Internal equity refers to the ________.

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Human Resource Management, 15e (Dessler) Chapter 11 Establishing Strategic Pay Plans

1. Which of the following terms refers to all forms of pay or rewards going to employees and arising from their employment? A) salary B) employee benefits C) wage reimbursement D) employee compensation Answer: D Explanation: D) Employee compensation refers to all forms of pay going to employees and arising from their employment. It has two main components, direct financial payments (wages, salaries, incentives, commissions, and bonuses) and indirect financial payments (financial benefits like employer-paid insurance and vacations). Difficulty: Easy Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

2. Which of the following is NOT a type of direct financial payment? A) wages B) insurance C) incentives D) commissions Answer: B Explanation: B) Employee compensation refers to all forms of pay going to employees and arising from their employment. It has two main components, direct financial payments (wages, salaries, incentives, commissions, and bonuses) and indirect financial payments (financial benefits like employer-paid insurance and vacations). Difficulty: Easy Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

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1. Which of the following terms refers to pay in the form of financial benefits, such as insurance? A) direct financial payments B) out-of-pocket expenses C) indirect financial payments D) sales commissions Answer: C Explanation: C) Employee compensation has two main components: direct financial payments (wages, salaries, incentives, commissions, and bonuses) and indirect financial payments (financial benefits like employer-paid insurance and vacations). Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

2. John is a sales representative in a jewelry store. He typically works 40 hours per week and his pay is completely based on his sales. He earns a 5% commission for every sale he makes. Which of the following terms best describes John's situation? A) pay for performance B) indirect financial compensation C) time-based compensation D) piecework pay Answer: A Explanation: A) John earns sales commissions, which means he receives pay for performance. Piecework ties compensation to the number of pieces a worker produces, and John is selling rather than making jewelry. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Application of Knowledge Learning Outcome: 11 List the basic factors determining pay rates.

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1. Which compensation-related law contains provisions for minimum wage, maximum hours, overtime pay, equal pay, record-keeping, and child labor? A) Davis-Bacon Act B) Fair Wages Act C) Fair Labor Standards Act D) Walsh-Healey Public Contract Answer: C Explanation: C) The Fair Labor Standards Act, originally passed in 1938 and since amended many times, contains minimum wage, maximum hours, overtime pay, equal pay, record-keeping, and child labor provisions that are familiar to most working people. It covers the majority of U. workers—virtually all those engaged in the production and/or sale of goods for interstate and foreign commerce. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

2. Which of the following issues is NOT addressed by the Fair Labor Standards Act? A) record-keeping B) overtime pay C) child labor D) termination Answer: D Explanation: D) The Fair Labor Standards Act, originally passed in 1938 and since amended many times, contains minimum wage, maximum hours, overtime pay, equal pay, record-keeping, and child labor provisions that are familiar to most working people. The termination of an employee is not addressed by the FLSA. Difficulty: Easy Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

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1. Which law makes it illegal to discriminate against any individual with respect to compensation because of race, color, religion, sex, or national origin? A) Fair Labor Standards Act B) Title VII of the Civil Rights Act C) Equal Pay Act D) Taft-Hartley Act Answer: B Explanation: B) Title VII makes it unlawful for employers to discriminate against any individual with respect to hiring, compensation, terms, conditions, or privileges of employment because of race, color, religion, sex, or national origin. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

2. According to the Fair Labor Standards Act, what rate of normal pay would a covered employee receive for working more than 40 hours in a workweek? A) 50% B) 100% C) 150% D) 200% Answer: C Explanation: C) A provision in the FLSA governs overtime pay. It says employers must pay overtime at a rate of at least one-and-a-half times normal pay for any hours worked over 40 in a workweek. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

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1. Which of the following is true for employers who use independent contractors? A) Fair Labor Standards Act overtime requirements do not apply. B) Social Security taxes are higher than for regular employees. C) Federal income taxes are charged at a reduced rate. D) Payroll taxes are paid by the employer. Answer: A Explanation: A) For employers, there are advantages to claiming that someone is an independent contractor. For one thing, the FLSA's overtime and most other requirements do not apply. For another, the employer does not have to pay unemployment compensation payroll taxes, Social Security taxes, or city, state, and federal income taxes or compulsory workers' compensation for that worker. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

2. In most cases, which of the following occupations is NOT exempt from the overtime provisions of the Fair Labor Standards Act? A) physicians B) engineers C) paralegals D) teachers Answer: C Explanation: C) Teachers, doctors, engineers, and architects are typically exempt from the FLSA overtime provisions. Paralegals are considered nonexempt. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

3. Which of the following jobs is most likely categorized as nonexempt from the overtime pay provisions of the Fair Labor Standards Act? A) taxicab driver B) personnel director C) newspaper writer D) computer systems analyst Answer: C Explanation: C) Newspaper writers are usually considered nonexempt, so they may earn overtime pay. Scientists, cab drivers, personnel directors, and computer systems analysts are typically exempt employees who are not eligible for overtime pay. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

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1. Anita, a manager at a department store, needs to determine whether one of her employees is exempt or nonexempt under the Fair Labor Standards Act. Which of the following would be the best resource for Anita? A) organizational chart B) performance appraisal C) business plan D) job description Answer: D Explanation: D) In all but the clearest situations, managers should carefully review the job description to determine if a job is exempt or nonexempt. Make sure, for instance, that the job currently does, in fact, require that the person perform, say, an exempt-type supervisory duty. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Application of Knowledge Learning Outcome: 11 List the basic factors determining pay rates.

2. Which of the following states that employees of one sex may not be paid wages at a rate lower than that paid to employees of the opposite sex for doing roughly equivalent work? A) Americans with Disabilities Act B) Title VII of the Civil Rights Act C) Social Security Act D) Equal Pay Act Answer: D Explanation: D) The Equal Pay Act, an amendment to the Fair Labor Standards Act, states that employees of one sex may not be paid wages at a rate lower than that paid to employees of the opposite sex for doing roughly equivalent work. Difficulty: Easy Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

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1. Which of the following laws has the LEAST amount of influence on compensation decisions? A) Americans with Disabilities Act B) Labor Management Relations Act C) Family and Medical Leave Act D) Age Discrimination in Employment Act Answer: B Explanation: B) The ADA, Family and Medical Leave Act, and the Age Discrimination in Employment Act all impact compensation decisions made by organizations. The Labor Management Relations Act prohibited unfair union labor practices and enumerated the rights of employees as union members and has no impact on compensation issues. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

2. Bonnie, a data analyst, needs to take time off from work to care for her elderly mother. According to the Family and Medical Leave Act, what is the maximum number of weeks of unpaid, job-protected leave that Bonnie may take? A) 4 B) 6 C) 12 D) 16 Answer: C Explanation: C) The Family and Medical Leave Act aims to entitle eligible employees, both men and women, to take up to 12 weeks of unpaid, job protected leave for the birth of a child or for the care of a child, spouse, or parent. Difficulty: Easy Chapter: 11 Objective: 1 AACSB: Application of Knowledge Learning Outcome: 11 List the basic factors determining pay rates.

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1. Which of the following gives employees the right to organize, bargain collectively, and engage in concerted activities for the purpose of collective bargaining? A) Equal Pay Act B) Civil Rights Act C) Fair Labor Standards Act D) National Labor Relations Act Answer: D Explanation: D) The National Labor Relations Act of 1935 (Wagner Act) and related legislation and court decisions legitimized the labor movement. It gave unions legal protection, and granted employees the right to unionize, to bargain collectively, and to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection. Difficulty: Easy Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

2. What has historically been the key issue in collective bargaining? A) wage rates B) income security C) health care benefits D) cost-of-living adjustments Answer: A Explanation: A) Historically, the wage rate has been the main issue in collective bargaining. However, unions also negotiate other pay-related issues, including time off with pay, income security, cost-of-living adjustments, and health care benefits. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

3. Which of the following issues would LEAST likely be negotiated by unions? A) income security B) time off with pay C) health care benefits D) unpaid medical leave Answer: D Explanation: D) Historically, the wage rate has been the main issue in collective bargaining. However, unions also negotiate other pay-related issues, including time off with pay, income security, cost-of-living adjustments, and health care benefits. Unpaid medical leave is addressed by the Family and Medical Leave Act. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

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1. Which of the following is the LEAST likely way that an employer would address a cost-of- living differential? A) paying a nonrecurring amount spread over one to three years B) paying a nonrecurring, lump sum amount C) raising an employee's base salary D) raising commission percentages Answer: D Explanation: D) Employers handle cost-of-living differentials in several ways. One is to give the transferred person a nonrecurring payment, usually in a lump sum or perhaps spread over one to three years. Others pay a differential for ongoing costs in addition to a one-time allocation or simply raise the employee's base salary. Difficulty: Hard Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

2. What theory of motivation states that people are strongly motivated to maintain a balance between what they perceive as their contributions and their rewards? A) Two-factor theory B) Equity theory C) Learned needs theory D) Expectancy theory Answer: B Explanation: B) The equity theory of motivation postulates that people are strongly motivated to maintain a balance between what they perceive as their inputs or contributions, and their rewards. Equity theory states that if a person perceives an inequity, a tension or drive will develop in the person's mind, and the person will be motivated to reduce or eliminate the tension and perceived inequity. Difficulty: Easy Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

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1. Which of the following is NOT one of the forms of equity related to compensation issues? A) group B) external C) individual D) procedural Answer: A Explanation: A) Managers address external, internal, individual, and procedural equity when considering compensation issues. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

2. Which form of equity refers to how a job's pay rate in one company compares to the job's pay rate in other companies? A) distributive B) internal C) external D) procedural Answer: C Explanation: C) External equity refers to how a job's pay rate in one company compares to the job's pay rate in other companies. Difficulty: Easy Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

3. Jason is an information systems technician in a town in North Carolina with a population of 100,000. He receives an annual salary of $35,000. He recently found out that a nearby town with a similar population pays people in the same position $40,000 annually. With which form of equity is Jason most concerned? A) distributive B) procedural C) internal D) external Answer: D Explanation: D) External equity refers to how a job's pay rate in one company compares to the job's pay rate in other companies. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Application of Knowledge Learning Outcome: 11 List the basic factors determining pay rates.

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1. Which form of equity refers to the fairness of an individual's pay as compared with what his or her co-workers are earning for the same or very similar jobs within the company, based on each individual's performance? A) internal B) distributive C) individual D) procedural Answer: C Explanation: C) Individual equity refers to the fairness of an individual's pay as compared with what his or her co-workers are earning for the same or very similar jobs within the company, based on each individual's performance. Internal equity refers to how fair the job's pay rate is when compared to other jobs within the same company, such as between managers in different departments. Difficulty: Easy Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

2. Audrey is a lawyer in a mid-size firm in Chicago. She recently learned that another lawyer who joined the firm at the same time earns a lower salary than she does. Which form of equity is most relevant to Audrey's situation? A) internal B) distributive C) individual D) procedural Answer: C Explanation: C) Individual equity refers to the fairness of an individual's pay as compared with what his or her co-workers are earning for the same or very similar jobs within the company, based on each individual's performance. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Application of Knowledge Learning Outcome: 11 List the basic factors determining pay rates.

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1. Which form of equity refers to the perceived fairness of the processes used to make decisions regarding the allocation of pay? A) internal B) distributive C) individual D) procedural Answer: D Explanation: D) Procedural equity refers to the "perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay." Difficulty: Easy Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

2. External equity refers to ________. A) how a job's pay rate in one company compares to the job's pay rate in other companies B) the fairness of an individual's pay as compared to a co-worker's pay for the same job C) the perceived fairness of the processes and procedures used to make decisions about compensation D) the use of salary surveys and job evaluation comparisons to monitor pay levels within an industry Answer: A Explanation: A) External equity refers to how a job's pay rate in one company compares to the job's pay rate in other companies. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

3. Which of the following best defines internal equity? A) how a job's pay rate in one company compares to the job's pay rate in other companies B) how fair the job's pay rate is, when compared to other jobs within the same company C) the fairness of an individual's pay as compared to a co-worker's pay for the same job D) the perceived fairness of the processes and procedures used to make compensation decisions Answer: B Explanation: B) Internal equity refers to how fair the job's pay rate is when compared to other jobs within the same company. Difficulty: Moderate Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

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1. Homelife, a national chain of high-end furniture stores, employs nearly 800 workers. In the past few years, the company's market share has dropped significantly, and employee turnover has increased. Upper management is considering the implementation of a new compensation policy in its efforts to turn the company around. Historically, the company has paid all employees similarly with some variation for seniority but no distinction between high and low performers.

Which of the following, if true, best supports the argument that Homelife executives should primarily address internal equity issues when developing a new compensation plan? A) Homelife employees receive annual performance appraisals at which time they set career goals. B) Salary surveys indicate dissatisfaction among the Homelife managers in different departments. C) Online pay sites show the pay range for sales associates at both Homelife and its competitors. D) Homelife pays its sales managers commissions in addition to base salaries and health benefits. Answer: B Explanation: B) Internal equity refers to how fair the job's pay rate is when compared to other jobs within the same company. In this case, surveys indicate that managers in different departments at Homelife are dissatisfied with their earnings. Difficulty: Hard Chapter: 11 Objective: 1 AACSB: Application of Knowledge Learning Outcome: 11 List the basic factors determining pay rates.

1. Homelife, a national chain of high-end furniture stores, employs nearly 800 workers. In the past few years, the company's market share has dropped significantly, and employee turnover has increased. Upper management is considering the implementation of a new compensation policy in its efforts to turn the company around. Historically, the company has paid all employees similarly with some variation for seniority but no distinction between high and low performers.

Which of the following, if true, best supports the argument that Homelife should distribute salary surveys before establishing new pay rates? A) Homelife executives want to identify benchmark jobs before determining the worth of other jobs. B) Homelife executives plan to use the compensable factors emphasized by the Equal Pay Act. C) Computerized job evaluation systems will be used by Homelife to generate questionnaires. D) A wage curve needs to be established by Homelife for the purpose of federal compliance. Answer: A Explanation: A) Employers use salary surveys to price benchmark jobs. Benchmark jobs are the anchor jobs around which they slot their other jobs, based on each job's relative worth to the firm. Difficulty: Hard Chapter: 11 Objective: 1 AACSB: Application of Knowledge Learning Outcome: 11 List the basic factors determining pay rates.

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1. Financial benefits like employer-paid insurance and vacations are not a part of employee compensation. Answer: FALSE Explanation: Employee compensation refers to all forms of pay going to employees and arising from their employment. It has two main components, direct financial payments (wages, salaries, incentives, commissions, and bonuses) and indirect financial payments (financial benefits like employer-paid insurance and vacations). Difficulty: Easy Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

2. Indirect payments that contribute to an employee's compensation include variable pay like commissions and bonuses. Answer: FALSE Explanation: Employee compensation refers to all forms of pay going to employees and arising from their employment. It has two main components, direct financial payments like salaries, commissions, and bonuses and indirect financial payments, which include health benefits. Difficulty: Easy Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

3. Direct financial payments may be based on increments of time and on performance. Answer: TRUE Explanation: Direct financial payments include wages, salaries, and commissions. They may be based on time worked or on performance, such as units produced. Difficulty: Easy Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

4. Performance-based pay is more popular than time-based pay among most employers in the U. Answer: FALSE Explanation: Time-based pay is still the foundation of most employers' pay plans. Blue-collar workers get hourly or daily wages, for instance, and others, like managers, tend to be salaried and paid by the week, month, or year. The second direct payment option is to pay for performance, which ties compensation to the amount of production the worker turns out. Difficulty: Easy Chapter: 11 Objective: 1 AACSB: Analytical Thinking Learning Outcome: 11 List the basic factors determining pay rates.

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