Test Bank for Strategic Compensation: A Human Resource Management Approach, 10th Edition

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Strategic Compensation: A Human Resource Management Approach, 10e (Martocchio)
Chapter 1 Strategic Compensation: A Component of Human Resource Systems
1) ________ refers to the design and implementation of compensation systems to reinforce the
objectives of both HR strategies and competitive business strategies.
A) Extrinsic compensation
B) Strategic compensation
C) Strategic analysis
D) Intrinsic compensation
Answer: B
Difficulty: Moderate
Skill: Concept
AACSB: Analytical Thinking
LO: 1.1: Define strategic compensation.
2) Protection programs are what type of compensation benefits?
A) external
B) non-monetary rewards
C) internal
D) monetary
Answer: B
Difficulty: Moderate
Skill: Concept
AACSB: Analytical Thinking
LO: 1.1: Define strategic compensation.
3) Which of the following is an example of a core compensation?
A) medical insurance
B) vacations
C) day care assistance
D) monetary compensation
Answer: D
Difficulty: Easy
Skill: Concept
AACSB: Reflective Thinking
LO: 1.1: Define strategic compensation.

2
4) Since the economic recession (2007-2009) ended, fewer companies have offered pay
increases, and those that do are offering lower amounts. Approximately, how much have pay
increases been?
A) less than 2 percent
B) 2 percent up to 2.9 percent
C) 3 percent up to 3.8 percent
D) 4 percent or more
Answer: C
Difficulty: Challenging
Skill: Concept
AACSB: Reflective Thinking
LO: 1.1: Define strategic compensation.
5) This concept describes a company's success when the company acquires or develops
capabilities that facilitate outperforming the competition.
A) differentiation
B) capital
C) compensation practices
D) competitive advantage
Answer: D
Difficulty: Easy
Skill: Concept
AACSB: Reflective Thinking
LO: 1.1: Define strategic compensation.
6) Which of the following refers to the planned use of company resources-financial capital,
equipment capital, and human capital-to promote and sustain competitive advantage?
A) strategic analysis
B) comparative analysis
C) 360 degree analysis
D) competitive business strategy
Answer: D
Difficulty: Moderate
Skill: Concept
AACSB: Analytical Thinking
LO: 1.1: Define strategic compensation.
7) ________ compensation refers to the mental state of employees as a result of their
performance on the job.
Answer: Intrinsic
Difficulty: Moderate
Skill: Concept
AACSB: Reflective Thinking
LO: 1.1: Define strategic compensation.

3
8) Compensation represents both the intrinsic and extrinsic rewards employees receive for
performing their jobs. Together, both intrinsic and extrinsic compensation describe a company's
total compensation system. Briefly describe both types of rewards and indicate the professionals
who are responsible for managing them.
Answer: Intrinsic compensation reflects employees' psychological mind-sets that result from
performing their jobs. Extrinsic compensation includes both monetary and nonmonetary rewards.
Organizational development professionals promote intrinsic compensation through effective job
design. Compensation professionals are responsible for extrinsic compensation. Extrinsic
compensation includes both monetary and nonmonetary rewards. Compensation professionals
establish monetary compensation programs to reward employees according to their job
performance levels or for learning job-related knowledge or skills. Nonmonetary rewards include
protection programs (e.g., medical insurance), paid time off (e.g., vacations), and services (e.g.,
day care assistance). Most compensation professionals refer to nonmonetary rewards as
employee benefits.
Difficulty: Moderate
Skill: Concept
AACSB: Analytical Thinking
LO: 1.1: Define strategic compensation.
9) Which of following enables companies to generate income, higher company stock prices,
economic value, strong positive brand identity, and reputation?
A) capital
B) assets
C) competency
D) human capital
Answer: A
Difficulty: Moderate
Skill: Concept
AACSB: Analytical Thinking
LO: 1.2: Summarize the role of compensation as a strategic business partner.
10) As a strategic business partner, HR and compensation professionals today need to think most
like whom?
A) vice president of human resources
B) chief financial officer (CFO)
C) chief executive officer (CEO)
D) comptroller
Answer: C
Difficulty: Moderate
Skill: Concept
AACSB: Application of Knowledge
LO: 1.2: Summarize the role of compensation as a strategic business partner.

4
11) In GE's human resource leadership program (HRLP), successful participants will achieve
which of the following?
A) gain an understanding of the depth of specialization for each (HR) function
B) gain an understanding of HR competencies, global leadership skills, and business acumen
C) gain an understanding of the depth of specialization for each HR function
D) gain an understanding of HR from a generalist's perspective
Answer: B
Difficulty: Easy
Skill: Application of Knowledge
AACSB: Application of Knowledge
LO: 1.2: Summarize the role of compensation as a strategic business partner.
12) Cash and equipment such as a mass spectrometer in a research lab are examples of which of
the following?
A) nonliquid assets
B) organizational structure
C) capital
D) liquid assets
Answer: C
Difficulty: Moderate
Skill: Application of Knowledge
AACSB: Application of Knowledge
LO: 1.2: Summarize the role of compensation as a strategic business partner.
13) ________ and ________ programs are key to giving employees the necessary knowledge
and skills to use new workplace technology effectively.
Answer: Pay-for-knowledge; skill-based pay
Difficulty: Moderate
Skill: Concept
AACSB: Analytical Thinking
LO: 1.2: Summarize the role of compensation as a strategic business partner.
14) Discerning threats and opportunities is the main focus of which activity?
A) human resource planning
B) environmental scanning
C) job evaluation
D) job analysis
Answer: B
Difficulty: Moderate
Skill: Concept
AACSB: Application of Knowledge
LO: 1.3: Explain strategic compensation decisions.

5
15) This term suggests that a loss is likely for the firm, and that the individual will be left with
little control.
A) reverse opportunity
B) negative equity
C) threat
D) foreclosure
Answer: C
Difficulty: Easy
Skill: Concept
AACSB: Analytical Thinking
LO: 1.3: Explain strategic compensation decisions.
16) Which of the following competitive strategies does Apple Computer use?
A) lowest-cost strategy
B) differentiation strategy
C) total quality management strategy
D) human capital strategy
Answer: B
Difficulty: Moderate
Skill: Application of Knowledge
AACSB: Application of Knowledge
LO: 1.3: Explain strategic compensation decisions.
17) IKEA, a furniture manufacturer, sources its products to countries where labor is cheaper and
provides a low level of service. Which of the following competitive strategies does IKEA use?
A) differentiation strategy
B) high quality strategy
C) brand notoriety
D) lowest-cost strategy
Answer: D
Difficulty: Moderate
Skill: Application of Knowledge
AACSB: Application of Knowledge
LO: 1.3: Explain strategic compensation decisions.
18) A company using this competitive strategy seeks to offer a product or service that is
completely unique from other competitors in their market segment.
A) differentiation strategy
B) defender strategy
C) prospector strategy
D) lowest-cost strategy
Answer: A
Difficulty: Easy
Skill: Concept
AACSB: Analytical Thinking
LO: 1.3: Explain strategic compensation decisions.

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19) Which of these actions would HR encourage in attempting to create a lowest-cost
competitive strategy?
A) an employee's long-term focus
B) unpredictable employee behavior
C) cost minimization
D) high concern for the quality of output
Answer: C
Difficulty: Challenging
Skill: Concept
AACSB: Analytical Thinking
LO: 1.3: Explain strategic compensation decisions.
20) Saudi Arabia, which is one of the top oil producing countries in the world, continues to pump
crude oil even as demand for oil decreases. This activity is considered to be a(n) ________ to
other oil producing countries such as the United States.
Answer: threat
Difficulty: Challenging
Skill: Concept
AACSB: Analytical Thinking
LO: 1.3: Explain strategic compensation decisions.
21) Strategic management involves distinguishing between ________ and ________ in
attempting to achieve company goals, thus making strategic management an imprecise process.
Answer: threats, opportunities
Difficulty: Challenging
Skill: Concept
AACSB: Analytical Thinking
LO: 1.3: Explain strategic compensation decisions.
22) Apple Computer's use of a differentiation strategy promotes both ________ and ________.
Answer: market demand, loyalty
Difficulty: Challenging
Skill: Application of Knowledge
AACSB: Application of Knowledge
LO: 1.3: Explain strategic compensation decisions.

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23) What are the three questions that compensation professionals should answer to help
determine whether they are making a strategic contribution to the company?
Answer:
• Does compensation strategy fit well with the objectives of competitive business and HR
strategies?
• Does the choice and design of compensation practices fit well to support compensation
strategy?
• Does the implementation of compensation practices effectively direct employee behavior to
enhance job performance that supports the choice of compensation practices?
Difficulty: Challenging
Skill: Concept
AACSB: Analytical Thinking
LO: 1.3: Explain strategic compensation decisions.
24) This law made it illegal to pay women less for performing equal work as men.
A) Equal Pay Act of 1963
B) Civil Rights Act of 1964
C) Davis - Bacon Act of 1931
D) Fair Labor Standards Act of 1938
Answer: A
Difficulty: Moderate
Skill: Concept
AACSB: Reflective Thinking
LO: 1.4: Identify and discuss the building blocks and structural elements of strategic
compensation systems.
25) Cost-of-living adjustments (COLAs) are typically based on which index?
A) Producer Price Index
B) Consumer Price Index
C) Employment Cost Index
D) Employee Benefit Index
Answer: B
Difficulty: Moderate
Skill: Concept
AACSB: Reflective Thinking
LO: 1.4: Identify and discuss the building blocks and structural elements of strategic
compensation systems.

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26) What type of pay system rewards employees for partially or completely attaining a
predetermined work objective?
A) seniority pay
B) merit pay
C) incentive pay
D) skill-based pay
Answer: C
Difficulty: Moderate
Skill: Concept
AACSB: Analytical Thinking
LO: 1.4: Identify and discuss the building blocks and structural elements of strategic
compensation systems.
27) Jason works at a call center for an insurance company, and he has been answering calls
regarding auto insurance. Recently, he started to attend a training program about home insurance.
Upon successful completion of this training program, Jason will be able to handle home
insurance questions and queries as well. If this insurance company has a compensation policy
that rewards Jason's completion of this training, then what type of pay system does it employ?
A) incentive pay
B) merit pay
C) seniority pay
D) pay-for-knowledge
Answer: D
Difficulty: Moderate
Skill: Application of Knowledge
AACSB: Application of Knowledge
LO: 1.4: Identify and discuss the building blocks and structural elements of strategic
compensation systems.
28) Sandra's position changed from supervisor at the planning department to supervisor at the
new projects department. In terms of career development, which of the following describes
Sandra's situation?
A) maintaining focus with less responsibilities
B) making a lateral move across the company's hierarchy
C) moving upward through a company's hierarchy
D) maintaining the focus and assuming greater responsibilities
Answer: B
Difficulty: Moderate
Skill: Application of Knowledge
AACSB: Application of Knowledge
LO: 1.4: Identify and discuss the building blocks and structural elements of strategic
compensation systems.

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29) What do compensation managers use to recognize differences in the relative worth of jobs
and to establish pay differentials based upon management priorities?
A) job evaluation
B) internal consistency
C) job analysis
D) strategic analysis
Answer: A
Difficulty: Moderate
Skill: Concept
AACSB: Analytical Thinking
LO: 1.4: Identify and discuss the building blocks and structural elements of strategic
compensation systems.
30) These compensation systems go a long way in attracting and retaining the most qualified
employees and are based upon market and compensation surveys.
A) internally consistent compensation systems
B) market-competitive pay systems
C) job evaluation compensation systems
D) externally consistent compensation systems
Answer: B
Difficulty: Moderate
Skill: Concept
AACSB: Analytical Thinking
LO: 1.4: Identify and discuss the building blocks and structural elements of strategic
compensation systems.
31) Which of the following represents the pay rate differences for jobs and employee
contributions of unequal worth to a company?
A) merit pay
B) incentive pay
C) retention pay
D) pay structures
Answer: D
Difficulty: Moderate
Skill: Concept
AACSB: Analytical Thinking
LO: 1.4: Identify and discuss the building blocks and structural elements of strategic
compensation systems.

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32) What are the three goals of compensation professionals?
Answer: Compensation professionals promote effective compensation systems by meeting three
important goals: internal consistency, market competitiveness, and recognition of individual
contributions.
Internally consistent compensation systems clearly define the relative value of each job among
all jobs within a company. This ordered set of jobs represents the job structure or hierarchy.
Companies rely on a simple, yet fundamental, principle for building internally consistent
compensation systems: Employees in jobs that require greater qualifications, more
responsibilities, and more complex job duties should be paid more than employees whose jobs
require lesser qualifications, fewer responsibilities, and less-complex job duties. Internally
consistent job structures formally recognize differences in job characteristics, which therefore
enable compensation managers to set pay accordingly.
Market-competitive pay systems play a significant role in attracting and retaining the most
qualified employees. Compensation professionals build market-competitive compensation
systems based on the results of market surveys and compensation surveys.
Recognizing Individual Contributions are captured in pay structures, which represent pay rate
differences for jobs of unequal worth and the framework for recognizing differences in employee
contributions. No two employees possess identical credentials or perform the same job equally
well. Companies recognize these differences by paying individuals according to their credentials,
knowledge, or job performance. When completed, pay structures should define the boundaries
for recognizing employee contributions. Well-designed structures should promote the retention
of valued employees.
Difficulty: Challenging
Skill: Concept
AACSB: Analytical Thinking
LO: 1.4: Identify and discuss the building blocks and structural elements of strategic
compensation systems.
33) This agreement describes the terms of employment that are set between management and
union bargaining representatives.
A) employee relationship agreement
B) collective bargaining agreement
C) joint employment agreement
D) workplace requisite agreement
Answer: B
Difficulty: Easy
Skill: Concept
AACSB: Analytical Thinking
LO: 1.5: Describe the fit of the compensation function in organizations.

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34) Which type of professional is involved in the compensation functions such as building job
structures, market competitive pay systems, and merit pay structures?
A) compensation generalist
B) HR specialist
C) compensation specialist
D) HR generalist
Answer: A
Difficulty: Easy
Skill: Concept
AACSB: Analytical Thinking
LO: 1.5: Describe the fit of the compensation function in organizations.
35) Oftentimes, companies use this method to trim their payroll responsibilities by encouraging
higher-paid workers with more seniority to voluntarily leave the company earlier than previously
planned.
A) resignation plans
B) severance plans
C) early retirement programs
D) employee expenditure plans
Answer: C
Difficulty: Moderate
Skill: Concept
AACSB: Analytical Thinking
LO: 1.5: Describe the fit of the compensation function in organizations.
36) The demand for human resource professionals is ________.
Answer: increasing
Difficulty: Challenging
Skill: Concept
AACSB: Analytical Thinking
LO: 1.5: Describe the fit of the compensation function in organizations.
37) Companies that implement ________ and ________ plans generally increase the amount of
classroom and on-the-job training as these types of plans make training necessary rather than
optional.
Answer: pay-for-knowledge; person-focused
Difficulty: Moderate
Skill: Concept
AACSB: Analytical Thinking
LO: 1.5: Describe the fit of the compensation function in organizations.

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38) Employment ________ occurs when an employee's agreement to perform work is ended,
whether it is voluntarily or involuntarily.
Answer: termination
Difficulty: Easy
Skill: Concept
AACSB: Reflective Thinking
LO: 1.5: Describe the fit of the compensation function in organizations.
39) Due to the recent economic downturn, XYZ Co. decided to shut down one of its appliance
manufacturing plants in the United States, and therefore around 300 workers were laid off. XYZ
Co. has chosen to award laid-off workers 6 months of ________ pay.
Answer: severance
Difficulty: Challenging
Skill: Application of Knowledge
AACSB: Application of Knowledge
LO: 1.5: Describe the fit of the compensation function in organizations.
40) This group is directly involved in producing goods and delivering services for a company.
A) staff employees
B) line employees
C) managers
D) executives
Answer: B
Difficulty: Moderate
Skill: Concept
AACSB: Analytical Thinking
LO: 1.6: Identify the stakeholders of the compensation function and summarize their stakes in
the work compensation professionals perform.
41) The success of HR departments depends on how well they serve the interests of which of the
following stakeholder groups?
A) employees, line managers, executives, unions, and the U.S. government
B) unions and the U.S. government
C) executives and shareholders
D) employees and line managers
Answer: A
Difficulty: Easy
Skill: Concept
AACSB: Analytical Thinking
LO: 1.6: Identify the stakeholders of the compensation function and summarize their stakes in
the work compensation professionals perform.

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42) Which of the following group is a stakeholder within a company?
A) Equal Employment Opportunity Commission
B) Department of Labor
C) prospective employees
D) line managers
Answer: D
Difficulty: Easy
Skill: Concept
AACSB: Analytical Thinking
LO: 1.6: Identify the stakeholders of the compensation function and summarize their stakes in
the work compensation professionals perform.
43) Which stakeholder group turns to compensation professionals for advice about appropriate
pay rates for jobs?
Answer: Line managers
Difficulty: Easy
Skill: Concept
AACSB: Analytical Thinking
LO: 1.6: Identify the stakeholders of the compensation function and summarize their stakes in
the work compensation professionals perform.
44) What is a constituency? How does it affect the HR department?
Answer: The HR department does not exist in isolation. Rather, it must respond to a variety of
parties, each with its own interests. In fact, the success of an HR department may depend on how
well it serves various constituencies. Constituencies can include employees, line managers,
executives, unions, the U.S. government, and customers. Each of these groups expects certain
actions by the HR department, rates these actions according to its own standards, and tries to set
up goals or present constraints within their realm of understanding. As a result, the HR
department plays the role of a juggler, trying to meet often-competing goals presented by
multiple constituencies.
Difficulty: Challenging
Skill: Concept
AACSB: Analytical Thinking
LO: 1.6: Identify the stakeholders of the compensation function and summarize their stakes in
the work compensation professionals perform.

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45) Which of the following is the use of oral, written, and non-verbal skills for multiple
purposes?
A) ethics
B) data literacy
C) information technology
D) communication
Answer: D
Difficulty: Easy
Skill: Concept
AACSB: Reflective Thinking
LO: 1.7: Explore essential skills for developing your career in compensation or any other career
path.
46) Which of the following is used to define and solve problems and to make decisions or form
judgments related to a situation or set of circumstances?
A) collaboration
B) critical thinking
C) information technology
D) communication
Answer: B
Difficulty: Easy
Skill: Concept
AACSB: Reflective Thinking
LO: 1.7: Explore essential skills for developing your career in compensation or any other career
path.
47) When individuals work together on a task, constructing meaning and knowledge as a group
through dialogue and negotiation is known as
A) collaboration.
B) data literacy.
C) social responsibility.
D) critical thinking.
Answer: A
Difficulty: Easy
Skill: Concept
AACSB: Reflective Thinking
LO: 1.7: Explore essential skills for developing your career in compensation or any other career
path.

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48) ________ is/are guiding principles that influence the way individuals and organizations
behave within the society that they operate
A) Business ethics
B) Data literacy
C) Information technology
D) Communication
Answer: A
Difficulty: Easy
Skill: Concept
AACSB: Reflective Thinking
LO: 1.7: Explore essential skills for developing your career in compensation or any other career
path.
49) ________ is/are the ability to access, assess, interpret, manipulate, summarize, and
communicate data.
A) Business ethics
B) Data literacy
C) Information technology
D) Communication
Answer: B
Difficulty: Easy
Skill: Concept
AACSB: Reflective Thinking
LO: 1.7: Explore essential skills for developing your career in compensation or any other career
path.

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