Chapter 4

1. The main types of individual performance pay are piece rates, commissions, merit
pay, and goal-sharing plans.
Answer: False
2. An advantage of indirect pay is that benefits receive more favourable income tax
treatment than direct pay.
Answer: true
3. Which of the following variables offers the most likely explanation for the decrease in
popularity of “defined benefit plans” by employers in Canada?
Answer: Employers believe defined contribution plans are much more
unpredictable from a funding perspective.
4. Firms using a human relations strategy tend to embrace indirect pay, often making
indirect pay a cornerstone of their compensation strategy.
Answer: True
5. Johnny is compensated based on a rate of $25.00 per hour worked. Which of the

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following terms best describes the manner in which Johnny is compensated?

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Answer: Wage

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6. An Advantage of base pay is that it directly links pay with output or performance
Answer: false

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7. As a consultant, you have been asked by an organization to provide a menu of
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indirect benefits that the employer does not have to provide by law. Which of the
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following would you not include in your menu ?
Answer: Employment Insurance
8. Which of the following steps is NOT considered part of formulating the compensation
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strategy?
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Answer: Determining actual dollar values for jobs and individual employees
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9. As a human resource consultant, you have been asked to provide some rationale why
an organization may decide to use base pay as a cornerstone for a compensation
scheme. Which of the following notions would you advance in supporting your
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argument?
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Answer: It provides an organization with more labour flexibility in the allocation of

tasks.
10. Which of the following is an example of mandatory indirect pay?
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Answer: Worker’s compensation benefits

11. An advantage of base pay is that it directly links pay with output of performance.
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Answer: False
12. A company wants to make sure employees feel they are appreciated, while at the
same time ensuring key employees have a sense of loyalty towards the company.
Which of the following systems does the company most likely use?
Answer: base pay
13. A flexible benefits system with cost sharing on individual benefits is a good fit for
which type of firm?
Answer: High-involvement firm
14. The two key question that must be addressed in designing any compensation system
are: a) What role should each of the three compensation components play in the
compensation mix? And b) What total level of compensation should be provided:

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 Answer: True
15. 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 plan should you consider using?
Answer: Employee stock plan
16. As an employer, you believe it is always a good idea to pay for their contributions to
organizational results. Which of the following plans would likely be the key
component of the compensation plan?
Answer: Performance pay
17. Which of the following conditions make it impractical to use output-related pay?
Answer: Output cannot be controlled by the individual employee
18. What methods are used to establish base pay?
Answer: Market pricing, job evaluation, and pay for knowledge
19. Which of the following is a reason why employees may prefer base pay over
performance pay?

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Answer: They dislike uncertainty about their compensation

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20. Which statement describes the difference between pay for knowledge systems (PKS)

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and job-based pay systems?
Answer: Pay for knowledge systems involve basing pay on the capabilities of

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individuals, and job-based pay is based on the characteristics of the job.
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21. A particular organization wants to include in their compensation system some
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element of organizational performance linkage, while at the same time it wants to
encourage employee commitment. In addition to base pay, which of the following
would most likely be included in this compensation mix?
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Answer: Profit sharing

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