HR Midterm Questions

Managing Human Resources, 7e (Gómez-Mejía / Balkin / Cardy)
Chapter 10 Managing Compensation
1) In the opening case in chapter 10, an experienced computer programmer complains that the
starting salary for new hires at Sigma, Inc. is 15% more than his current salary. Dr. Smith's
answer reveals that Sigma's compensation system is built on a(n) ________ compensation
model.
A) balanced equity
B) labor market
C) free market
D) egalitarian
Answer: B
Diff: 3 Page Ref: 311
Chapter: 10
Skill: Synthesis
LO: 1, 3
AACSB: Analytic skills
2) In the opening case in chapter 10, a secretary complains that janitors make more money than
she does. Her complaints and Dr. Smith's response show that Sigma's compensation system:
A) may lack internal equity.
B) is a decentralized pay system.
C) relies on individual-based pay.
D) uses variable pay to induce performance.
Answer: A
Diff: 3 Page Ref: 311, 313
Chapter: 10
Skill: Synthesis
LO: 1, 2
3) Base compensation refers to:

A) health insurance and time off.
B) fixed pay received on a regular basis.
C) perks determined by status within the company.
D) bonuses that underpin the employee's total compensation.
Answer: B
Chapter: 10
Skill: Concept
LO: 1
4) Employees' total compensation consists of which of the following?

A) Base compensation, personnel costs, payroll
B) Benefits, pay incentives, personnel costs
C) Base compensation, pay incentives, indirect compensation
D) Payroll, pay incentives, base compensation
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Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
Answer: C
Chapter: 10
Skill: Concept
LO: 1
5) Perquisites, also called "perks" are best described as:

A) special benefits reserved for upper-level managers.
B) stock options available to long-term employees.
C) indirect compensation, such as vacation.
D) fixed pay rewarded regularly.
Answer: A
Chapter: 10
Skill: Concept
LO: 1
6) Indirect compensation in a pay mix typically includes:

A) hourly wages for overtime.
B) health insurance and vacation time.
C) special perks based on status in the company.
D) incentives and bonuses periodically paid to an employee.
Answer: B
Chapter: 10
Skill: Concept
LO: 1
7) Employee earnings:
A) correlate directly with employee job satisfaction.
B) are the most important factor in job acceptance.
C) are relatively easy for organizations to manage.
D) affect employees economically and psychologically.
Answer: D
Chapter: 10
Skill: Concept
LO: 1
8) In order for a compensation system to work well, it must:

A) enable the firm to achieve its objectives.
B) guarantee low employee turnover.
C) follow an egalitarian strategy.
D) meet federal guidelines.
Answer: A
Chapter: 10
2
Skill: Concept
LO: 1
9) Cornilia and Janice have similar jobs at different firms. Janice is compensated with higher pay
and better benefits than Cornilia, which bothers Cornilia. Cornilia's concern reflects the
compensation issue of:
A) job versus individual pay.
B) external equity.
C) internal equity.
D) fixed versus variable pay.
Answer: B
Chapter: 10
Skill: Application
LO: 1
10) The perceived fairness of what an employer pays, relative to what other employers pay for
the same type of labor, is known as:
A) distributive justice.
B) egalitarianism.
C) internal equity.
D) external equity.
Answer: D
Chapter: 10
Skill: Concept
LO: 1
11) A company designs its compensation system around the philosophy that employees exchange
their skills and contributions for pay. As a consequence, employees feel fairly compensated
when the ratio of their inputs and outputs is equivalent to those of other employees whose job
demands are similar to their own. This company's compensation system is based on a ________
compensation model.
A) balanced equity
B) labor market
C) free market
D) distributive justice
Answer: D
Chapter: 10
Skill: Application
LO: 1
12) The distributive justice model is based on the idea that:

A) employees prefer keeping salary issues private.
B) employers pay what employees deserve to receive.
C) employees make input/output comparisons to their co-workers.
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D) employers will never pay above-market wages unless external equity occurs.
Answer: C
Chapter: 10
Skill: Concept
LO: 1
13) You are trying to convince the management of Marcelle, Inc. to pay its employees the "going
rate", no more, no less. You are trying to:
A) reach external equity.
B) reach internal equity.
C) reduce Marcelle's work force.
D) increase Marcelle's work force.
Answer: A
Chapter: 10
Skill: Application
LO: 1
14) According to your text, which of the following questions is LEAST relevant to developing an
effective compensation plan?
A) Will compensation link pay with group performance?
B) Will the compensation plan be developed by HR managers?
C) Will compensation decisions be made by unit managers?
D) Will the compensation plan emphasize nonmonetary rewards?
Answer: B
Chapter: 10
Skill: Concept
LO: 1
15) A company using a labor market model holds the philosophy that:
A) the wage rate for any given job is set at the point where the supply of labor equals the demand
for that labor in the marketplace.
B) internal equity is more important than external equity in a balanced labor market.
C) egalitarian pay policies are more effective than elitist policies when labor demand is high.
D) nonmonetary rewards are more effective motivators than monetary rewards.
Answer: A
Chapter: 10
Skill: Concept
LO: 2
16) Balancing equity is most likely difficult because:

A) EEOC regulations are extensive and complicated.
B) internal and external equity often oppose one another.
C) open pay employers strive primarily for internal equity.
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D) managers prefer focusing on establishing external equity.
Answer: B
Chapter: 10
Skill: Concept
LO: 1
17) An emphasis on external equity is most important for:

A) large, global corporations.
B) established firms in highly stable markets.
C) newer, smaller firms in quickly changing markets.
D) privately owned firms in highly competitive industries.
Answer: C
Chapter: 10
Skill: Concept
LO: 2
18) Variable compensation systems work best:

A) with smaller, less well-established firms with younger employees.
B) in difficult economies with high rates of inflation.
C) when the job market is flooded with qualified workers.
D) in larger, established companies that need significant productivity improvement.
Answer: A
Chapter: 10
Skill: Concept
LO: 2
19) On average, ________ of a U.S. employee's pay is variable.

A) 5%
B) 10%
C) 15%
D) 20%
Answer: B
Chapter: 10
Skill: Concept
LO: 1
20) According to your text, as employees' base pay increases, their:

A) variable pay decreases.
B) overall compensation stabilizes.
C) nonmonetary compensation decreases.
D) overall compensation is more subject to risk.
Answer: D
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Chapter: 10
Skill: Concept
LO: 2
21) Variable compensation takes a variety of forms, including:

A) base salary.
B) hourly wages.
C) profit sharing.
D) disability insurance.
Answer: C
Chapter: 10
Skill: Concept
LO: 2
22) A performance-contingent compensation system bases pay upon:

A) employee status.
B) specified hours.
C) required skills.
D) units produced.
Answer: D
Chapter: 10
Skill: Concept
LO: 1
23) Rose works for a home interiors company. She hostesses several parties a week and sells
various kinds of home decorations. She receives a commission on all that she sells. Rose
receives:
A) fixed compensation.
B) membership-contingent compensation.
C) performance-contingent compensation.
D) risk sharing rewards.
Answer: C
Chapter: 10
Skill: Application
LO: 1
24) A membership-contingent compensation system pays employees:

A) for the number of hours during which they perform their assigned jobs.
B) on the basis of the value of the job they perform.
C) on the basis of the skills used to perform their jobs.
D) for how well they do their particular job.
Answer: B
Chapter: 10
6
Skill: Concept
LO: 1
25) Companies using performance-based compensation systems tend to be:

A) publicly-held corporations in competitive markets.
B) smaller, rapidly growing companies that face strong competitive pressures.
C) larger firms with several layers of management that operate in relatively stable markets.
D) large firms that desire to break out of the "pack" and distinguish themselves from
competitors.
Answer: B
Chapter: 10
Skill: Concept
LO: 2
26) A compensation system that assumes that employees should be compensated based upon
their abilities, potential, and flexibility to perform multiple tasks is a(n) ________ compensation
system.
A) traditional-oriented
B) knowledge-based
C) equity-based
D) job-centered
Answer: B
Chapter: 10
Skill: Concept
LO: 1
27) A compensation system that assumes that the tasks being performed and the contribution of
those tasks to the company are the best criteria for setting the wage is a(n) ________-centered
compensation system.
A) performance
B) individual
C) equity
D) job
Answer: D
Chapter: 10
Skill: Concept
LO: 1
28) An individual-centered compensation system:

A) focuses on employees' contribution and increases compensation based on the employee's
ability to perform more duties successfully.
B) assumes that the tasks being performed, and the contribution of those tasks to the company,
provide the best criteria for setting the wage pay system.
C) pays based on the number of hours during which the employees perform their assigned job.
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D) stresses the value and prestige of the job being performed.
Answer: A
Chapter: 10
Skill: Concept
LO: 1
29) Job-based pay policies work best in which of the following situations?
A) Employees require little training for a job.
B) Employees' jobs don't change often.
C) Technology changes rapidly.
D) Turnover is fairly high.
Answer: B
Chapter: 10
Skill: Concept
LO: 2
30) An individual-based pay policy works best in which of the following situations?
A) Employees may have many opportunities to learn new skills.
B) Employees are expected to move up "through the ranks."
C) Employee turnover is low and jobs don't change often.
D) Jobs are standardized within the industry.
Answer: A
Chapter: 10
Skill: Critical Thinking
LO: 2
31) Advocates of skill-based pay argue that it:

A) diminishes the need for changing technology.
B) improves employee specialization.
C) reduces absenteeism.
D) enhances recruitment.
Answer: C
Chapter: 10
Skill: Concept
LO: 2
32) Which of the following is NOT a criticism of skill-based compensation systems?

A) Too much labor specialization
B) Unspecific job qualifications
C) Higher labor costs
D) Workplace chaos
Answer: A
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Chapter: 10
Skill: Concept
LO: 2
33) If management wants the compensation system to reinforce a traditional organizational

structure and stability within the company, a(n) ________ compensation system is the best
choice.
A) egalitarian
B) elitist
C) individual-centered
D) labor market-based
Answer: B
Chapter: 10
Skill: Concept
LO: 2
34) Garden of the Gods' (GOTG) employees are compensated according to their organizational
level, with upper-level managers receiving more compensation than lower-level managers.
GOTG uses a(n) ________ pay system.
A) elitist
B) egalitarian
C) internally equitable
D) knowledge-based
Answer: A
Chapter: 10
Skill: Application
LO: 2
35) The stockholders are concerned about the cost of perquisites. Management wants maximum
flexibility to move people among jobs without having to adjust their compensation. Management
also wants more joint-task accomplishment and better cooperation among employees. A(n)
________ compensation system will reinforce all these goals.
A) elitist
B) variable
C) egalitarian
D) job-centered
Answer: C
Chapter: 10
Skill: Application
LO: 2
36) Egalitarian compensation systems are:

A) problematic because of increased tensions between co-workers.
B) more common in older businesses with mature products.
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C) important to developing a more stable work force.
D) becoming common in competitive environments.
Answer: D
Chapter: 10
Skill: Concept
LO: 2
37) Elitist compensation systems are most likely:

A) beneficial to firms trying to expand market share.
B) implemented by newer, smaller businesses.
C) established in very competitive environments.
D) used by older firms with mature products.
Answer: D
Chapter: 10
Skill: Concept
LO: 2
38) Above-market compensation policies are more likely to:

A) create an impression of innovation and success.
B) improve employee morale and reduce employee turnover.
C) affect employee cooperation more than any other business policy.
D) reduce barriers between people who need to work closely together.
Answer: B
Chapter: 10
Skill: Concept
LO: 2
39) Companies that pay employees at rates above the market are generally:
A) small start-up companies.
B) involved in global expansion.
C) companies that struggle financially.
D) larger companies in less competitive industries.
Answer: D
Chapter: 10
Skill: Concept
LO: 2
40) Firms that use nonmonetary rewards are most likely trying to:
A) reinforce achievement and sales growth.
B) foster an internally competitive climate.
C) develop responsibility among employees.
D) emphasize customer service and loyalty.
Answer: D
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Chapter: 10
Skill: Concept
LO: 2
41) Companies that emphasize monetary rewards are primarily associated with:
A) volatile markets.
B) high customer service demands.
C) high job security.
D) cross-functional teams.
Answer: A
Chapter: 10
Skill: Concept
LO: 2
42) An emphasis on monetary rewards will generally reward a company with:

A) more achievement and responsibility among employees.
B) an internal climate of cooperation among employees.
C) long-term employee commitment.
D) increased employee diversity.
Answer: A
Chapter: 10
Skill: Concept
LO: 2
43) The practice of openness in a compensation system generally leads to:

A) greater pay dissatisfaction among employees.
B) increased fairness in managerial pay decisions.
C) greater overall compensation costs.
D) increased team building.
Answer: B
Chapter: 10
Skill: Concept
LO: 2
44) You have just been hired at Corpus Entertainment, Inc. (CEI) and as part of your contract,
you sign an oath that you will not divulge information about your compensation to your co-
workers or any other employee of CEI. You realize that the company has a(n) ________ pay
policy.
A) egalitarian
B) centralized
C) open
D) secret
Answer: D
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Chapter: 10
Skill: Application
LO: 2
45) The practice of secret pay in a compensation system generally leads to:
A) managers being more careful in their compensation decisions because they have to defend
them.
B) an increase in the cost of mistakes in the pay-making decisions.
C) greater pay dissatisfaction among employees.
D) an egalitarian pay system.
Answer: C
Chapter: 10
Skill: Concept
LO: 2
46) Pay openness would work best in which of the following situations?
A) Company A - high employee involvement and a culture of trust
B) Company B - high degree of competition and employee turnover
C) Company D - significant pay differences between professionals
D) Company E - significant emphasis on nonmonetary rewards
Answer: A
Chapter: 10
LO: 2
47) Karen, president of a small restaurant chain, would like to centralize compensation decisions.
She asks you about the pitfalls of such a move, and you should most likely respond that:
A) internal equity would not be maintained.
B) it is likely that the company will not be able to defend itself legally.
C) external equity is difficult to maintain.
D) it is only beneficial during great economic prosperity.
Answer: C
Chapter: 10
Skill: Application
LO: 2
48) Decentralizing pay decisions most likely enables a company to:

A) more effectively face legal challenges to compensation decisions.
B) better utilize the expertise of their compensation specialist.
C) build a stronger link between pay and performance.
D) better manage fixed pay-based compensation.
Answer: C
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Chapter: 10
Skill: Concept
LO: 2
49) Which of the following is most likely true regarding compensation systems?
A) Nonmonetary rewards tend to predominate in companies concerned with external equity.
B) External equity is easier to manage in decentralized pay systems.
C) The nine issues discussed in the text regarding compensation are interdependent with minimal
influence on one another.
D) Centralized pay systems work best in large, diverse organizations.
Answer: B
Chapter: 10
Skill: Concept
LO: 2
50) When a work force is highly unionized:

A) compensation decisions are based only on performance.
B) managers have more control in compensation decisions.
C) workers are likely to disagree with internal and external equity.
D) pay is typically subject to negotiation and bargaining requirements.
Answer: D
Chapter: 10
Skill: Concept
LO: 2
51) Bobcat International pays a range of salaries for retail workers. Employees can be paid
anywhere from $5.50/hr to $8.50/hr. This range of pay is called a:
A) pay grade scale.
B) pay range.
C) payroll span.
D) pay area.
Answer: A
Chapter: 10
Skill: Application
LO: 3
52) Job-based compensation plans focus on the key component of:

A) openness.
B) equity.
C) motivation.
D) job knowledge.
Answer: B
Chapter: 10
13
Skill: Concept
LO: 3
53) The line, "Grade 2, Clerk-Typist, $12.35 hr.," is most likely from a:
A) job-based pay structure.
B) skill-based pay structure.
C) decentralized pay system.
D) knowledge-based pay system.
Answer: A
Diff: 1 Page Ref: 324-325
Chapter: 10
Skill: Application
LO: 3
54) Kora is reviewing her company's pay structure and sees, "Grade 3, Able to work
independently and use WordPerfect software, $14.57 hr." Kora is most likely reviewing a:
A) job-based pay structure.
B) skill-based pay structure.
C) decentralized pay system.
D) knowledge-based pay system.
Answer: B
Chapter: 10
Skill: Application
LO: 4
55) In building a job-based compensation plan, the job evaluation process is designed to assess
the:
A) relative contribution of different jobs to the organization.
B) relative value or contribution of individual employees to the organization.
C) external equity of the system.
D) specific tasks and duties required of the jobs in the plan.
Answer: A
Chapter: 10
Skill: Concept
LO: 3
56) The design of job-based compensation pay plans begins with:

A) writing job descriptions.
B) creating a job hierarchy.
C) conducting a job analysis.
D) writing job specifications.
Answer: C
Chapter: 10
Skill: Concept
14
LO: 3
57) Michele is determining the value of different jobs in a medium-sized contracting company.
She is most likely:
A) performing job analysis.
B) conducting a job evaluation.
C) trying to achieve internal equity.
D) determining job specifications.
Answer: A
Chapter: 10
Skill: Application
LO: 3
58) The head of HR has asked you to gather information about the tasks, duties, and
responsibilities of specific jobs. He has most likely asked you to perform a(n):
A) job evaluation.
B) job analysis.
C) equity analysis.
D) comparable worth assessment.
Answer: B
Chapter: 10
Skill: Application
LO: 3
59) Job specifications:

A) require the rating of each position described.
B) list all the compensable factors of a particular job.
C) consist of worker characteristics necessary for successful performance.
D) identify, define, and describe each job in terms of its duties, responsibilities, and working
conditions.
Answer: C
Chapter: 10
Skill: Concept
LO: 3
60) Job descriptions:

A) require the rating of each position described.
B) list all the compensable factors of a particular job.
C) consist of worker characteristics necessary for successful performance.
D) identify, define, and describe each job in terms of its duties, responsibilities, and working
conditions.
Answer: D
Chapter: 10
15
Skill: Concept
LO: 3
61) Once job specifications and descriptions are created, the next step in developing a
compensation system is:
A) conducting a job analysis.
B) creating a job hierarchy.
C) rating the worth of jobs.
D) assigning individual pay.
Answer: C
Chapter: 10
Skill: Concept
LO: 3
62) Carlos is reviewing the knowledge, problem-solving skills, and accountability for a particular
job. He is most likely reviewing:
A) job specifications.
B) compensable factors.
C) working conditions.
D) performance benchmarks.
Answer: B
Chapter: 10
Skill: Application
LO: 3
63) The Hay Guide Chart Profile Method of weighing compensable factors in a job is best used
when establishing a:
A) skill-based compensation system.
B) job-based compensation system.
C) performance-centered compensation system.
D) variable pay compensation system.
Answer: B
Chapter: 10
Skill: Concept
LO: 3
64) The MAA gives the highest possible points to which compensable factor?
A) Problem solving
B) Accountability
C) Experience
D) Skill
Answer: C
Chapter: 10
16
Skill: Concept
LO: 3
65) Both the MAA and the Hay Guide Chart Profile Method share:
A) the same compensable factors.
B) the use of a scale of numbers and degrees.
C) an emphasis on experience over other factors.
D) the same job hierarchy.
Answer: B
Chapter: 10
Skill: Concept
LO: 3
66) A job hierarchy in a compensation plan is primarily built on:

A) job specifications, descriptions, and ratings.
B) job classifications by pay grade.
C) corporate pay policies.
D) market surveys.
Answer: A
Chapter: 10
Skill: Concept
LO: 3
67) When conducting a job evaluation, it is most important to remind employees that:
A) your focus is on the value of the tasks, not their individual performances.
B) you are looking at their individual performance in specific jobs.
C) external data is needed to establish the job's position in the job hierarchy.
D) knowledge and skill are equally important in your assessment.
Answer: A
Chapter: 10
Skill: Concept
LO: 3
68) If a company uses a committee to sort job descriptions into grades without using a point
system, the company is most likely using a ________ system for its job evaluation.
A) ranking
B) factor comparison
C) classification
D) policy capturing
Answer: C
Chapter: 10
Skill: Concept
LO: 3
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69) An important tool for companies seeking to maintain external equity is the use of:
A) job analysis.
B) job hierarchies.
C) Hay rating scales.
D) market survey data.
Answer: D
Chapter: 10
Skill: Concept
LO: 3
70) In order to tie job evaluation data and external wage/salary data together, a company needs
to:
A) establish a job hierarchy.
B) have an open compensation system.
C) identify benchmark jobs.
D) use a skill-based compensation system.
Answer: C
Chapter: 10
Skill: Concept
LO: 3
71) When management is discussing whether to lead, lag, or pay the "going rate" for a job, they
are deciding:
A) whether to be egalitarian or elitist.
B) if they want to have an open or secret compensation system.
C) how to balance internal equity.
D) their company's pay policy.
Answer: D
Chapter: 10
Skill: Concept
LO: 3
72) As the HR director, you are reviewing the comparability of pay of each employee within a
range for particular jobs. You are:
A) applying market survey data.
B) rating individual jobs.
C) reviewing individual equity.
D) conducting a job analysis.
E) assessing internal equity.
Answer: C
Chapter: 10
Skill: Application
LO: 3
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73) Job-based compensation systems have a number of disadvantages or drawbacks, such as
being:
A) difficult to administrate.
B) subjective and arbitrary.
C) too flexible for managers.
D) biased against managerial jobs.
Answer: B
Chapter: 10
Skill: Concept
LO: 3
74) Job-based compensation:

A) is less appropriate at higher levels in a firm.
B) is the most objective of all compensation systems.
C) is less bureaucratic and inflexible than other systems.
D) has less bias toward women than skill-based compensation systems.
Answer: A
Chapter: 10
Skill: Concept
LO: 3
75) Job-based compensation plans have the advantage of:

A) being objective, data-based systems.
B) having a bureaucratic and definitive structure.
C) appearing rational and systematic, thereby minimizing employee complaints.
D) focusing on the three most important compensable factors, depth, breadth, and vertical skills.
Answer: C
Chapter: 10
Skill: Concept
LO: 3
76) When implementing a job-based compensation plan, it is best that a company:

A) focus on tactical, immediate issues.
B) narrow each job's pay range.
C) avoid job banding.
D) involve employees.
Answer: D
Chapter: 10
Skill: Concept
LO: 3
77) When setting up a job-based pay plan, it is most likely important for a firm to:
A) have a relatively flat management hierarchy.
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B) use an external consulting firm to ensure objectivity.
C) differentiate among depth, horizontal, and vertical skills.
D) establish a way for employees to improve pay without moving into management.
Answer: D
Chapter: 10
Skill: Concept
LO: 3
78) A skill-based approach to compensation is built on which of the following characteristics?

A) Workers are paid for performing well-defined jobs using vertical skills.
B) The greater the variety of job-related skills a worker possesses, the more he/she should be
paid.
C) Each job must be very clearly described with highly defined tasks and skill requirements.
D) The primary objective is to allocate pay so that the most important jobs command the highest
pay.
Answer: B
Chapter: 10
Skill: Concept
LO: 3
79) Skill-based pay plans pose some risks to the organization, such as:
A) increasing employees' frustration when they hit the top of the pay structure.
B) being more subjective and arbitrary than job-based pay plans.
C) leading to bias against women and minorities.
D) not considering the nature of the business.
Answer: A
Chapter: 10
Skill: Concept
LO: 3
80) Which of the following is the most common compensation practice among small firms?
A) Paying below-market rates to technical workers
B) Offering stock options instead of base salaries
C) Paying bonuses based on company performance
D) Offering sign-on bonuses to attractive recruits
Answer: C
Chapter: 10
Skill: Concept
LO: 3
81) According to surveys, which of the following is most likely true about family businesses?
A) Family employees earn twice as much in base salary at family-owned businesses than they
would at businesses not owned by family members.
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B) Family employees would earn more compensation at similar positions in businesses not
owned by family members.
C) Owners of family businesses have total compensation packages less than those paid to
nonowner presidents.
D) Contributions of family member employees outweigh personal needs when determining
compensation.
Answer: B
Chapter: 10
Skill: Concept
LO: 1
82) Which of the following affects most pay structures in the United States?
A) Executive Order 11246
B) Fair Labor Standards Act
C) Civil Rights Act of 1991
D) Equal Pay Act
Answer: B
Chapter: 10
Skill: Concept
LO: 5
83) Which of the following is an example of a non-exempt employee?

A) A manager
B) A salesperson
C) An HRM professional
D) An hourly employee on the production line
Answer: D
Chapter: 10
Skill: Concept
LO: 5
84) An exempt employee:

A) works as a temporary employee.
B) is more costly to a firm than a nonexempt employee.
C) is not covered by the Fair Labor Standards Act.
D) works part time rather than full time.
Answer: C
Chapter: 10
Skill: Concept
LO: 5
85) The Equal Pay Act prohibits compensation discrimination between men and women doing
substantially the same job, except when:
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A) the pay differential is due to gender.
B) the titles of the jobs in question are different.
C) there is no apparent disparate impact from the practice.
D) the base pay for the job is minimum wage.
E) seniority or productivity are the basis for the differential.
Answer: E
Chapter: 10
Skill: Concept
LO: 5
Case 10.1
Brighton Manufacturing is reviewing its compensation system. The CEO wants employees to be
paid wages and benefits comparable to Brighton's competitors. He wants a system that allows for
maximum flexibility in re-assigning workers to different jobs without requiring compensation
adjustments each time. The Finance VP suggests that the company link compensation costs more
closely to productivity and profit. When profits are down, compensation costs should be reduced
as well. The Finance VP also believes that employees should be paid for what they produce, not
for their time, and the compensation program should apply to all employees equally. The VP of
HR suggests that the key to the company's success is their employees and advocates an
individual-based compensation plan. People should be paid for their skills or knowledge, not just
because they are fulfilling certain jobs. The VP of HR also feels that it would be simpler to
implement a compensation system by level rather than by job.
86) Refer to Case 10.1. The CEO is primarily concerned about:

A) external equity.
B) skill-based pay.
C) distributive justice.
D) internal equity.
Answer: A
Chapter: 10
Skill: Application
LO: 1
87) Refer to Case 10.1. The Finance VP would most likely favor a(n):
A) variable pay system.
B) membership-based system.
C) individual-centered system.
D) egalitarian compensation system.
Answer: A
Chapter: 10
Skill: Application
LO: 1
88) Refer to Case 10.1. Which of the following, if true, best supports the compensation plan
22
advocated by the VP of HR?
A) Turnover at Brighton is relatively low.
B) Most jobs at Brighton require significant employee training.
C) The technology used at Brighton changes frequently.
D) Employees at Brighton rarely need to cover for each other.
Answer: C
Chapter: 10
Skill: Synthesis
LO: 1, 2
89) Refer to Case 10.1. The CEO, VP of HRM, and VP of Finance would most likely agree on
a(n):
A) elitist pay system.
B) egalitarian pay system.
C) below-market pay system.
D) individual-centered pay system.
Answer: B
Chapter: 10
LO: 1
AACSB: Reflective thinking skills
90) Refer to Case 10.1. Brighton executives have decided to implement a decentralized pay
system. Which of the following, if true, best supports this decision?
A) Brighton is a large, diverse firm that has never faced legal challenges regarding
compensation.
B) The Brighton CEO wants pay decisions to be made at the firm's headquarters.
C) Brighton's unit managers have never received compensation training.
D) A large percentage of Brighton's staff is non-exempt.
Answer: A
Chapter: 10
Skill: Synthesis
LO: 1, 2
Case 10.2
O'Donnell International is updating its job-based compensation system with a primary goal of
achieving internal equity. Sean is responsible for gathering and organizing information
concerning the tasks and duties of specific jobs. Susie is to determine the prerequisites for the
successful accomplishment of each job analyzed. Jeff will work with three line managers to
determine the compensable factors for specific lower-level jobs. The HR director, the president,
and two VP's will review the information on management jobs in order to determine the
compensable factors in each before putting all jobs at the firm into a job hierarchy.
23
91) Refer to Case 10.2. What is the best way to address O'Donnell's key concern?
A) Conducting a market survey
B) Referring to the Hay system
C) Conducting a job evaluation
D) Initiating a TQM program
Answer: C
Chapter: 10
Skill: Application
LO: 3
92) Refer to Case 10.2. Which of the following methods would Sean LEAST likely use?
A) Interviewing employees
B) Using a point factor system
C) Analyzing equipment costs
D) Distributing questionnaires to managers
Answer: B
Chapter: 10
Skill: Application
LO: 3
93) Refer to Case 10.2. Susie's responsibility most likely relates to:
A) conducting the job evaluations.
B) writing the job descriptions.
C) identifying job specification components.
D) rating the worth of the jobs.
Answer: C
Chapter: 10
Skill: Application
LO: 3
94) Refer to Case 10.2. For Jeff to accomplish his task, he most likely needs to:
A) conduct the job evaluations.
B) write the job descriptions.
C) rate the worth of the jobs.
D) create a job hierarchy.
Answer: C
Chapter: 10
Skill: Application
LO: 3
95) Refer to Case 10.2. Which of the following would be most appropriate for Jeff to use?
A) MAA
24
B) Hay Guide
C) Ranking system
D) Classification system
Answer: A
Chapter: 10
Skill: Application
LO: 3
96) Refer to Case 10.2. Which of the following, if true, best supports the use of market data
rather than internal job evaluations to determine the value of jobs at O'Donnell?
A) Turnover at O'Donnell is relatively low.
B) Most jobs at O'Donnell are typical for the industry.
C) The organizational structure at O'Donnell is flat.
D) Most lower-level positions at O'Donnell are exempt.
Answer: B
Chapter: 10
LO: 3
97) Job compensation directly affects how much labor costs detract from or contribute to
business profitability.
Answer: TRUE
Chapter: 10
Skill: Concept
LO: 1
98) The benefits portion of an employee's pay averages 42% of the total compensation package.
Answer: TRUE
Chapter: 10
Skill: Concept
LO: 1
99) Pay incentives make up the greatest percentage of total compensation for employees.
Answer: FALSE
Chapter: 10
Skill: Concept
LO: 1
100) The perceived fairness of an employee's pay relative to what other employees are being
paid for the same labor describes the concept of internal equity.
Answer: TRUE
25
Chapter: 10
Skill: Concept
LO: 1
101) The distributive justice model of pay equity holds that the wage rate for a given occupation
is set at a point where the labor supply and labor demand are equally distributed.
Answer: FALSE
Chapter: 10
Skill: Concept
LO: 1
102) Balancing equity ensures that employees with seniority will receive greater compensation
than more recent hires.
Answer: FALSE
Chapter: 10
Skill: Concept
LO: 1
103) The primary reason variable pay is the norm in U.S. industry is because it correlates labor
costs with production costs and enhances a company's competitive position.
Answer: FALSE
Chapter: 10
Skill: Concept
LO: 2
104) As an employee's base pay increases, it is likely that the percentage of variable pay that he
or she receives will decrease.
Answer: FALSE
Chapter: 10
Skill: Concept
LO: 2
105) Membership-contingent compensation provides a similar wage to every employee in a

given group, so long as they perform their job satisfactorily.
Answer: TRUE
Chapter: 10
Skill: Concept
LO: 2
106) The relative emphasis placed on performance versus membership depends largely on the
organization's culture and beliefs of top management.
26
Answer: TRUE
Chapter: 10
Skill: Concept
LO: 2
107) A job-based pay system works best where jobs don't change often, when a great deal of
training is required to learn a job, and when employees expect to move up through the system
over time.
Answer: TRUE
Chapter: 10
Skill: Concept
LO: 3
108) Azzi recently went through company training on using a new computer system, and she has
recently received her Associates of Arts degree in Accounting. Her company is raising her salary
in response to her new abilities and is giving her new, related responsibilities. The company
probably uses a job-based pay system.
Answer: FALSE
Chapter: 10
Skill: Application
LO: 3
109) An egalitarian pay system strives to place most of their employees under the same
compensation plan, while elitist pay systems establish different compensation plans based on
employees' organizational level.
Answer: TRUE
Chapter: 10
Skill: Concept
LO: 2
110) Below-market compensation is more prevalent at larger companies in less competitive

industries.
Answer: FALSE
Chapter: 10
Skill: Concept
LO: 2
111) Most Americans feel that pay is the most important consideration in accepting or staying at
a job.
Answer: FALSE
Chapter: 10
27
Skill: Concept
LO: 2
112) Organizations that emphasize nonmonetary rewards are often trying to encourage and
reinforce individual achievement and responsibility among employees.
Answer: FALSE
Chapter: 10
Skill: Concept
LO: 2
113) Open pay policies tend to lead to greater dissatisfaction among employees as employees
compare compensation with each other.
Answer: FALSE
Chapter: 10
Skill: Concept
LO: 2
114) In a company where pay decisions are decentralized, the managers of each unit often have
the responsibility of determining compensation for employees.
Answer: TRUE
Chapter: 10
Skill: Concept
LO: 2
115) Skill-based pay assumes that workers should be paid according to how flexible or capable
they are at performing multiple tasks.
Answer: TRUE
Chapter: 10
Skill: Concept
LO: 4
116) The first step in achieving pay equity for job-based compensation plans is conducting a job
analysis.
Answer: TRUE
Chapter: 10
Skill: Concept
LO: 3
117) Compensable factors are concrete terms relating to the necessary education, skill, and work
experience for compensation at a particular level.
Answer: FALSE
28
Chapter: 10
Skill: Concept
LO: 3
118) A job hierarchy lists jobs in order of their importance to an organization.

Answer: TRUE
Chapter: 10
Skill: Concept
LO: 3
119) In order to achieve external equity, a company must first benchmark key jobs.
Answer: TRUE
Chapter: 10
Skill: Concept
LO: 3
120) Job-based compensation plans place strong consideration on the nature of the business.
Answer: FALSE
Chapter: 10
Skill: Concept
LO: 3
121) Job banding entails replacing narrowly defined job descriptions with broad categories of
related jobs.
Answer: TRUE
Chapter: 10
Skill: Concept
LO: 3
122) In skill-based compensation plans, employees acquire depth skills when they learn self-
management abilities, such as scheduling and organizing.
Answer: FALSE
Chapter: 10
Skill: Concept
LO: 4
123) Some companies, in order to dodge costs related to the Fair Labor Standards Act, will claim
more exempt employees than nonexempt employees.
Answer: TRUE
Chapter: 10
Skill: Concept
29
LO: 5
124) While the Fair Labor Standards Act dictates that employers pay workers overtime for each
hour they work over 40 hours in a week, it does not dictate the rate they must be paid. Employers
may pay anywhere from 1/2 to 2 times their regular wage.
Answer: FALSE
Chapter: 10
Skill: Concept
LO: 5
125) The Internal Revenue Code affects how benefits are treated for tax purposes.
Answer: TRUE
Chapter: 10
Skill: Concept
LO: 5
126) The package of quantifiable rewards an employee receives for his/her labors is called
________.
Answer: total compensation
Chapter: 10
Skill: Concept
LO: 1
127) ________ is a program designed to reward employees for good performance.

Answer: Pay incentive
Chapter: 10
Skill: Concept
LO: 1
128) ________ is the perceived fairness of the pay structure within a firm.
Answer: Internal equity
Chapter: 10
Skill: Concept
LO: 1
129) ________ is the perceived fairness of individual pay decisions.

Answer: Individual equity
Chapter: 10
Skill: Concept
LO: 1
30
130) A pay plan in which most employees are part of the same compensation system is referred
to as a(n) ________.
Answer: egalitarian pay system
Chapter: 10
Skill: Concept
LO: 1
131) A(n) ________ is a pay plan in which different compensation systems are established for
employees or groups at different organizational levels.
Answer: elitist pay system
Chapter: 10
Skill: Concept
LO: 1
132) ________ are work-related criteria that an organization considers most important in
assessing the relative value of different jobs.
Answer: Compensable factors
Chapter: 10
Skill: Concept
LO: 3
133) A listing of jobs in order of their importance to the organization, from highest to lowest is
referred to as a(n) ________.
Answer: job hierarchy
Chapter: 10
Skill: Concept
LO: 3
134) A job that is similar or comparable in content across firms is called a(n) ________.
Answer: benchmark job or key job
Chapter: 10
Skill: Concept
LO: 3
135) The practice of replacing narrowly defined job descriptions with broader categories or
related jobs is referred to as ________.
Answer: job banding
Chapter: 10
Skill: Concept
LO: 3
31
136) The ________ is the fundamental compensation law in the United States that requires
employers to record earnings and hours worked by all covered employees, and to report this
information to the U.S. Department of Labor.
Answer: Fair Labor Standards Act (FLSA)
Chapter: 10
Skill: Concept
LO: 5
137) Most professional, administrative, executive, and outside sales jobs fall into the category of
________.
Answer: exempt (employees)
Chapter: 10
Skill: Concept
LO: 5
138) An employee who is covered by the provisions of the FLSA is referred to as a(n) ________.
Answer: nonexempt employee
Chapter: 10
Skill: Concept
LO: 5
139) ________ is a pay concept or doctrine that calls for comparable pay for jobs that require
comparable skills, effort, and responsibility and have comparable working conditions, even if the
job content is different.
Answer: Comparable worth
Chapter: 10
Skill: Concept
LO: 5
140) The code of tax laws that affects how much of their earnings employees can keep and how
benefits are treated for tax purposes, is called the ________.
Answer: Internal Revenue Code (IRC)
Chapter: 10
Skill: Concept
LO: 5
141) Define the concepts of internal and external equity, describing two basic models a company
may use, and explain how the objectives of internal and external equity can conflict.
Answer: • Definitions - internal equity, perceived fairness of pay structure within a company.
External equity, perceived fairness of pay structure used by an employer versus other employers'
compensation for the same labor.
• Models - Distributive justice, employees exchange effort for pay and the ratio of input to
32
output must be perceived as fair.
• Labor market - you pay what you must to get employees, supply and demand of labor
determines wages.
• Conflict - you have to pay new employees more than existing ones to attract them. Desire to be
fair to existing employees requires periodic pay structure adjustments. Emphasis should be on
external equity.
Chapter: 10
Skill: Synthesis
LO: 1, 2
142) A company designing a compensation plan needs to make several decisions. Explain a
company's pay options in terms of: fixed versus variable pay, performance versus membership,
and individual versus job-based system.
Answer: Summary of suggested answer -
• Fixed versus variable - fixed is base pay, little variation in compensation. Compensation costs
are constant. Risk is reduced for employee and employer. Trades income security for income
potential. Variable are bonuses, commissions, etc. Costs of compensation are tied to profit.
Increases risk, also increases earnings potential. Employee has a direct stake in company's
success.
• Performance versus membership - performance pay is tied to employee's contribution to the
company. Types - piece rate, commissions, etc.
• Membership pay - all employees in same job receive same pay. Basically paid for time put in.
• Job versus individual - Job uses the tasks and duties performed as the basis for pay. Works
best in stable situations, standardized jobs, etc. Individual is either knowledge- or skill-based
pay, the individual contribution is the basis of pay. One increases pay by doing the job better.
Works best with educated workforce, dynamic market/organization when there is limited upward
mobility.
Chapter: 10
LO: 2
143) Describe the reasons a company would choose below-market or above-market

compensation policy and the advantages and disadvantages of open versus secret pay policies.
General factors that affect a company's compensation strategy are:
• Workers' alternative employment opportunities and the cost to the company of the strategy.
• Above-market compensation is more prevalent in large companies in less competitive
industries, when there is a high level of employment in the economy.
• Below-market compensation tends to be prevalent among small, young, nonunionized
companies that often operate in economically depressed areas and tend to have a higher
proportion of women and minorities in the workforce.
• At-market wages are typical in well-established and highly competitive industries.
Diff: 3 Page Ref: 320, 323
33
Chapter: 10
LO: 2
144) The process of achieving internal equity involves six steps. Enumerate and explain this
process.
• Steps - 1) job analysis, 2) job description, 3) job specifications, 4) rate worth, 5) establish job
hierarchy, and 6) classify jobs by grade level.
• Contribution - 1) identifies compensated duties and responsibilities, 2) records job duties,
responsibilities, working conditions, and requirements, 3) identifies prerequisites for successful
job completion, 4) uses point factors to weigh jobs, 5) places job in rank order against other jobs
based on point factors, 6) places jobs in grades and assigns value and therefore compensation.
Chapter: 10
LO: 3
145) What is the impact of the Fair Labor Standards Act and the Equal Pay Act on employee
compensation?
• FSLA - defines exempt and non-exempt. Sets minimum wage. Dictates overtime pay
requirements.
• Equal Pay Act - prohibits pay discrimination between men and women. There are four
exceptions–seniority, better job performance, productivity, and shift differential pay. Raises the
issue of comparable worth.
Chapter: 10
LO: 5
146) What is comparable worth? What role does job evaluation play in arguments for and against
comparable worth?
Answer: Comparable worth calls for comparable pay for jobs that require comparable skills,
effort, and responsibility and have comparable working conditions, even if the job content is
different. For instance, if a company using the point-factor job-evaluation system finds that the
administrative assistant position receives the same number of points as the shift supervisor
position, comparable
worth legislation would require paying employees in these jobs equally, even though they might
be exercising very different skills and responsibilities. Supporters of comparable worth
legislation favor using job-evaluation tools to advance pay equity, pointing out that many private
firms already use this method to set wages. Opponents argue that job evaluations are inherently
arbitrary and that they do not take sufficient account of jobs' market value.
Chapter: 10
34
Skill: Synthesis
LO: 3, 5
35

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Managing Human Resources, 7e (Gómez-Mejía / Balkin / Cardy)

Chapter 10 Managing Compensation

3) Base compensation refers to:

4) Employees' total compensation consists of which of the following?

5) Perquisites, also called "perks" are best described as:

6) Indirect compensation in a pay mix typically includes:

8) In order for a compensation system to work well, it must:

12) The distributive justice model is based on the idea that:

16) Balancing equity is most likely difficult because:

17) An emphasis on external equity is most important for:

18) Variable compensation systems work best:

19) On average, ________ of a U.S. employee's pay is variable.

20) According to your text, as employees' base pay increases, their:

21) Variable compensation takes a variety of forms, including:

22) A performance-contingent compensation system bases pay upon:

24) A membership-contingent compensation system pays employees:

25) Companies using performance-based compensation systems tend to be:

28) An individual-centered compensation system:

31) Advocates of skill-based pay argue that it:

32) Which of the following is NOT a criticism of skill-based compensation systems?

33) If management wants the compensation system to reinforce a traditional organizational

36) Egalitarian compensation systems are:

37) Elitist compensation systems are most likely:

38) Above-market compensation policies are more likely to:

42) An emphasis on monetary rewards will generally reward a company with:

43) The practice of openness in a compensation system generally leads to:

48) Decentralizing pay decisions most likely enables a company to:

50) When a work force is highly unionized:

52) Job-based compensation plans focus on the key component of:

56) The design of job-based compensation pay plans begins with:

59) Job specifications:

60) Job descriptions:

66) A job hierarchy in a compensation plan is primarily built on:

74) Job-based compensation:

75) Job-based compensation plans have the advantage of:

76) When implementing a job-based compensation plan, it is best that a company:

78) A skill-based approach to compensation is built on which of the following characteristics?

83) Which of the following is an example of a non-exempt employee?

84) An exempt employee:

86) Refer to Case 10.1. The CEO is primarily concerned about:

105) Membership-contingent compensation provides a similar wage to every employee in a

110) Below-market compensation is more prevalent at larger companies in less competitive

118) A job hierarchy lists jobs in order of their importance to an organization.

127) ________ is a program designed to reward employees for good performance.

129) ________ is the perceived fairness of individual pay decisions.

143) Describe the reasons a company would choose below-market or above-market

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