Chapter 9--Compensation and Benefits Key

1. ____ refers to all of the pay and benefits provided to employees for the completion of work.
A. Salary
B. Pay substructure
C. Total compensation
D. Fair labor standards
E. Incentives

2. Which of the following employee behavioral outcomes is MOST likely under conditions of perceived internal
inequity as compared to external inequity?
A. Lower morale
B. Higher conflict
C. Lower satisfaction
D. Lower motivation
E. All of these

3. Jorge, a supervisor for a large luxury hotel, compared his salary to other supervisors in the same organization.
He found that his base pay was about 25 percent less than other individuals in similar supervisory jobs. Jorge is
experiencing
A. internal inequity.
B. lateral inequity.
C. position inequity.
D. external inequity.
E. compensation inequity

4. Information used to assess external equity is likely collected with

A. pay surveys.
B. benefits administrators.
C. compensation calculators.
D. random telephone interviews.
E. none of these.

5. ____ occurs when a company indicates to employees the importance of certain behaviors by paying for such
behaviors.
A. Supporting
B. Suggesting
C. Spiraling
D. Benchmarking
E. Signaling

6. In general, salaries are paid to

A. professionals.
B. executives.
C. line workers.
D. all of these.
E. both professionals and executives.

7. A laborer who is responsible for landscaping a local golf course likely receives
A. a salary.
B. a wage.
C. broad incentive pay.
D. no overtime.
E. a pension but no worker's comp.

8. Which of the following would be considered a DISADVANTAGE of the use of above-market compensation?
A. It may encourage voluntary turnover.
B. It is less costly to the organization.
C. It may create a culture of competitive superiority.
D. It may not attract the highest-quality employees.
E. It may encourage a sense of entitlement among employees.

9. Organizations are MOST likely to be able to pay below-market compensation rates in an area with
A. high unemployment.
B. high cost of living.
C. high wage levels.
D. high labor costs.
E. highly skilled workers.

10. Under ERISA, vesting rights become operational after ______ years at the most, and employees with less
service are still usually eligible to receive some portion of their retirement benefits.
A. 2
B. 8
C. 4
D. 10
E. 6

11. ______ are typically a function of the performance of the organization and are less dependent on the
perceived performance of the executive.
A. Bonuses
B. Pay levels
C. Wages
D. Benefits
E. Stock options
12. Stock options generally tend to have ______ timelines, so managers may be motivated to make short-term
decisions that are likely to drive up stock prices even though a different decision might have been better for the
firms success.
A. short
B. long
C. relatively short
D. relatively long
E. really long

13. What is the general method used to determine the relative value or worth of jobs to an organization?
A. Job analysis
B. Comparable worth
C. Job evaluation
D. Compensable factors
E. Pay compression

14. The U.S. postal system utilizes different job grades to pay employees, which is part of a
A. job ranking system
B. classification system
C. regression-based system
D. factor comparison method
E. No method

15. The job evaluation system that results in a number of job grades is called
A. job ranking.
B. the classification system.
C. the point system.
D. the factor comparison method.
E. job analysis.

16. Which job evaluation method identifies a job's various compensable factors for which the organization is
willing to provide compensation?
A. Job ranking
B. Classification system
C. Point system
D. Job analysis
E. Comparable worth

17. An aspect of a job for which an organization is willing to provide compensation is called a
A. comparable worth issue.
B. pay grade.
C. job class.
D. compensable factor.
E. job evaluation.

18. The Department of Defense publishes pay charts for enlisted and officer pay. This indicates the level of
______ in the DOD.
A. pay compression
B. pay secrecy
C. pay inversion
D. wage inflation
E. the cost of living

19. Credit Suisse offers benefits that are better than a typical US company. It justifies the cost of the benefits by
using which theory?
A. Equity theory
B. Motivational theory
C. Efficiency wage theory
D. Expectancy theory
E. Reinforcement theory

20. Money spent on benefits affects

A. involuntary turnover.
B. workers compensation.
C. social security.
D. unemployment insurance.
E. job satisfaction.

21. How does the United States rank in terms of the cost of benefits relative to that of other countries around the
globe?
A. Much higher
B. A little higher
C. About the same
D. Lower
E. Costs cannot be compared across countries.

22. When is pay compression MOST likely to develop?

A. When employee skill levels increase faster than managerial skill levels
B. When the market rate for starting salaries increases faster than organizations can give raises to existing
employees
C. When an organization's internal resources increase faster than it is able to hire new employees
D. When the organization can provide monetary rewards more easily than intangible benefits
E. When existing employees make more than new entrants in the organization

23. When Piccadilly Cafeterias filed for bankruptcy protection, its pension fund did not have enough assets to
cover expected future payments. Which law ensures that retirees will receive their pensions as promised?
A. Tax Reform Act of 1986
B. Tax Reform Act of 1997
C. ERISA
D. FMLA
E. Economic Recovery Tax Act

24. Which mandated employee benefit is designed to provide a basic subsistence payment to employees
between jobs?
A. Unemployment insurance
B. Social security
C. Workers' compensation
D. Medical insurance
E. Accidental death and dismemberment insurance

25. Which mandated type of insurance covers individuals who suffer a job-related illness or accident?
A. Unemployment insurance
B. Social security
C. Workers' compensation
D. Health insurance
E. Accidental death and dismemberment insurance

26. Which of the following is NOT a mandated benefit?

A. workers' compensation
B. social security
C. unemployment insurance
D. private pension plan
E. all of these benefits are mandated

27. All of the following are non-mandated benefits EXCEPT?

A. paid time off
B. workers' compensation
C. health insurance
D. defined benefit plan
E. defined contribution plan

28. A special program that helps prevent employee sickness is called a(n)
A. defined contribution plan
B. employee assistance plan
C. wellness program
D. defined benefit plan
E. workers' compensation

29. A special program that helps employees with drug or alcohol problems is called a(n)
A. cafeteria-style benefits plan
B. employee assistance plan
C. wellness program
D. defined benefit plan
E. workers' compensation

30. A program that allows employees to select the benefits they want is called a(n)
A. cafeteria-style benefits plan
B. employee assistance plan
C. wellness program
D. defined benefit plan
E. workers' compensation

31. Scenario 9.1

Chocolatta University, an institute of higher learning that educates future confectionary chefs, offers a very
attractive benefits package. Costs associated with benefits are about double those of rival institutions, Jellibelli
Tech and Truffle State. However, Chocolatta U. administrators feel that the extensive benefits attract the most
talented faculty and staff in the world. Due to recent societal trends in fitness and health, Chocolatta U. has
experienced a downturn in its funding support from global confectionary corporations seeing lower profits. The
university's budget has therefore been reduced. Joy Almond, human resource benefits manager, has been asked
to find ways to reduce expenditures on benefits, so that important university programs do not suffer.

Refer to Scenario 9.1. Chocolatta University administrators justify the high costs of its benefits programs by
espousing which particular theory?
A. Equity theory
B. Efficiency wage theory
C. Motivational theory
D. Expectancy theory
E. Reinforcement theory

32. Scenario 9.1

Chocolatta University, an institute of higher learning that educates future confectionary chefs, offers a very
attractive benefits package. Costs associated with benefits are about double those of rival institutions, Jellibelli
Tech and Truffle State. However, Chocolatta U. administrators feel that the extensive benefits attract the most
talented faculty and staff in the world. Due to recent societal trends in fitness and health, Chocolatta U. has
experienced a downturn in its funding support from global confectionary corporations seeing lower profits. The
university's budget has therefore been reduced. Joy Almond, human resource benefits manager, has been asked
to find ways to reduce expenditures on benefits, so that important university programs do not suffer.

Refer to Scenario 9.1. Which of the following is a benefit that Ms. Almond may NOT legally drop from
Chocolatta's benefits package?
A. Health insurance
B. Employee assistance program
C. Unemployment insurance
D. Life insurance
E. Vacation pay

33. Scenario 9.1

Chocolatta University, an institute of higher learning that educates future confectionary chefs, offers a very
attractive benefits package. Costs associated with benefits are about double those of rival institutions, Jellibelli
Tech and Truffle State. However, Chocolatta U. administrators feel that the extensive benefits attract the most
talented faculty and staff in the world. Due to recent societal trends in fitness and health, Chocolatta U. has
experienced a downturn in its funding support from global confectionary corporations seeing lower profits. The
university's budget has therefore been reduced. Joy Almond, human resource benefits manager, has been asked
to find ways to reduce expenditures on benefits, so that important university programs do not suffer.

Refer to Scenario 9.1. In the midst of all this activity, Professor Nestl severely burned himself while
demonstrating in class the art of the flaming dessert. He will therefore be away from work and recuperating for
three to six months. What benefit will help Professor Nestl pay his bills while he is out of commission?
A. Unemployment insurance
B. Health maintenance organization
C. Social security
D. Elder care
E. Workers' compensation

34. Scenario 9.1

Chocolatta University, an institute of higher learning that educates future confectionary chefs, offers a very
attractive benefits package. Costs associated with benefits are about double those of rival institutions, Jellibelli
Tech and Truffle State. However, Chocolatta U. administrators feel that the extensive benefits attract the most
talented faculty and staff in the world. Due to recent societal trends in fitness and health, Chocolatta U. has
experienced a downturn in its funding support from global confectionary corporations seeing lower profits. The
university's budget has therefore been reduced. Joy Almond, human resource benefits manager, has been asked
to find ways to reduce expenditures on benefits, so that important university programs do not suffer.

Refer to Scenario 9.1. Ms. Almond is considering one cost-cutting option, in which employees are asked to
make a small co-payment for each doctor's or dentist's visit. What is this called?
A. Cafeteria-style benefits
B. Coordination of benefits
C. Defined benefits
D. Sharing costs
E. Health maintenance organization

35. Scenario 9.1

Chocolatta University, an institute of higher learning that educates future confectionary chefs, offers a very
attractive benefits package. Costs associated with benefits are about double those of rival institutions, Jellibelli
Tech and Truffle State. However, Chocolatta U. administrators feel that the extensive benefits attract the most
talented faculty and staff in the world. Due to recent societal trends in fitness and health, Chocolatta U. has
experienced a downturn in its funding support from global confectionary corporations seeing lower profits. The
university's budget has therefore been reduced. Joy Almond, human resource benefits manager, has been asked
to find ways to reduce expenditures on benefits, so that important university programs do not suffer.
 Refer to Scenario 9.1. Regardless of benefit reductions due to budget setbacks, Ms. Almond feels strongly that
Chocolatta should continue to provide help for faculty and staff with recurring chocolate cravings. Otherwise,
classroom materials tend to disappear, and employees get severe sugar headaches. Which type of benefit would
this be classified as?
A. Employee assistance plan
B. Life-cycle plan
C. Workers' compensation
D. Health maintenance plan
E. Employee wellness plan

36. Internal equity involves comparisons to employees working in similar jobs in other companies.
FALSE

37. Job classification is a method for determining the relative value or worth of a job to the organization so that
individuals who perform that job can be compensated adequately and appropriately.
FALSE

38. Pay compression is most likely to develop when the market rate for starting salaries increases at a rate faster
than an organization can raise pay for individuals who are already on the payroll.
TRUE

39. An organization is not legally required to offer any vacation time.

TRUE

40. Everyone is covered by unemployment insurance.

FALSE

41. Unemployment insurance is insurance that covers individuals who suffer a job-related illness or accident.
FALSE

42. Most new pension plans are defined benefit plans, and there are legal restrictions concerning how the money
is invested.
FALSE

43. Most full time US employees receive about ten paid holidays per year.
TRUE

44. The Fair Labor Standards Act includes provisions for the minimum wage, overtime, and child labor.
TRUE

45. Executive compensation is usually based on salary and incentive pay.

TRUE

46. Discuss the various factors that may influence an organization's compensation strategy.

One factor relates to the organization's overall strategy. Human resource strategy should be designed to support
an organization's corporate and business strategies. As part of human resource activities, compensation strategy
should be designed to support strategic goals. A second factor relates to the organization's ability to pay; that is,
whether it has substantial cash reserves or suffers from cash flow problems. A third factor relates to the
organization's overall ability to attract and retain employees by its location, noncompensation amenities, or
work environment. A fourth factor relates to the legal context in which the organization operates. The
organization must adhere to federal and state laws relating to compensation activities, such as the ELSA of 1938
and the Equal Pay Act of 1963. A fifth factor is union influences. The strength and bargaining capabilities of a
union will influence the organization's compensation strategy.

47. Compare and contrast US and German benefits.

The German workweek is 38.3 hours (on average). The German worker works 1,685 hours per year, has 42 days
off, and has mandated benefit costs alone that equal almost 30 percent of wages. For comparison purposes, the
average U.S. worker spends 40 hours a week at work, spends 1,847 hours a year working, has 23 days off a
year, and has mandated benefits costs equal to about 10 percent of wages. The different social contracts
(guarantees made by the government in return for higher taxes) in place in the respective countries are
substantial.

48. Discuss the concept of job evaluation, including the most common methods used by organizations.

Job evaluation is a method for determining the relative value or worth of a job to the organization so that
individuals who perform that job can be adequately and appropriately compensated. This process is concerned
with establishing internal pay equity. The most common methods are job ranking, the classification system, the
point system, and the factor comparison method.

The classification system attempts to group sets of jobs together into clusters, often called grades. Each set of
jobs is then ranked at a level of importance to the organization, on the basis of relative difficulty, sophistication,
or skills and abilities needed to perform the job. Most organizations will utilize eight to ten job categories or
grades. Once grades have been determined, the job evaluator writes definitions and descriptions of each job
class. This system is more complex than simple ranking. However, it is relatively simple and quick to use.

The point system requires managers to quantify in objective terms the value of various elements of specific
jobs. This system is more sophisticated than ranking or classification, but it is also relatively easy to use. Using
job descriptions, managers assign points to various compensable factors required to perform each job. Point
systems typically evaluate eight to ten compensable factors for each job. Using this system, the organization
usually develops a point manual, which is used to implement the point system for all subsequent job
evaluations.

The factor comparison method assesses jobs on a factor-by-factor basis, using a factor comparison scale as a
benchmark. This method differs from the point system in that jobs are evaluated against a standard of key
points. The organization will commonly use five job factors to compare jobs: responsibilities, skills, physical
effort, mental effort, and working conditions. The process includes identifying the comparison factors,
identifying benchmark jobs in the organization, ranking the benchmark jobs on each comparison factor,
allocating a part of each benchmark job's wage rate to each job factor, developing a consensus about the
assignment of monetary values, assessing evaluators' consistency, and developing a job comparison chart to use
in rating other jobs within the organization.

49. What is pay compression? Discuss the possible consequences of pay compression.

Pay compression occurs when individuals with substantially different levels of experience and or performance
abilities are being paid wages or salaries that are relatively close together. This circumstance is most likely to
occur when the market rate for starting salaries increases at a rate faster than an organization's internal ability to
raise pay for individuals already on the payroll. The organization needs to pay market rates to attract new
employees, while it may not have the resources to raise current employees' salaries at a commensurate level. It
may be possible for new employees even to be paid higher salaries than current employees in some instances.
Organizations may need to offer other kinds of rewards (i.e., intangible benefits, stock) to make up for salary
shortcomings. Current employees may also become disgruntled and leave the organization, in this situation.

50. Compare employee wellness programs and employee assistance programs.

Employee wellness programs concentrate on keeping employees from being sick, rather than simply paying
expenses when they become sick. These programs are proactive, in that they encourage employees to take care
of their general health and well-being. Programs may include exercise, stop-smoking, blood pressure or
cholesterol screening, and stress-management programs. On-site health clubs are also considered wellness
programs, as are fitness and weight-loss counseling and programs.

Employee assistance programs are reactive rather than proactive. They are designed to assist employees with
chronic problems such as alcohol or drug abuse, domestic or personal problems, or mental health issues. These
programs are usually provided on an outpatient basis by contractors, outside professionals. Assistance plans are
designed to help employees take care of personal problems that may be interfering with their on-the-job
performance.