Oakland University

ORG 330

Chapter 7

Total Rewards and Compensation

Multiple Choice

1)Total rewards are provided to employees in order to

                                                .

1. 1. meet employee needs
   2. attract, retain, and reward employees
   3. reward employees for outstanding performance
   4. secure scarce organizational resources 
2. Because so many organizational funds are spent on compensation-related activities, it is crucial for top management and HR executives to match compensation practices with   .
   1. affirmative action guidelines
   2. their quarterly budget
   3. what the organization is trying to accomplish
   4. organizational, unit and individual performance 
3. Which of the following would be an example of an intrinsic reward from a manager to a subordinate?
   1. a grant of stock options
   2. additional medical insurance coverage
   3. a membership in a country club
   4. saying, “You really pulled off a difficult project.”
4. Medical insurance, paid by the employer, is classified as

                                                  compensation.

1. 1. indirect
   2. direct
   3. variable
   4. intrinsic

5.                                                               are payments directly calculated on the amount of time worked.
   1. Salaries
   2. Wages
   3. Incentives
   4. Bonuses 
6. Amber is the manager of a popular clothing store. She regularly works over 40 hours a week; however, when new styles are coming in that require new displays, she may put in as many as 60 hours a week. Amber's paycheck is the same regardless of the number of hours she has worked. Amber is paid .
   1. based on a total compensation arrangement
   2. based on an incentive compensation program
   3. on a wage system
   4. on a salary basis 
7. Which type of compensation is linked directly to individual, team, or organizational performance?
   1. variable pay
   2. motivators
   3. wages
   4. salary 
8. The two basic compensation philosophies, which should be seen as opposite   ends   of   a   continuum,   are and          .
   1. merit; seniority
   2. exempt; non-exempt
   3. entitlement; performance
   4. time-based; productivity-based 
9. 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 has been as high as 10% depending on changes in the cost-of-living. Artistic

Floral Creations has a/an                                                                                     

compensation.

philosophy of

9. 1. performance-based
   2. entitlement
   3. time-based
   4. total rewards
10. In an organization with a performance-oriented philosophy,

                                                .

10. 1. no one is guaranteed increased compensation just for completing another year of service
    2. all employees can at least count on an annual cost-of- living adjustment to their salaries
    3. commissions                      and               piece-rate                        incentives                        replace traditional salaries
    4. fairness concerns dominate compensation decisions 
11.                                                          is the perceived fairness of the relation between what a person does and what the person receives.
    1. Distributive justice
    2. Procedural justice
    3. Equity
    4. Compensation satisfaction 
12. Organizations that have specifically stated policies about where they wish to be positioned in the labor market use a

                                                .

12. 1. competitive-position strategy
    2. quartile strategy
    3. bench marking strategy
    4. labor market strategy
13. A company that structures its compensation system so that half of its competitors pay their employees more than it does and half of its competitors pay less, is using a

                                                  the market strategy.

1. 1. lag
   2. meet
   3. lead
   4. follow 

14. Abundance Nurseries needs large numbers of unskilled employees every spring and summer to plant, maintain, and harvest the flower fields. Abundance is located in an area where there is a large supply of unskilled workers, and it has few problems recruiting workers as needed. It would be reasonable for Abundance Nurseries to use the

                                                  -quartile approach to compensation strategy.

14. 1. first
    2. second
    3. third
    4. fourth
15. The perceived fairness of the process and procedures used to make decisions about employees, including their pay, is called               .
    1. pay equity
    2. distributive justice
    3. supervisory protocol
    4. procedural justice 
16. In terms of procedural justice, the process of determining base pay, allocating pay increases, and measuring performance all must be seen as                                                              .
    1. fair
    2. equitable
    3. just
    4. transparent 
17.                                                                                is the perceived fairness in the distribution of outcomes.
    1. Compensation satisfaction
    2. Reward-performance perceptions
    3. Distributive justice
    4. Procedural justice 
18. A third-quartile approach is a/an                                                                                        .
    1. strategy in which the company pays more than the competition
    2. strategy to pay below market compensation
    3. useful               strategy                  when          lower-skilled                         employees               are required

18. 4. team-based approach to compensation 
19. Larry has decided to go back to his hometown of Mellonburg, Missouri, and set up an architectural design business. Mellonburg is a depressed farming community of 351 residents. It is 20 miles from the nearest movie theater and 70 miles from the nearest Starbucks coffee shop. In order to attract highly-skilled architects, Larry will probably have to pay in the       quartile.
    1. first
    2. second
    3. third
    4. fourth 
20. What is the major federal law affecting compensation?
    1. Fair Labor Standards Act
    2. Wagner Act
    3. National Compensation Fairness Act
    4. Equal Pay Act 
21. Which of the following is a major objective of the Fair Labor Standards Act?
    1. Give labor unions the right to bargain on compensation components.
    2. Promote safe working conditions.
    3. Establish a minimum wage.
    4. Outlaw child labor.

22. A lower minimum wage level is set for which of the following employee groups?
    1. interns working in a cooperative training programs
    2. “tipped” employees such as restaurant workers
    3. minors, that is children aged between 16 and 18 years
    4. disabled workers 
23.                                                   is the amount needed for a family of four to be supported by one worker so that family income is above

the officially identified poverty level.

1. 1. An honest wage
   2. A fair wage
   3. The minimum wage
   4. The living wage

24. Which of the following are not paid overtime under the Fair Labor Standards Act?
    1. hourly workers
    2. salaried workers
    3. exempt employees
    4. non-exempt employees

25. The five categories of exempt jobs, as defined by the FLSA, are                .
    1. executive,                      administrative,                             professional,                           computer employees, outside sales
    2. administrative, legal, professional, outside sales, and skilled trades
    3. professional,                           human              resources,                      legal,                     computer employees, and outside sales
    4. executive, legal, human resources, educational workers, and skilled trades

26. Which of the following is a true statement about the overtime provisions of the Fair Labor Standards Act?
    1. A manufacturing firm with a 4-day/10-hour schedule still must pay overtime for the two hours above 8 each day.
    2. Overtime pay is set at one and one-half times the regular pay rate for all hours in excess of 40 per week.
    3. All employees are entitled to overtime payments for working over 40 hours a week.
    4. The work week is defined as 168 hours beginning at 12:01 Monday morning.

27. Terri works at Timmy’s Toy Factory on the assembly line. She has been designated as “Assistant Manager.” The majority of her time is spent demonstrating how to assemble the toys to the new employees on the line. In addition, she spends about 5% of her time processing paperwork for the Manager of the line. Terri often works more than 40 hours a

week to keep up with all her duties, but because she is an assistant manager, she is not paid overtime. Which of the following statements is true?

1. 1. Terri's pay is consistent with the FLSA because she is a salaried worker.
   2. Terri should be paid overtime according to the FLSA because she is an exempt employee.
   3. Terri's pay is not consistent with the FLSA because she is a non-exempt employee.
   4. Terri should be given compensatory time off but not overtime because she is a salaried worker.

28. Compensatory time-off can be given in the private sector if

                                                .

1. 1. it is given at the rate of one and one-half times the hours worked over a 40-hour week
   2. it is taken within 30 days of incurring the overtime
   3. the hourly wage is at least one and one-half times the minimum wage
   4. it is given at a rate equivalent to the number of overtime hours worked within the same pay period

29. A prevailing wage is required for                                                                                               and is

associated with the rate of pay paid by                                                                                                  .

1. 1. federal construction projects; a majority of the employers in a geographical area
   2. state construction projects; a majority of the employers in the associated state
   3. federal construction projects; a majority of the employers contracted on the construction project
   4. state construction projects; a majority of the employers contracted on the construction project

30. The                                                     method is the most popular method of job evaluation.
    1. observation
    2. market
    3. broad banding
    4. point

31. George, a compensation specialist, for a large frozen foods company, has been asked to identify compensable factors specific to the job of forklift operator in the company's extensive warehouse. This warehouse is one of the largest refrigerated warehouses in the country. George would probably include all the following in his list EXCEPT

                                                .

31. 1. working environment
    2. safety hazards
    3. use of specialized equipment
    4. consequences of errors 
32. Simon is a compensation specialist for Amber Waves, Inc. He is collecting data on compensation rates for workers performing similar jobs at other organizations. Simon is conducting a .
    1. wage benchmarking study
    2. pay survey
    3. market review
    4. competitive evaluation 
33. Employers should use caution in gathering external pay data from the Internet because               .
    1. the information may be inaccurate and may not fit the organization’s jobs
    2. computer hackers can track an employer’s Internet usage
    3. HR staff may lack computer literacy
    4. salary data bases are offered by subscription only
34. Why do organizations use pay grades?
    1. to group individual jobs having approximately the same job worth
    2. to insure against pay differentials based on sex or race
    3. to           compare              similar                   jobs              across                a           variety                  of organizations
    4. to develop a pay structure that is based on market rates 
35. Which of the following would not be identified as a primary

reason reducing the number of pay grades and expanding pay ranges through broadbanding?

1. 1. to encourage competency development
   2. to emphasize career development
   3. to create a more structured organization
   4. to better fit with the flattening of organizational levels

36. Jason is paid higher than the range of pay offered for his job as a computer programmer, while Susan is paid lower than the range of pay for the same job. Jason would be called a

                                                  while Susan is a                                                                        .

36. 1. red-circled employee; green-circled employee
    2. green-circled employee; red-circled employee
    3. broadbanded employee; short-banded employee
    4. short-banded employee; broadbanded employee
37. A person's                                                                      is that employee's current pay level divided by the midpoint of the pay range.
    1. compa-ratio
    2. average pay rate
    3. mid-grade mark
    4. market price 
38. Paul is an Accounting Manager for a large pharmaceutical company in New York. The salary range for the Accounting Manager position is $60,000 - $80,000. If Paul is paid

$75,000                   per              year,                 then               Paul’s                   compa-ratio                      is

                                                . a. 125

b. 107

c. 100

d. 93

39. At the heart of most executive compensation plans is the idea that                .
    1. base pay is not as important as the other benefits and perks
    2. executives should be rewarded if the organization grows

in profitability and value over a period of years

1. 3. executives                  should              be         rewarded              for            their               current performance
   4. outstanding executives are hard to keep unless they are well compensated

40.                                                   are special benefits for executives that are usually noncash items.
    1. Stock options
    2. Enhanced benefits packages
    3. Incentives
    4. Perquisites
41. Which of the following is used to emphasize the long-term growth and success of the organization?
    1. executive perquisites
    2. executive bonus plans
    3. incentives
    4. stock options 
42. For most organizations, which group must approve the executive compensation package?
    1. Shareholders
    2. Security and Exchange Commission
    3. Board of Directors
    4. Internal Revenue Service 
43. What is the usual composition of the compensation committee?
    1. a subgroup of the board of directors including officers of the firm
    2. a subgroup of the board of directors who are not officers of the firm
    3. executives from other companies
    4. compensation consultants without executive management involvement

44. The role of a compensation committee is to                                                                                                  .
    1. assist the HR unit is developing overall pay and benefit

programs for the organization

1. 2. develop a compensation package that ties overall compensation to organizational performance
   3. make recommendations to the shareholders on the compensation formula for members of the board of directors
   4. make recommendations to the board of directors on overall pay policies, salaries for top officers, stock options, bonuses, and additional perks for executives

45. The most important reason for giving pay as incentives is to  .

45. 1. motivate employees in increase corporate performance and stock values
    2. minimize personal income taxes for executives and increase transparency
    3. lessen the need for other fringe benefits
    4. placate dissent shareholders 
46. Which of the following measures is typically not used to evaluate executive performance?

1. 1. customer satisfaction
   2. return on equity
   3. headcount
   4. net income before taxes 

True and False

47. Benefits are indirect rewards given to an employee or a group of employees as a part of organizational membership.

48. A total rewards approach is more closely tied to an entitlement philosophy than a performance philosophy.

49. If the federal minimum wage is set at $5.75 per hour, but the state minimum wage is set at $6.00, then employees should be paid $6.00/hour.

50. The Fair Labor Standards Act sets the minimum age for employment with unlimited hours at age 18.

51. A salaried non-exempt employee is covered by the overtime provisions under the Fair Labor Standards Act.

52. Travel time is compensable only if it occurs during normal work hours on a normally scheduled day of work.

53. Job evaluation provides a systematic basis for determining the relative worth of jobs within an organization.

54. The point method of job evaluation is rarely used because it is an extremely complex system to use.

55. The success of valuing jobs using marketing pricing rests, in part, on the ability to identify good matches with the employer’s jobs.

55. The identification of benchmark jobs is often an important source to ensure the accuracy of market pricing.

56. A job family is a grouping of all jobs falling under one business unit in an organization.

57. A market line shows a relationship between job value as determined by job evaluation points and job value as determined by pay survey rates.

58. A pay adjustment matrix considers such factors as employee performance and which job family the employee’s position is classified.

59. Pay compression occurs when the pay differences among individuals with different levels of experience and performance in the organization become small.

60. Seniority is simply time spent in a particular industry or profession.

61. A lump-sum increase is a one-time payment for an equity adjustment.

62. A primary design objective of executive compensation plans is to minimize the tax consequences for the executive.

63. A stock option gives an individual the right to buy stock in a company, usually at an advantageous price.

64. One argument for the high levels of compensation paid to executives is that sports and entertainment stars earn as much or more, for playing games and acting.

Essay