Exam practice questions

The best way to study for the exam is to understand the learning objectives from each chapter,
terminology, types of processes plans etc.

You should be going through the content section each week and completing the exercises.

Below is a summary of the learning objectives

Chapter 1
1. Describe the purpose of a compensation system.
2. Explain why an effective compensation system is so important to most organizations.
3. Distinguish between extrinsic and intrinsic rewards.
4. Distinguish between a reward system and a compensation system.
5. Define “reward strategy.”
6. Describe the two key aspects of a compensation strategy

Chapter 2
1. Explain why the same compensation system that is a success in one firm can be a failure in
another.
2. Describe an organizational system.
3. Explain how the strategic framework for compensation can be used as a tool designing effective
reward and compensation systems.
4. Describe the three main sets of elements in the strategic compensation framework, and explain
how they relate to one another.

Chapter 3
1. Identify the three main types of reward problems that can afflict organizations.
2. Define the three key employee behaviours desired by employers.
3. Identify three key job attitudes and explain their roles in determining employee behaviour.
4. Describe the causes and consequences of reward dissatisfaction.
5. Explain how to generate membership behaviour.

Chapter 4
1. Define base pay and discuss its advantages, disadvantages, and applicability.
2. Define performance pay and discuss its advantages, disadvantages, and applicability.
3. Define indirect pay and discuss its advantages, disadvantages, and applicability.
4. Identify and differentiate between the three main methods for establishing base pay.

Chapter 5
1. Define and discuss the applicability of the four main types of individual performance pay.
2. Define and discuss the applicability of the three main types of group performance pay.
3. Define and discuss the applicability of the three main types of organization performance pay.

Chapter 6
1. Describe the constraints that limit the design of a compensation strategy.
2. Explain the compensation strategy formulation process and describe each step.
3. Discuss the considerations in deciding whether to adopt a lead, lag, or match compensation-level
policy.
4. Describe utility analysis and explain how it can be used. not required for the exam

Chapter 7

1. Explain the purpose of job evaluation and the main steps in the job evaluation process.
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2. Describe the process for job analysis and the key steps in that process.
3. Prepare useful job descriptions.
4. Identify and briefly describe the five main methods of
job evaluation.
5. Describe the key issues in managing the job evaluation process.
6. Describe the general process for conforming to pay equity legislation.

Chapter 8
1. Describe the steps in designing a point system of job evaluation.
2. Identify the possible pitfalls in designing a point system of job evaluation.
3. Design a base pay structure, including pay grades and pay ranges.

Chapter 9 not examinable

1. Discuss the key considerations in understanding labour markets.
2. Identify possible sources of compensation data.
3. Describe the steps for conducting compensation surveys.
4. Analyze, interpret, and apply compensation survey data.

Chapter 10
1. Identify and explain the four main reasons for conducting performance appraisals.
2. Explain why many performance appraisal systems fail to accurately measure employee
performance.
3. Identify and describe the different methods for appraising performance, along with their strengths
and weaknesses.
4. Identify the possible sources of performance appraisals, and discuss the circumstances under
which each would be appropriate.
5. Explain the concept of “performance management.”
6. Discuss how to link merit pay to performance appraisals.
7. Identify the key design issues in developing an effective merit pay system.

Chapter 11
1. Identify the main types of gain-sharing plans and key issues in their design.
2. Identify the main types of goal-sharing plans and key issues in their design.
3. Identify the main types of profit-sharing plans and key issues in their design.
4. Identify the main types of employee stock plans and key issues in their design.
5. Discuss the considerations in designing a nonmonetary rewards program.

Chapter 12
1. Identify the six major categories of employee benefits and the specific types of benefits included
in each category.
2. Discuss the advantages and disadvantages of fixed versus flexible benefits plans and the
circumstances in which each would be most appropriate.
3. Describe the issues that must be addressed in designing a benefits system.
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Chapter 13

1. Identify the key issues in preparing to implement a compensation system.

2. Develop an implementation plan for a new compensation system.
3. Describe the steps necessary for implementing a compensation system.
4. Develop a process for communicating the compensation system.

1 An owner of an enterprise asks you to describe the major components of a compensation system. Which
of the following would you exclude in your description?
a. base salary
b. performance pay linked to some organizational objectives
c. employee benefits, which may include: disability insurance, medical, and dental plans
d. flexible work schedules and some element of job autonomy

2. You have been asked to explain to a manager the notion of structural variables within the context of a
strategic framework for compensation. Which of the following variables would you elaborate on?
a. how work is divided into subtasks
b. the market the company serves
c. the level of differentiation in the products and services offered by the company
d. the company’s products’ life cycle

3. A particular company employing a human relations management strategy begins to experience significant
decreases in revenue and profits. As a result, it decides to cut back on some indirect pay rewards. What do
you believe will be the impact to this organization as a result of their compensation decision?
a. Employees will begin to work hard to make up for the shortfall.
b. Employees will have less trust in management, moving forward.
c. Employees will start to suggest to management ways to reduce expenses.
d. Employees will suggest to management that their management strategy should be
modified to reflect a high involvement strategy.

4. As the new owner of a car dealership, you have become concerned with some behaviour being displayed
by most of your sales force. You have decided to change the compensation systems. Yet, you are very
concerned with your ability to meet payroll if sales decrease. Which of the following pay plans should
you consider using?
a. employee stock plans
b. targeted incentives
c. extensive benefits
d. competency-based plan

5. John works for an aerospace company selling satellites to communication companies. He receives a set
percentage of the overall sale price of the satellite in the form of compensation. He does not receive a
fixed salary or benefits. Which term best describes John’s compensation plan?
a. sales commission plan
b. leverage commission plan
c. percentage commission plan
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d. straight commission plan

Question 6 and 7 is a remember style of question

6. Which of the following should be your first step when starting an organization’s compensation
formulation process?
a. Define the required behaviour.
b. Determine the compensation mix.
c. Evaluate the proposed strategy.
d. Determine the compensation level.

7. Which of the following is NOT a valid purpose for conducting job evaluation?
a. to control employee performance
b. to control wage costs
c. to create an equitable pay structure
d. to create perceptions of equitable pay among those covered by the system

8. 2,000 points are distributed between compensable factors, based on the following: education 750 points,
time pressure 350 points, customer contact 500 points, and communication skills 400 points. Which step
in developing a job evaluation system using the point method recognizes these variations in importance?
a. defining the factors
b. weighting the factors
c. scaling the factors
d. testing the system

9. Which of the following statements is NOT consistent with research on performance appraisals? not
examinable
a. The vast majority of medium to large organizations use some type of performance
appraisal process.
b. The attempt to capture both developmental and compensation variables in performance
appraisal may create reliability and validity issues.
c. Managers and employees appear to be equally dissatisfied with performance appraisal
systems.
d. An employee’s performance level impacts appraisal results much more than rater bias.
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10. Which of the following is NOT true when deciding on the “share” between the company and employees
in a gain-sharing plan?
a. When productivity gains are defined on a relatively small base, the split tends to be
skewed towards employees.
b. When companies use capital-intensive methods, the share tends to be lower.
c. When the base line increases significantly, the share needs to be higher so as to
compensate for the increased level of difficulty in attaining productivity gains.
d. When productivity gains are defined on a relatively large base, the split tends to be skewed
towards employees.

11. From a funding obligation perspective, why do employers prefer to use a defined contribution pension
plan?
a. Liability is limited to the amount placed into the plan.
b. Actuarial predictions are made easier.
c. Pensioners are guaranteed a fixed sum of money.
d. This avoids “underfunded” plans.

12. Which of the following is NOT one of the steps in implementing the compensation system?
a. Establish the implementation task forces.
b. Decide on the compensation level.
c. Test the system.
d. Conduct the training.
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Answers

1. D

2. A

3. B

4 A

5 D

6 A

7 A

8 B

9 D

10 D

11 A

12 B