TERM END EXAMINATION, FEBRUARY -2012

MBA (HRM) (3SEM/2YEAR)

Compensation Management

Time: 3 hours M.Marks:60

Note: – All Questions are Compulsory.

All questions carry equal marks.

1- Why are product market surveys important to the compensation decision maker?
A. Product markets influence the organization’s ability to pay.
B. Product elasticity is related to product life cycles.
C. Product markets determine supply and demand affecting labor costs.
D. Product market surveys reveal wage patterns of other companies in the industry.

2- What three entities have a stake in compensation decisions?
A. Organizations, employees, and societies
B. Government, organizations, and stockholders
C. Managers, supervisors, and employees
D. Organizations, competitors, and employees

3- An employee weighs the effort needed against various outcome probabilities before deciding how to act. This thought process is defined by which behavioral theory?

1.  Reinforcement theory C. Equity theory
2.  Expectancy theory D. Justice theory

4- What are twocompensationissuesthat organizations must consider in compensation decision making thatimpact the success or failure of the company?

1.  Labor costs and pay increases C. Cost-of-living and fairness-in-payissues
2.  Labor costs and legal compliance D. Global competition and pay structure

5- When developing a compensation strategy, which three levels of the organization are considered?

1.  Business, human resources, and employee C. Corporate, business, and functional
2.  Organizational, departmental, and external D. Ability to pay, internal labor market, and external labor market

6- An employee perceives that the amount of salary determines his status inside the company.
He’s concerned with which part of the multidimensional employment exchange?

1.  Sociological C. Economic
2.  Psychological D. Political

7- How does compensation strategy influence internal training and development programs?

1.  By increasing retention and promoting from within
2.  By ensuring the expected return-on-investment of training dollars
3.  By evaluating technological advances and requisite skills needed
4.  By responding toemployeeopinionsurveys

8- Which of the following would be an example of a complex environment?

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1.  Amplelaborsupplyand highly influential labor unions
2.  Many customers and multiple suppliers
3.  Low economic and government regulation impacts
4.  Marketplace uncertainty

9- During which stage of the product life cycle model do organizations focus on
cash-flow generation?

1.  Growth stage C. Introduction stage
2.  Maturity stage D. Decline stage

10- Enronexecutivesreaped huge financial rewards from the manipulation of financial data. They defrauded the shareholders.Which wage theory would be most applicable to this event?

1.  Agency theory C. Bargaining power theory C. Job competition theory
2.  Bargaining power theory D. Just theory

11- Companies communicate business strategies to employees. Employees are motivated
by the access to information and align their performance to the organization’s goals.
This process is known as

1.  Internal equity. C. A balanced scorecard.
2.  Comprehensive reward plan. D. Strategic analysis.

12- John works for a company that pays wages above the labor market. The company assumes that John will be productivebecause he’s being paid well. This assumption is based in part on which theory?

1.  Marginal productivity theory C. National income theory
2.  Herzberg’s theory D. Marginal revenue productivity theory

13- The organization seeks to align all benefit plans with corporate and business goals. The human resources manager is most likely to

1.  Plan, design, and implement a wide range of benefit plans.
2.  Putemployeeneedsaside.
3.  Communicate benefit plans and corporate goals to employees.
4.  Develop a strategic benefit plan and ensure a return on investment.

14- Organizations set compensation policy to incorporate which two objectives?

1.  Balance internal and external equity
2.  Offer competitive wages and salaries and comply withemploymentlaws
3.  Influence employee behavior and operate within related constraints
4.  Businessnecessityand business justification

15- Under the marginal revenue productivity theory, the organization’s ability to pay is derived from the revenues after deducting what?

1.  Cost of sales and stockholder dividends C. Average net revenues (ANR) and fixed profits
2.  Cost of sales and capital expenditures D. Fixed costs, variable costs, and profits

16- Positive justice theories influence compensation decisions because the research suggests that

1.  Wages are subject to government regulations.
2.  Perceptions of pay equity relate to job satisfaction and job performance.
3.  Applicant andemployeeperceptionsimpact hiring, retention, and performance.
4.  Wages must be competitive with other organizations in the labor market.

17- Which situation raises individuals’ concerns about their earnings relative to their jobs and other positions in the organization?

1.  Fairness C. Wage compression
2.  Top of the wage ranges D. External equity

18- Which organizational environment is most conducive to strategic planning?

1.  Placid randomized C. Placid clustered.
2.  Turbulent D. Disturbed reactive

19- Marginal physical productivity can be calculated by

1.  Determining average revenue productivity.
2.  Knowing the fixed factor of productivity.
3.  Adding increments of one worker to determine productivity gains.
4.  Measuring the relationship of worker motivation to productivity level.

20- How do theoretical assumptions influence compensation decisions?

1.  Theories are used by other organizations. C. Theories link one or two variables together.
2.  Theories can’t be disproved. D. Theories predict employee behaviors.

21- In the opening case in chapter 10, an experienced computer programmer complains that new hires start at Sigma, Inc. at 15% more than his salary. Dr. Smith’s answer reveals that Sigma’s compensation system is built on a(n) ______ compensation model.

1.  Balanced equity C. Distributive justice
2.  Labor market D. Free market E. Egalitarian

22- 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:

1.  May lack internal equity. D. Uses variable pay to induce performance.
2.  Uses individual-based pay. E. Stresses non-monetary rewards.
3.  Is a decentralized pay system.

23- The compensation system of a company:

1.  Has no bearing on the labor costs of the business
2.  Relates exclusively to attracting employees.
3.  Has a direct relationship on labor costs and whether employee costs contribute or detract from business profitability.
4.  Is free from all government regulation
5.  All of the above

24- What is an HR department’s role in a firm’s pay allocation procedures?

1.  It should stay out of the compensation realm altogether
2.  It should seek to maintain external pay equity.
3.  It should make all final decisions regarding pay decisions.
4.  All of the above
5.  None of the above

25- Compensation consists of a number of elements. An employee’s base compensation:

1.  Is that portion of an employee’s pay mix designed to reward good performance.
2.  Consists of a wide variety of programs, such as health insurance, time off, etc.
3.  Is his/her fixed pay, and is generally the largest part of his/her total compensation package.
4.  Is made up of the special “extras” or perks that are allocated, based on status within the company.
5.  Consists of the bonuses or profit sharing that underpin the employee’s total compensation.

26- Employees’ total compensation consists of which of the following?

1.  Base compensation, personnel costs, payroll
2.  Payroll, base compensation, indirect compensation.
3.  Benefits, pay incentives, personnel costs.
4.  Base compensation, pay incentives, indirect compensation.
5.  Payroll, pay incentives, base compensation.

27- Perquisites, also called “perks”:

1.  Are a special type of benefits, generally reserved for upper-level managers.
2.  Are a special type of pay incentive, generally reserved for upper-level managers.
3.  Make up 60% of employees’ total compensation.
4.  Is another name for indirect compensation that includes health benefits, vacation and unemployment compensation.
5.  Make up 30% of employees’ total compensation.

28- Indirect compensation in a pay mix consists of:

1.  The salary or hourly wage the employee receives on a regular basis.
2.  The variety of programs, such as health insurance, time off, etc., the employee receives.
3.  The package of special perks an employee receives based on his/her status in the company.
4.  That part of an employee’s pay designed to motivate good performance.
5.  Incentives that may or may not be paid to an employee, such as bonuses.

29- Employee earnings:

1.  Correlate directly with employee job satisfaction
2.  Are the most important factor in whether a job candidate takes a job or not.
3.  Don’t affect feelings of self worth
4.  Are relatively easy to manage and take little consideration.
5.  Indicate prestige, power, and employees’ self worth.

30- In order for a compensation system to work well, it must:

1.  Enable the firm to achieve its objectives
2.  Ensure low employee turnover.
3.  Follow an egalitarian strategy.
4.  Be developed according to the individual business’ environment and characteristics.
5.  A and d

31- Cornilia is concerned that her roommate, who works for a different company, receives about 25% more pay and better benefits than Cornilia does for a very similar job. Cornilia’s concern reflects the compensation issue of:

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1.  Job versus individual pay. C. External equity.
2.  Open versus secret pay administration. D. Fixed versus variable pay.
3.  A and d

32- The perceived fairness of what an employer pays, relative to what other employers pay for the same type of labor, is a description of:

1.  The distributive justice model of compensation.
2.  The labor market model of compensation.
3.  Egalitarianism in compensation.
4.  Internal equity in compensation.
5.  External equity in compensation.

33- A company designs its compensation system around the philosophy that employees exchange their contributions to the company for a set of outcomes, i.e., 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.

1.  Balanced equity C. Labor market
2.  Free market D. Distributive justice E. Marxist

34- The distributive justice model:

1.  Is the least common of the two compensation models
2.  Encourages employees to examine the companies and employees
3.  Encourages open rather than secret pay.
4.  Ensures that employees will receive above-market compensation.
5.  Ensures secret pay.

35- According to your text, which of the following questions is key in developing an effective compensation plan?

1.  How many employees are there in the company
2.  Will the company compensate employees primarily with nonmonetary rewards or monetary rewards?
3.  What is the company’s market share?
4.  What is the average age of employees in the firm?
5.  All of the above

36- A company using a labor market-based model holds the philosophy that:

1.  Employees exchange their contributions for pay.
2.  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.
3.  Internal equity is more important than external equity.
4.  Egalitarian pay policies are more effective than elitist.
5.  Nonmonetary rewards are more effective motivators than monetary rewards.

37- People base their decisions about what job they will hold based on:

1.  Pay. D. Nonmonetary rewards and the benefits offered.
2.  The perceived internal equity. E. Job content, pay, and location.
3.  Their career options and overall compensation.

38- 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

1.  Reach external equity. D. Reach internal equity.
2.  Reduce marcelle’s work force. E. Increase marcelle’s work force.
3.  Create an elitist compensation program.

39- When a company chooses to pay above the going rate for employees:

1.  It may be unable to attract qualified workers.
2.  Its labor costs decrease.
3.  Employees will experience higher job satisfaction.
4.  It achieves external equity
5.  It may not be able to charge competitive prices for its products and services.

40- Balancing equity is often a difficult issue in the management of compensation because:

1.  Pay is a hygiene factor, not a motivator, so no matter what you do, you will never get higher productivity through compensation.
2.  Eeoc regulations are extensive and complicated.
3.  Internal and external equity often oppose one another.
4.  Of the impact of the issue of fixed versus variable pay.
5.  Of management’s general reluctance to change pay structures.
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