1. Which is not one of the key understandings needed to formulate compensation strategy?

a. Understand your organizational context.

b. Understand your people.
c. Understand your technical ladders.
d. Understand your compensation constraints.
ANS: C
2. This term refers to the boundaries within which the compensation system must be
designed.
a. Liabilities
b. Constraints
c. Demographics
d. Opportunities
ANS: B
3. Which of the following is not considered to be a constraint on the compensation
strategy?
a. Legislated
b. Labour market
c. Product/service market
d. Demographics
ANS: D

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4. Which of the following issues is not covered by employment standards legislation?

er as
a. Minimum wage

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b. Employment equity

eH w
c. Hours of work
d. Statutory holidays

o.
ANS: B
rs e
5. Over time pay rates, paid time off, and minimum wage levels are issues covered by what
ou urc
type of legislation?
a. Human rights
b. Employment standards
c. Trade union
o

d. Tax
aC s

ANS: B
vi y re

6. Which of the following best explains the legal difference between an employee and
a contractor?
a. Only employees are allowed on the work site.
b. Contractors cannot hire another person to complete the work.
ed d

c. Contractors are exempt from employment standards legislation.

d. Employees can be forced to work overtime.
ar stu

ANS: C
7. Which of the following workers are not covered under minimum wage legislation in some
jurisdictions?
a. Students
is

b. Employees working from home

c. Domestic servants
Th

d. Commissioned salespeople
ANS: C
8. Which of the following factors does not justify the differences of pay among employees
with similar job duties?
sh

a. Seniority
b. Performance
c. Experience
d. Age
ANS: D
9. Equal pay legislation prohibits discrimination based on which of the following factors?
a. Age

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 b. Gender
c. Equal work
d. Marital status
ANS: B
10. When we discuss labour market constraints what are we specifically referring to?
a. Union constraints on labour allocation
b. Availability of employees versus demand
c. Cost of living constraints on pay demands
d. Managerial strategy in recruitment methods
ANS: B
11. Which of the following situations best explains a tight labour market?
a. Demand is high but supply is low
b. Both demand and supply is low
c. Demand is low but supply is high
d. Both demand and supply is high
ANS: A
12. What key constraint has probably forced you as a new owner to relocate your fast-
growing labour intensive shoe manufacturing business from Toronto to a small town in
Nova Scotia?
a. Labour market
b. Financial

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c. Legislated

er as
d. Service market

co
ANS: B

eH w
13. Which of the following steps is not considered part of the compensation strategy
formulation process?

o.
a. Determine required behaviour
rs e
b. Determine role of compensation
ou urc
c. Evaluate the proposed strategy
d. Conduct performance appraisals
ANS: D
14. The CEO of a food distribution firm is attempting to decide what the compensation
o

strategy will be for the coming year. What is the first step in the process she needs to
aC s

consider?
vi y re

a. The role of compensation

b. The compensation mix
c. The required behaviour
d. The compensation level
ed d

ANS: C
15. Which of the following dimensions of task behaviour is more suited for a high-involvement
ar stu

compensation system?
a. Individual output
b. Low skill requirements
c. High employee risk-taking desired
is

d. Narrow tasks
ANS: C
Th

16. To keep work interesting and provide higher compensation opportunities for your design
engineers, you have created a compensation system that allows them to move from an
entry to expert specialist level. What term is used to describe this system?
a. Management pathing
sh

b. Technical ladder
c. Competency based
d. Leader development
ANS: B
17. You are attempting to define the role compensation will play in your reward strategy. What
is the first thing that needs to be examined?

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 a. The nature of intrinsic and other extrinsic rewards offered
b. The compensation level strategy
c. The indicators of goal achievement
d. The compensation system behavioural objectives
ANS: A
18. The compensation system needs to be relied on more heavily to motivate behaviour in
which of the following circumstances?
a. Pet rescue center animal attendants
b. Food processing plant production workers
c. Food bank packagers
d. Hospital nursing staff
ANS: B
19. Which of the following behavioural objectives is appropriate for companies using a high-
involvement strategy?
a. Attract applicants to staff initial needs
b. Attract top-quality applicants well in excess of needs
c. Attract job applicants able to perform basic tasks
d. Attract applicants to replace turnover
ANS: B
20. By paying employees 5% below the base pay market, you are using what type of
compensation policy?

m
a. Lag

er as
b. Lead

co
c. Match

eH w
d. Low cost
ANS: A

o.
21. Lag strategies are cost-effective for which type of firms?
rs e
a. Firms that are labour-intensive
ou urc
b. Firms needing to attract top-quality applicants
c. Firms that value employee stability
d. Firms that invest heavy in training and development
ANS: A
o

22. What causes some firms to end up leading the market unintentionally?
aC s

a. A strong union
vi y re

b. Noncash rewards
c. Utility analysis
d. Budgetary circumstances
ANS: A
ed d

23. This method involves using a “what if” scenario to determine which compensation-level
strategy is most efficient for your organization.
ar stu

a. Cost-benefit analysis
b. Market share analysis
c. Trial analysis
d. Utility analysis
is

ANS: D
24. What does utility analysis help managers determine?
Th

a. Which compensation level policy is most efficient

b. Which compensation mix policy is most efficient
c. The utility of different types of task behaviour
d. Which managerial strategy will be most efficient for a firm
sh

ANS: A
25. As the owner of a medium-sized engineering consulting firm, you choose to have different
pay-level policies for your engineers, managers, and support staff. Which type of
compensation policy have you adopted?
a. Lead
b. Match
c. Hybrid

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 d. Lag
ANS: C
26. A hybrid compensation-level strategy is one that varies across which of the following?
a. Employee groups
b. Managerial strategies
c. Business segments
d. Industrial sectors
ANS: A
27. Which of the following is not one of the main groups for whom the compensation system
often differs from the organization’s compensation norm?
a. Contingent workers
b. Expatriate and foreign employees
c. Executives
d. Production employees
ANS: D
28. According to studies what is the least important reason for using contingent workers?
a. Acquiring special expertise
b. Screening candidates for future employment
c. Developing labour flexibility to meet demand fluctuations
d. Buffering core workers against job loss
ANS: D

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29. Which of the following pay types is currently being used to make up an increasing portion

er as
of CEO’s compensation?

co
a. Annual bonuses

eH w
b. Base pay
c. Long-term unit /share plans

o.
d. Perks
ANS: C
rs e
ou urc
30. What two main aspects need to be considered to help you determine what you want the
executive compensation system to accomplish?
a. A symbolic aspect and a market aspect
b. A behavioural aspect and a market aspect
o

c. A behavioural aspect and a symbolic aspect

aC s

d. A pay equity aspect and a market aspect

vi y re

ANS: C
SHORT ANSWER
2. Briefly summarize the legislative framework that compensation must comply with.
In Canada, the federal jurisdiction and each province have employment standards
ed d

legislation which defines the minimum wage, vacations, leaves of absence, statutory
holidays, etc., that employees are entitled to. There is also human rights legislation that
ar stu

addresses issues of equity in the workplace, labour laws that govern the relationships
between employers and unions, and tax legislation that affects many aspects of
compensation--especially indirect pay.
is

3. Briefly describe the five main steps in the formulation of compensation strategy.
Th

The five main steps in the formulation of this strategy are:

1. Define the behaviour that the organization requires
2. Define the role the compensation system will play in eliciting that behaviour
3. Determine the best mix of compensation components
sh

4. Determine policies for compensation level

5. Conduct a pre-implementation evaluation of the proposed strategy to verify that it
meets criteria for success.

4. What are a firm’s choices for compensation level strategy, and how can it decide between
them?

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 An organization’s compensation strategy may be to lead, lag or match the market. It may
have the same policy across the board, or it may have different compensation levels for
different employee groups (this is known as a hybrid compensation level strategy). Major
factors in setting the compensation level for a given employee group are the importance
of this group to firm success, and its scarcity in the labour market. Utility analysis can be
used to determine the relative efficiency of various compensation level policies.

5. What are the four special employee groups discussed in the text, and what are some the
implications for compensation?
The four groups are contingent employees, new employees, executives, and international
employees. A key issue for contingent employees is whether to compensate them
differently from regular employees performing the same work. A key issue for new
employees is whether to compensate them differently from long-term employees doing
the same work. A key issue for executives is how create a compensation system that
motivates desired behaviour, but is not excessively costly. A key issue for expatriate and
foreign employees is the extent to which they are compensated consistent with home
country standards.

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rs e
ou urc
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aC s
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