Chapter 01 - The Pay Model

Chapter 1: The Pay Model

Multiple Choice Questions

1. (p. 5) Which of the following includes restrictions on executive pay that are designed to
discourage executives from taking "unnecessary and excessive risks"?
A. Corporate Welfare Program
B. Employee Welfare Program
C. Troubled Asset Relief Program
D. Corporate Liability Relief Program

2. (p. 5) According to the text, if women had the same education, experience, and union coverage
as men and also worked in the same industries and occupations, they would be expected to earn
about _____ of what men earn.
A. 62%
B. 70%
C. 80%
D. 90%

3. (p. 5) Employers spend ____ cents for benefits in addition to each dollar of wages or salaries.
A. 44
B. 34
C. 24
D. 14
Answer: A
4. (p. 6) Hourly compensation costs for manufacturing workers are higher in _____ than the U.S.
A. Germany
B. Czech Republic
C. Spain
D. Singapore

5.(p. 6) One of the reasons 8 in 10 working families have no health insurance is because ______
A. many large employers do not offer health insurance
B. health insurance is more costly at large employers
C. many small employers do not offer health insurance
D. most workers decline health insurance when offered by their
employer

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Chapter 01 - The Pay Model

6. (p. 7) _____ would be most concerned about executive pay.

A. Managers
B. Employees
C. Society
D. Stockholders

7. (p. 7) _____ would be most concerned about compensation as a major expense.

A. Managers
B. Employees
C. Society
D. Stockholders

8. (p. 9) The primary reason compensation is important to managers is because:

A. employees regard it as a reward.
B. it influences employee behavior.
C. it is a larger cost than benefits.
D. stock holders dislike high compensation costs.

9. (p. 9) “Say on pay” is part of a law designed to protect the interests of ___________

A. Employees
B. Managers
C. Society
D. Shareholders

10. (p. 11) Employees view compensation as all but which of the following?
A. A return
B. An entitlement
C. A reward
D. An investment

11. (p. 10-11) Costco has higher labor costs than Walmart and Sam’s Club. The result is Costco
has better performance in all but which of the following?
A. turnover
B. profit
C. customer satisfaction
D. sales/square foot

12. (p. 11) The degree to which pay influences individual and aggregate motivation among the
employees at any point in time is referred to as:
A. sorting effect.
B. incentive effect.
C. motivational effect.
D. directional effect.
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Chapter 01 - The Pay Model

13. (p. 12) In China, compensation, dai yu, has come to mean
A. entitlement and benefits.
B. cash compensation.
C. returns and entitlement.
D. cash compensation and relational returns.

14. (p. 13) In Japanese companies, the concept of teate is consistent with which of the following?
A. Sophisticated performance appraisal systems
B. A strong emphasis on performance pay
C. Family, housing and commuting allowances
D. Rapid promotions

15. (p. 13) Which of the following is an example of a relational return?

A. Short-term incentives
B. Recognition and status
C. Work-life balance
D. Income protection

16. (p. 14) Which of the following are given as increments to the base pay in recognition of past
work behavior?
A. Base pay
B. Cost-of-living adjustments
C. Merit pay
D. Incentives

17. (p. 15) Which form of pay is likely to be least expensive for employers?
A. Incentive
B. Merit pay
C. Cost-of-living adjustments
D. Base pay

18, (p. 15) Recent surveys show the average merit raise for an outstanding performer is ______
and average performers receive and poor performers receive 0.4%.
A. 10.5, 7
B. 8.4, 5.2
C. 6.7, 4.2
D. 4.4, 2.8

19. (p. 15) Employees who want to be sure their good performance will be rewarded will prefer
A. merit pay.
B. team incentives.
C. individual incentives.
D. across-the-board pay increases

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Chapter 01 - The Pay Model

20. (p. 15) Variable pay may also be called

A. exempt
B. non-exempt
C. stock options
D. incentives

21. (p. 15) Which of the following is the largest component in an executive pay package?
A. Base pay
B. Stock options
C. Merit pay
D. Perks

22. (p. 16) Employers’ annual cost per employee to provide family health care coverage is
approximately ______________
A. $5000
B, $10000
C. $15000
D. $20000

23. (p. 17) A company that says its relatively low starting pay will be offset by larger future pay
increases is using the concept of _____.
A. present-value
B. merit pay
C. incentives
D. deferred benefits

24. (p. 17) All of the following have direct financial costs for an employer except:
A. benefits
B. relational returns
C. work-life balance
D. income protection

25. (p. 18) Which of the following is not an objective in the pay model?
A. Fairness
B. Compliance
C. Efficiency
D. Productivity

26. (p.18)Costs are to management as _____ is to alignment.

A. work analysis
B. communication
C. surveys
D. merit guideline

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Chapter 01 - The Pay Model

27. (p. 18) Market definitions are to competitiveness as performance based is to _____.
A. alignment
B. compliance
C. efficiency
D. contribution

28 (p. 18) Which of the following is not a policy in the pay model?
A. Fairness
B. Competitiveness
C. Contributions
D. Alignment

29.(p. 18) Which of the following is not an objective of the pay model?

A. Ethics
B. Competitiveness
C. Efficiency
D. Fairness

30. (p. 18) Cost is to change in the pay model as ______________ are to policy lines.
A. market definitions
B. surveys
C. descriptions
D. incentives

31. (p18) Seniority based, incentive and merit guidelines are components of the ____________
policy.
A. internal alignment
B. management
C. competitiveness
D. management

32. (p. 21) _____ refers to comparisons among jobs or skills inside a single organization.
A. External competitiveness
B. Internal alignment
C. Pay structure
D. Equitable contributions

33 (p. 22) Which of the following policy choices has the greatest effect on employees' decisions
to stay with the organization and to seek additional training and responsibilities?
A. External competitiveness
B. Employee contributions
C. Internal alignment
D. Job evaluation
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Chapter 01 - The Pay Model

34. (p. 22) Managers seek internal alignment within their organization by:
A. matching competitors' pay rates.
B. following FLSA guidelines.
C. using fair merit increases.
D. paying on the basis of similarities among jobs.

35. (p. 25) Compensation policy choices affecting pay level are most closely associated with
_____.
A. internal alignment
B. external competitiveness
C. contributions
D. management

36. (p. 22) Sam's Club matches the pay of other similar businesses, Whole Foods uses base pay
and team incentives and Medtronic emphasizes work and life balance. These illustrate _____ pay
policy choices.
A. cost control
B. internal alignment
C. contributions
D. external competitiveness

37. (p. 22) Choices among pay for performance, flat rate pay and profit sharing are examples of
_____ policy decisions.
A. internal alignment
B. efficiency
C. employee contributions
D. management

38. (p. 23) According to the text, which of the following decisions should be made jointly?
A. Internal alignment and Management.
B. External competitiveness and Employee contribution
C. Employee contribution and Internal alignment
D. Management and External competitiveness

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Chapter 01 - The Pay Model

39. (p. 22) Which of the following policy decisions directly affects employees' attitudes and work
behaviors?
A. Employee contributions
B. Internal alignment
C. External competitiveness
D. Management

40. (p. 23) Which of the following decisions answers the "So What" question?
A. Internal alignment
B. Employee contributions
C. External competitiveness
D. Management

41. (p. 23) If an organization allows workers to get rewards such as stock options due to illegal
and unethical means, this reflects a failure of which policy choice?
A. Internal alignment
B. Efficiency
C. Employee contributions
D. Management

42. (p.25) You are an HR manager and your boss has told you to find the best way to raise job
performance. After some research you find that _____ produce(s) the largest and most reliable
performance increases.
A. high base pay
B. great benefits that attract and retain workers
C. a combination of goal setting and job enrichment
D. monetary incentives

43. (p. 25-27) Which of the following is not a guideline for determining if research has value?
A. Is the research useful
B. Can alternative explanations be ruled out
C. Was the research conducted by Ph D researchers
D. Is correlation separated from causation

44. (p. 26) A measure of how changes in one variable are related to changes in another variable
is:
A. standard deviation
B. analysis of variance
C. correlation coefficient
D. regression analysis

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Chapter 01 - The Pay Model

45. (p. 27) The best way to establish _____ is to account for competing explanations, either
statistically or through control groups.
A. causation
B. profitability
C. correlation coefficient
D. internal alignment

True / False Questions

46. (p. 4) Companies that pay high wages compared to their industry competitors, such as Nucor
Steel and General Motors did for many years, are likely to go bankrupt.
FALSE

47. (p. 5) A financial expert concluded that misaligned incentive programs were a major cause of
the recent crisis in the US financial system.
TRUE

48. (p. 6) The U.S. has the highest hourly compensation costs for manufacturing workers of any
industrialized nation.
FALSE

49. (p. 6) When unemployment increases, the proportion of the population covered by health
insurance decreases.
TRUE

50. (p. 6) Since the U.S. has the highest hourly compensation costs for manufacturing workers of
any industrialized nation, executives could minimize total labor costs by producing in low cost
countries such as China and Mexico.
FALSE

51. (p. 9) Compensation is important to managers' success because it is a major cost and it
influences employee behavior.
TRUE

52. (p.10- 11) The degree to which pay influences individual and aggregate motivation among
employees is called the sorting effect.
FALSE

53. (p.10- 11) The degree to which pay influences individual and aggregate motivation among
employees is called the sorting effect.
FALSE

54. (p. 13) Total compensation includes relational returns, cash compensation and benefits.
FALSE

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Chapter 01 - The Pay Model

55. (p. 14) In jobs paid a base wage, the wage is the same for everyone with the same job title.
FALSE

56. (p. 13) Challenging work and employment security are examples of total compensation.
FALSE

57. (p. 14) Employees classified as non-exempt under FLSA are paid a salary, not wages.
FALSE

58. (p. 15) Commissions are an example of incentives.

TRUE

59. (p. 14) If you often had to work 50 or more hours per week at an assembly job, you would
probably prefer to that your job is classified as exempt under the FLSA.
FALSE

60. (p. 14) Most U. S. firms use merit pay increases.

TRUE

61. (p. 11) Base wage reflects both the value of the work and individual employee skills and
experience.
FALSE

62. (p. 15) A bonus promised by your boss if costs are below your budget is a merit increase.
FALSE

63. (p. 15) In practice, there is no real difference between merit pay increases and cost-of-living
adjustments.
FALSE

64. (p. 16) Pension and health benefits are a very large component of total compensation for many
large companies such as American Airlines and GM.
TRUE

65. (p. 16) A major challenge facing most employers is the rising cost of health care benefits.
TRUE

66. (p. 19) The most important of the pay model policies for assuring fairness is contributions.
FALSE

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Chapter 01 - The Pay Model

67. (p. 19) The objective of compliance suggests the way a pay decision is made may be as
important to employees as the results of that decision.
FALSE

68. (p20-21) Compensation professionals’ conduct is guided by the American Compensation

Association’s Code of Ethics.
FALSE

69. (p. 21) If an objective is to increase customer satisfaction, then incentive programs and merit
pay might be used to pay for performance.
TRUE

70. (p. 21) Objectives guide the design of pay systems and provide standards for evaluating their
effectiveness.
TRUE

71. (p. 19) The objective of procedural fairness suggests the way a pay decision is made may be
as important to employees as the results of that decision.
TRUE

72. (p. 21) Internal alignment refers to comparisons among jobs or skill levels inside a single
organization.
TRUE

73. (p. 22) Contributions refers to employees' perceptions of the fairness of pay differences
among different jobs within their organization.
FALSE

74. (p. 22External competitiveness decisions focus on both pay levels.

TRUE

75. (p. 23) Management of the pay system focuses on cost control and employee perceptions of
fairness since they are most important to management.
FALSE

76. (p. 23) The policy choice of management means ensuring that the right people get the right
pay for achieving the right objectives in the right way.
TRUE

77. (p. 25) Since HR research contains information useful to managers, most managers read
research in HR, management and compensation journals.
FALSE

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Chapter 01 - The Pay Model

78. (p. 25) Management and HR research has conclusively shown that goal setting and job
enrichment produce the largest and most reliable increases in job performance.
FALSE

79. (p. 25)) Monetary incentives produce the biggest increases in job performance.
TRUE

80. (p. 26) An important criteria for determining the value of research is whether the research is
useful.
TRUE

81. (p. 24) An important criteria for determining the value of research is/are there alternative An
80. (p. 26)An important criteria for determining the value of research is/are there alternative
explanations for the research findings?
TRUE

82. (p. 26) A study found that there is only a very small amount of change in CEO pay is related
to changes in company performance.
TRUE

83. (p. 26) A study of IBM showed that their long-standing policy of no layoffs was the major
cause of their strong profits.
FALSE

84. (p. 26) Causality is one of the most difficult questions to answer and continues to be an
important and sometimes perplexing problem for researchers.
TRUE

85. (p. 26) The R2 is different form correlation in that it tells us what percentage of the variation is
accounted for by the variables we are using to predict or explain.
FALSE

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