last
Question No. 27
As HR director, you are discussing the implementation of a competency-based comp
ensation system with the company s CEO. You point out that in order for the compet
ency system to be effective
the company
the company
the company
the company

must place its base pay in the third quartile.

s pay structure must be broad-banded.
must invest heavily in employee training programs.
must implement work teams.

Question No. 28
Which of the following is the typical structure of team-based compensation?

individual pay-for-performance based on team member input
skill-based pay plus a percentage of base pay
equal pay for each team member based on team performance
team-based variable pay on top of individual base pay
Question No. 29
Ernest, a U.S. citizen employee is being assigned to the company s German office
in Munich because of his intimate knowledge of the company s main product. Ernest
was previously stationed at the company headquarters in Kansas City. Al,l of t
he following issues should be taken into account when determining Ernest s pay dur
ing the years he works in Munich EXCEPT
the compensation that a German would make in a similar job in Munich.
German income tax policies.
cost of living differences between Kansas City and Munich.
fluctuations between the value of the dollar and the euro.
Question No. 30
In a true pay-for-performance system, which of the following employees would qua
lify for incentive reward?
Jack has met his sales quota even though he was hospitalized for appendicitis d
uring the year.
Otto manages to meet the minimum required sales on his store location despite t
he fact that the business building next door, where he receives most of his cust
omer traffic, has closed.
Charlene performs up to expectations as a science teacher at a magnet high scho
Chris brings in 20 percent more new clients for the branch bank than is require
Question No. 31
All of the following are potential outcomes of a successful pay-for-performance
greater predictability of employee pay.
retention of high performers.
improved safety records.
aligning employee behavior with organizational business goals.
Question No. 32
What are variable pay plans?
methods of tying compensation to the Consumer Price Index (CPI) in order to kee
p up with inflation
additional tangible rewards given to employees for performance beyond normal ex
compensation that increases as employees gain new job-related knowledge, skills
, and abilities
incentives to meet required performance standards

Question No. 33

Traditional compensation systems pay employees differently based on their job re

sponsibilities and base employee increases mainly on
meeting organizational objectives.
growth in capabilities and competencies.
years of seniority.
changes in the Consumer Price Index.
Question No. 34
Which of the following is an assumption of variable-pay systems?
Some jobs contribute more to organizational success than others.
Cooperation and teamwork can be enhanced when individuals are rewarded for extr
a efforts.
Equality in pay is a strong motivator of exceptional employee performance.
Both good and poor performing employees will perceive a pay system that rewards
high performance as satisfying and equitable.
Question No. 35
As director of compensation for BlueBottle Enterprises, you have implemented a h
ighly successful pay-for-performance system. This system has worked successfully
for three years as measured by a number of financial and non-financial measures
. Because of this success you are considering quitting BlueBottle and setting up
your own consulting firm to promote this system. Which of the following stateme
nts is TRUE?
This will be a successful undertaking because effective pay-for-performance sys
tems are translatable across industries.
You should target poor-performing firms as potential clients because most firms
performance will be enhanced by a pay-for-performance system.
As long as most employees will experience an increase in pay with this system,
they will be satisfied with it.
You need to have a way to evaluate organizational cultures in order to select t
he organizations in which your pay-for-performance system will be effective.
Question No. 36
Performance incentives include all the following EXCEPT
plane tickets to a resort destination.
cost-of-living increases.

Question No. 37
In a TV interview, the CEO of Trevelyan, Inc., commented that the pay-for-perfo
rmance system used by her company was effective because, Now everyone is pulling
in the same direction. What does the CEO mean by this observation?
The pay-for-performance system is linking employee performance and the organiza
tion s strategic goals.
Employees are being motivated to gain more competencies and skills..

Employees are receiving higher total compensation under the pay-for-performance

system than under the former, traditional compensation system..
Important HR objectives have been achieved, such as reduction in turnover and b
etter attendance.
Question No. 38
The CEO of MasterFiber Textiles attended a conference where he spoke with the CE
O of Golden Fleece Manufacturing. Golden Fleece has had great success in impleme
nting an individual pay-for-performance system. The CEO of MasterFiber has direc
ted the vice president of HR to implement the Golden Fleece method at MasterFibe
r. The FIRST concern of the VP of HR should be
Can current executive compensation be retained under this system?
Is the plan simple or complex to administer?
Does the plan fit with the business strategies and culture at MasterFiber?
Can MasterFiber afford to pay higher compensation to its employees?

Question No. 39
It is important to make sure that what is being rewarded by the compensation sy
stem is strongly tied to organizational objectives, because people tend to
guess what they think management wants done.
produce what is convenient.
produce what is measured and rewarded.
avoid doing unpleasant tasks.

Question No. 40
Bonuses are less costly to the organization than general wage increases, because
bonuses receive preferential tax treatment.
the annual amount given as a bonus tends to be smaller than the annual amount g
iven as a raise.
bonuses are frequently given in the form of non-cash items.
bonuses do not become part of employees' base wages.
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