Unit 12: Compensation Management - Practice Quiz

1 What is direct compensation?

2 Which theory states that employees compare their rewards with those received by others?

3 Which form of compensation is classified as indirect compensation?

4 According to expectancy theory, employees are motivated when they believe that effort will lead to what?

5 What is a wage?

6 Which wage is intended to meet an employee's basic needs?

7 Under a time-rate wage system, pay is primarily based on what?

8 Under a piece-rate wage system, an employee's earnings depend mainly on what?

9 Which external factor commonly influences employee compensation?

10 How does an organisation's ability to pay generally affect compensation?

11 Why are government wage laws important in compensation management?

12 Which job-related factor is most likely to increase compensation?

13 What is the main purpose of an employee incentive?

14 Which of the following is a monetary incentive?

15 Which of the following is a fringe benefit?

16 Which reward is a non-monetary incentive?

17 What does employee engagement describe?

18 What is employee retention?

19 Which practice is most likely to improve employee retention?

20 Which opportunity can strengthen both employee engagement and retention?

21 An employee believes that working harder will improve performance but doubts that improved performance will lead to a bonus. According to expectancy theory, which perception is weak?

22 Two employees perform similar work, but one discovers that a colleague receives higher pay without additional responsibilities. According to equity theory, what is the first employee most likely to experience?

23 A company wants sales representatives to focus strongly on generating revenue while retaining some income stability. Which compensation mix is most appropriate?

24 An organization cannot offer the highest salaries in its industry, so it emphasizes career development, flexible work, recognition, and meaningful assignments. Which compensation approach does this represent?

25 An employee's nominal wage rises by , while the general price level rises by . What happens approximately to the employee's real wage?

26 A factory changes from piece-rate wages to time-rate wages after defects increase sharply. What is the most likely purpose of this change?

27 A wage level is sufficient to meet an employee's basic needs and support a reasonable standard of living, even though the statutory minimum is lower. Which concept best describes this wage?

28 A mining company pays employees more than similar employers because its jobs involve remote locations and hazardous conditions. What best explains this wage difference?

29 Software engineers with a specialized skill are scarce in the labor market. Which compensation response is most likely to help a company recruit them?

30 Employees complain that jobs requiring greater responsibility are paid nearly the same as less demanding jobs. Which action would best address this internal equity concern?

31 A government raises the statutory minimum wage above the starting wage paid by a retailer. What should the retailer do first?

32 A firm operates in a highly price-sensitive market with narrow profit margins. How is this product-market condition most likely to affect compensation decisions?

33 A manufacturing plant rewards employees when labor efficiency improves and material waste declines, regardless of the company's overall profit. Which incentive plan is being used?

34 A product-development team performs highly interdependent work, but individual bonuses are causing members to withhold information. Which redesign is most suitable?

35 Employees differ greatly in age, family responsibilities, and benefit preferences. Which benefit design would best accommodate these differences?

36 A growing company wants senior managers to focus on long-term increases in shareholder value rather than only annual results. Which incentive is most appropriate?

37 A company wants to identify why valued employees might leave before they submit resignations. Which practice is most useful?

38 Employees distrust the merit-pay system because they do not understand how ratings affect raises. Which action would most directly improve engagement?

39 A company is losing high-performing employees even though its base salaries match the market. Surveys show limited career opportunities and weak recognition. What is the best response?

40 Turnover is concentrated among newly hired customer-service employees during their first three months. Which compensation-related action should HR examine first?

41 A hazardous job has an annual accident probability of , compared with for a safe job. Risk-neutral workers value the loss from an accident at USD 600,000. Under compensating wage differential theory, what minimum annual wage premium should the hazardous job offer?

42 A firm uses a tournament system with a very large pay gap between the highest-ranked and second-ranked managers. Rankings are noisy, and managers must share information to succeed. Which redesign best addresses the central prediction of tournament theory in this setting?

43 Under expectancy theory, an employee evaluates incentive plans using . Plan A has values , , and ; Plan B has values , , and . Assuming these are the only relevant factors, which conclusion follows?

44 A divisional manager controls operating assets and operating profit but cannot control corporate financing or economy-wide demand shocks. Which compensation measure best follows agency theory while limiting uncontrollable risk?

45 An employee's nominal wage rises by while the consumer price index rises from to . What is the approximate change in the employee's real wage?

46 In a labor market, the statutory minimum wage is USD 15 per hour, the prevailing wage for comparable work is USD 19, and the estimated living wage is USD 23. A firm pays USD 20. Which statement is most accurate?

47 An incumbent earns USD 58,000 against a grade midpoint of USD 60,000. The midpoint is raised by , but the incumbent receives no adjustment. What happens to the incumbent's compa-ratio?

48 A piece-rate employee works 50 hours and earns USD 600. A governing rule requires an additional half-time premium for hours above 40 because piece earnings already cover straight-time compensation. What total wage is due?

49 Job evaluation places a cybersecurity role in Grade 8, but persistent market scarcity requires pay above the Grade 8 maximum. Which response best balances internal equity and external competitiveness?

50 A market salary begins the year at an index of and rises uniformly to by year-end. If a firm must set one fixed annual midpoint that minimizes the average signed gap from the market, which index should it choose?

51 Under a balance-sheet approach to expatriate compensation, an employee's home-country spendable income is USD 50,000. The comparable host-country basket costs more, and the index already incorporates exchange-rate effects. What cost-of-living allowance is appropriate?

52 A dominant local employer faces an upward-sloping labor supply curve and pays below the competitive wage. Under the standard monopsony model, what can occur when a moderate minimum wage is introduced below the competitive wage?

53 A gainsharing plan uses a baseline labor-cost ratio of of production value. Production value is USD 1,000,000, actual labor cost is USD 220,000, and employees receive of verified savings. What is the employee pool?

54 A bonus plan pays of target incentive at performance, at performance, and at performance, with linear interpolation. If performance is and the target incentive is USD 12,000, what is the payout?

55 Executives are rewarded for absolute profit growth, but an industry-wide boom raises every firm's profit regardless of managerial effort. Which incentive redesign most directly filters this common shock?

56 A cafeteria benefit plan attracts high-risk employees disproportionately into a generous health option, causing its claims costs to rise sharply. Which design change most directly addresses this adverse-selection problem while preserving choice?

57 A company introduces a three-year cliff-vesting retention bonus. Turnover declines, but engagement scores and discretionary effort remain unchanged. Which interpretation is most defensible?

58 A firm observes that units receiving larger merit increases later report higher engagement, but high-performing units were deliberately given larger budgets. Which design would best estimate the causal effect of merit increases on engagement?

59 A retention model flags an employee as likely to leave, but the employee's skills are readily replaceable and a salary adjustment would create severe internal inequity. What is the most appropriate decision?

60 After publishing salary ranges, a firm sees lower engagement among employees below their grade midpoint, even though no salaries changed. Which explanation and response are best supported?