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MBA - HRM Human Resource Management 2017 - Mondy 14th Edition - Chapter Exercise - 09

HRM Human Resource Management

MBA - Human Resource Management 2017

R. Wayne Mondy, 2016, Human Resource Management, 14th Edition





9-1.      What form of incentive compensation might be used for the following jobs to increase productivity?


  1. machine operator—A viable means of motivation for a machine operator would be the piecework plan. Here, employees are paid for each unit they produce. Thus, an operator who wishes to increase his or her pay paycheck would have to produce more units. The more units produced, the larger the paycheck.


  1. automobile salesperson—The most likely incentive method for an automobile salesperson would be some form of commission and bonuses. New salespersons are often provided a “draw” until they become proficient salespersons. Afterward, the salary is typically mostly commission and bonuses.


  1. a group of five people cooperating to get the job done—If a team is to function effectively, firms should also provide a reward based on the overall team performance as well. Employees may be more inclined to assist others and work collaboratively if the organization bases rewards on the team’s output. When teams perform highly, it is the interaction among team members, not the members themselves, that creates the high performance. If there is truly an outstanding employee among the team, that individual should receive extra compensation.


9-2.      The section on Executive Compensation provided statistics that suggest that some executives today may be paid excessively high salaries. What might be some pros and cons for paying large salaries to top executives?


Discussion Question in MyManagementLab. Student responses will vary.


9-3.    What form of equity is involved if you hear one of your employees say the following?


  1. That guy at XYZ Company does the same type of work I do but gets $10,000 more a year.—External equity exists when a firm’s employees receive pay comparable to workers who perform similar jobs in other firms. A problem that exists is that often employees perceive that workers in other companies earn more.


  1. That person in maintenance makes more than I do as the maintenance manager.—Internal equity exists when employees receive pay according to the relative value of their jobs within the same organization.


  1. I joined the firm the same time he did and now he is making $10,000 more than me for doing the same job.—Employee equity exists when individuals performing similar jobs for the same firm receive pay according to factors unique to the employee, such as performance level or seniority.





  • Define each of the following terms: a. compensation, b. direct financial compensation, c. indirect financial compensation, and d. nonfinancial compensation.


Compensation: Total of all rewards provided to employees in return for their services.


Direct financial compensation: Pay that a person receives in the form of wages, salary, bonuses, and commissions.


Indirect financial compensation (benefits): All financial rewards that are not included in direct financial compensation.


Nonfinancial compensation: Satisfaction that a person receives from the job itself or from the psychological and/or physical environment in which the job is performed.



  • What are the contextual influences on direct financial compensation?


Labor markets: Potential employees located within the geographical area from which employees are recruited.


Labor unions: When a union uses comparable pay as a standard for making compensation demands, the employer must obtain accurate labor market data.


Economy: Economy’s health exerts a major impact on pay decisions.


Interindustry wage differentials: Pattern of pay and benefits associated with characteristics of industries.  


Legislation: Amount of compensation a person receives can also be affected by certain federal and state legislation.


  • Discuss the determinants of direct financial compensation.


Factors relating to the organization, the labor market, the job, and the employee all have an impact on job pricing and the ultimate determination of the individual’s financial compensation.


Organization: A firm that pays well attracts many applicants, enabling management to pick and choose the skills and traits it values. It holds on to these quality hires by equitably sharing the fruits of its financial success, not only among the management team but also with the rank-and-file. Compensation programs have top management’s attention because they have the potential to influence employee work attitudes and behavior that lead to improved organizational performance and implementation of the firm’s strategic plan.


Labor Market: Potential employees located within the geographic area from which employees are recruited comprise the labor market. Labor markets for some jobs extend far beyond the location of a firm’s operations.


Job: Job itself continues to be a factor, especially in firms that have internal pay equity as an important consideration. These organizations pay for the value they attach to certain duties, responsibilities, and other job-related factors such as working conditions.


Employee: Factors related to the employee are also essential in determining an individual’s compensation. These factors include job performance, skills/competencies, seniority, experience, organization membership, potential, political influence, and luck.


  • Discuss the difference between pay-for-performance and person-focused pay.


Pay-for-performance compensation provides compensation based on employee performance measures such as productivity. Person-focused pay compensates employees for developing the flexibility, knowledge, and skills to effectively perform a number of jobs effectively. 


  • What are the differences between pay level and pay mix compensation policies?


Pay level compensation policies determine how a company will pay its employees compared to its competitors. Pay mix compensation policies refer to the combination of direct and indirection financial compensation and employee benefits components a company offers.


  • How has government legislation affected compensation?


Davis-Bacon Act of 1931: This act requires federal construction contractors with projects valued in excess of $2,000 to pay at least the prevailing wages in the area.


Walsh-Healy Act of 1936: The act requires companies with federal supply contracts exceeding $10,000 to pay prevailing wages. The act also requires one and a half times the regular pay rate for hours over 8 per day or 40 per week.


Fair Labor Standards Act of 1938, as Amended: It establishes a minimum wage, requires overtime pay, record keeping, and provides standards for child labor.


Wall Street Reform and Consumer Protection Act (Dodd-Frank): Has provisions relating to executive compensation and corporate governance that directly and significantly impact the executives, directors, and shareholders of publicly traded companies and continue the increased federal regulation of corporate governance and executive compensation matters.


  • What is the difference between an exempt and a nonexempt employee?


Exempt employees: Employees categorized as executive, administrative, professional, or outside salespersons. An executive employee is essentially a manager (such as a production manager) with broad authority over subordinates. An administrative employee, while not a manager, occupies an important staff position in an organization and might have a title such as account executive or market researcher. A professional employee performs work requiring advanced knowledge in a field of learning, normally acquired through a prolonged course of specialized instruction.


Nonexempt employees: Those in jobs not conforming to the above definitions. However, nonexempt employees, many of whom are paid salaries, must receive overtime pay.


  • Define job evaluation. Give the primary purpose of job evaluation.


Job evaluation is a process that determines the relative value of one job in relation to another. The primary purpose of job evaluation is to eliminate internal pay inequities that exist because of illogical pay structures.


  • Distinguish between the following job evaluation methods: a. ranking, b. classification, factor comparison, and d. point method.


Ranking method: Job evaluation method in which the raters examine the description of each job being evaluated and arrange the jobs in order according to their value to the company.


Classification method: Job evaluation method in which classes or grades are defined to describe a group of jobs.


Factor comparison method: Job evaluation method that assumes there are five universal factors consisting of mental requirements, skills, physical requirements, responsibilities, and working conditions; the evaluator makes decisions on these factors independently.


Point method: Job evaluation method where the raters assign numerical values to specific job factors, such as knowledge required, and the sum of these values provides a quantitative assessment of a job’s relative worth.


  • Define job pricing. What is the purpose of job pricing?


Placing a dollar value on a job’s worth is referred to as job pricing. It may take place once the job has been evaluated and the relative value of each job in the organization has been determined.


  • Define pay grades. State the basic procedure for determining pay grades.


A pay grade is the grouping of similar jobs to simplify pricing jobs. The grouping of similar jobs together simplifies the job-pricing process. It is easier to price fifteen pay grades rather than 200 separate jobs. The simplicity of this approach is similar to a college or university’s practice of grouping grades of 90 to 100 into an “A” category, etc.


  • Define pay ranges. What is the purpose of establishing pay ranges?


A pay range includes a minimum and maximum pay rate with enough variance between the two to allow for a significant pay difference. A pay range includes a minimum and maximum pay rate with enough variance between the two to allow some significant pay difference. Pay ranges are generally preferred because they allow employees to be paid according to experience and performance levels.


  • Define broadbanding. What is the purpose of using broadbanding?


Broadbanding is a technique that collapses many pay grades (salary grades) into a few wide bands to improve organizational effectiveness. Broadbanding creates the basis for a simpler compensation system that de-emphasizes structure and control and places greater importance on judgment and flexible decision making. Bands may also promote lateral development of employees and direct attention away from vertical promotional opportunities.


  • Distinguish between merit pay, bonus, spot bonuses, and piecework.


Merit pay: Pay increase added to employees’ base pay based on their level of performance.


Bonus: One-time annual financial award based on productivity that is not added to base pay.


Spot bonus: Relatively small monetary gifts provided to employees for outstanding work or effort during a reasonably short period of time.


Piecework: Incentive pay plan in which employees are paid for each unit they produce.


  • Discuss the main issues that are associated with compensating contingent workers.


The main issue in compensating contingent workers relates to internal equity.  This occurs when a contingent worker and regular employee perform the same tasks, but one makes more money than the other.


  • What are some company-wide pay plans? Briefly discuss each.


Profit sharing: Compensation plans that result in the distribution of a predetermined percentage of the firm’s profits to employees.


Gainsharing: Plans designed to bind employees to the firm’s productivity and provide an incentive payment based on improved company performance.


Scanlon plan: Gainsharing plan that provides a financial reward to employees for savings in labor costs resulting from their suggestions.


  • How is the compensation for sales representatives determined?


The straight salary approach is one extreme in sales compensation. At the other extreme is straight commission where the person’s pay is totally determined as a percentage of sales. Between these extremes are the endless varieties of part-salary, part-commission combinations. The possibilities increase when a firm adds various types of bonuses to the basic compensation package.


  • Describe each of the following: Say on pay, b. Golden parachute contract, b. Clawback contract provision.


Discussion Question in MyManagementLab. Student responses will vary.


  • What are the various types of executive compensation?


Base salary: Factor in determining standard of living and also provides the basis for other forms of compensation. The U.S. tax law does not allow companies to deduct more than $1 million of an executive’s salary.


Bonuses and Performance-Based Pay: There is a trend toward more performance-based compensation packages for executives.


Stock option plans: Incentive plan in which executives can buy a specified amount of stock in their company in the future at or below the current market price.


Executive benefits (perquisites or perks): Special benefits provided by a firm to a small group of key executives and designed to give the executives something extra.


Severance Packages: The Securities and Exchange Commission has adopted far-reaching executive compensation disclosure rules that apply to publicly traded companies. The new rules require companies to list all the agreements for each executive, to disclose the payment triggers, and, most importantly, to give an estimated dollar value of potential payments and benefits and the specific factors used to determine them. For the first time, investors will see the estimated total dollar value of the exit packages.


  • How does executive pay in the United States compare to executive compensation in the global environment?


The pay gap between the most affluent executives and the average worker in the U.S. remains wide. In 2009, Standard & Poor's (S&P) 500 chief executive officers averaged $10.5 million a year, 344 times the annual pay of typical U.S. workers. By contrast, the ratio is 22 in Britain, 20 in Canada, and 11 in Japan.





HRM Incident 1: A Motivated Worker


Bob Rosen could hardly wait to get back to work Monday morning. He was excited about his chance of getting a large bonus. Bob is a machine operator with Ram Manufacturing Company, a Wichita, Kansas maker of electric motors. He operates an armature-winding machine. The machine winds copper wire onto metal cores to make the rotating elements for electric motors.

            Ram pays machine operators on a graduated piece-rate basis. Operators are paid a certain amount for each part made, plus a bonus. A worker who produces 10 percent above standard for a certain month receives a 10 percent additional bonus. For 20 percent above standard, the bonus is 20 percent. Bob realized that he had a good chance of earning a 20 percent bonus that month. That would be $1,787.

            Bob had a special use for the extra money. His wife’s birthday was just three weeks away. He was hoping to get her a car. He had already saved $4,000, but the down payment on the car was $5,500. The bonus would enable him to buy the car.

            Bob arrived at work at seven o’clock that morning, although his shift did not begin until eight. He went to his workstation and checked the supply of blank cores and copper wire. Finding that only one spool of wire was on hand, he asked the forklift truck driver to bring another. Then, he asked the operator who was working the graveyard shift, “Sam, do you mind if I grease the machine while you work?”

            “No,” Sam said, “that won’t bother me a bit.”

            After greasing the machine, Bob stood and watched Sam work. He thought of ways to simplify the motions involved in loading, winding, and unloading the armatures. As Bob took over the machine after the eight o’clock whistle, he thought, “I hope I can pull this off. I know the car will make Kathy happy. She won’t be stuck at home while I’m at work.”




  • Explain the advantages of a piecework pay system such as that at Ram.


In a piecework plan, employees are paid for each unit produced. Given the proper conditions, workers who produce more are paid more. Thus, a piecework plan can be a highly motivational tool if properly implemented.


  • What might be problems associated with the piecework pay system?


Piecework pay plans have declined in use somewhat because the plan requires constant monitoring. For instance, if on day one the worker produced 8 units and on day two the worker produced 12 units, each day must be counted separately. Also professionals such as industrial engineers are needed to maintain the system.


HRM Incident 2: The Controversial Job


David Rhine, compensation manager for Farrington Lingerie Company, was generally relaxed and good-natured. Although he was a no-nonsense, competent executive, David was one of the most popular managers in the company. This Friday morning, however, David was not his usual self. As chairperson of the company’s job evaluation committee, he had called a late morning meeting at which several jobs were to be considered for reevaluation. The jobs had already been rated and assigned to pay grade 3. But the office manager, Ben Butler, was upset that one was not rated higher. To press the issue, Ben had taken his case to two executives who were also members of the job evaluation committee. The two executives (production manager, Bill Nelson and general marketing manager, Betty Anderson) then requested that the job ratings be reviewed. Bill and Betty supported Ben’s side of the dispute, and David was not looking forward to the confrontation that was almost certain to occur.

            The controversial job was that of receptionist. Only one receptionist position existed in the company, and Marianne Sanders held it. Marianne had been with the firm 12 years—longer than any of the committee members. She was extremely efficient, and virtually all the executives in the company, including the president, had noticed and commented on her outstanding work. Bill Nelson and Betty Anderson were particularly pleased with Marianne because of the cordial manner in which she greeted and accommodated Farrington’s customers and vendors, who frequently visited the plant. They felt that Marianne projected a positive image of the company.

            When the meeting began, David said, “Good morning. I know that you’re busy, so let’s get the show on the road. We have several jobs to evaluate this morning and I suggest we begin...” Before he could finish his sentence, Bill interrupted, “I suggest we start with Marianne.” Betty nodded in agreement. When David regained his composure, he quietly but firmly asserted, “Bill, we are not here today to evaluate Marianne. Her supervisor does that at performance appraisal time. We’re meeting to evaluate jobs based on job content. In order to do this fairly, with regard to other jobs in the company, we must leave personalities out of our evaluation.” David then proceeded to pass out copies of the receptionist job description to Bill and Betty, who were obviously very irritated.




  • Do you feel that David was justified in insisting that the job, not the person, be evaluated? Discuss.


David’s stance is correct in that it is the job, not the person, which should be evaluated. This incident points out rather common problems that result from confusing performance appraisal with job evaluation. The job Marianne performs is worth only so much to Farrington regardless of how well it is performed or how qualified the employee performing it. Since Marianne is such an outstanding performer and one who possesses outstanding skills, perhaps she could be placed in a more highly rated job. But, it would be a serious mistake to rewrite Marianne’s job description solely for the purpose of upgrading her job. This practice would result in an illogical pay structure.


  • Do you believe that there is a maximum rate of pay for every job in an organization, regardless of how well the job is being performed? Justify your position.


Many believe that there is a maximum value for every job in an organization regardless of how well it is being performed. When the relative values of jobs in a firm have been determined, they may then be priced accordingly. When this is achieved, the firm has provided internal equity in their pay program and workers should perceive the program as being fair. Today, however, internal equity is giving way to external equity in some firms that must attract and retain certain employees with critically needed skills.


  • Assume that Marianne is earning the maximum of the range for her pay grade. In what ways can she obtain a salary increase?


In her current job as it exists, Marianne can obtain a salary increase only when across-the-board pay increases are granted. Since she is an excellent employee, she might be promoted to a higher paying job. An additional possibility is for her present job to be redesigned so that the duties are substantially upgraded. If this should happen, Marianne’s job should be reevaluated. It might well be placed in a higher pay grade to permit Marianne to earn more money.









Human Resource Management
Human Resource Management, 15th Edition, 2017, Gary Dessler,
Strategic Compensation: A Human Resource Management Approach, 9th Edition, 2017, Joseph J. Martocchio
Fundamentals of Human Resource Management, 4th Edition, 2016, Gary Dessler
Human Resource Management, 14th Edition, 2016, R. Wayne Dean Mondy, Retired, Joseph J. Martocchio
Mastering Project Human Resource Management: Effectively Organize and Communicate with All Project Stakeholders, 2015, Harjit Singh
Managing Human Resources, 8th Edition, 2016, Luis R. Gomez-Mejia, David B. Balkin, Robert L. Cardy


PART 1: Setting the Stage for Strategic Compensation
1. Strategic Compensation: A Component of Human Resource Systems
2. Contextual Influences on Compensation Practice
PART 2: Bases for Pay
3. Seniority Pay and Merit Pay
4. Incentive Pay
5. Person-Focused Pay
PART 3: Designing Compensation Systems
6. Building Internally Consistent Compensation Systems
7. Market-Competitive Compensation Systems
8. Building Pay Structures that Recognize Employee Contributions
PART 4: Employee Benefits
9. Discretionary Benefits
10. Legally-Required Benefits
PART 5: Contemporary Strategic Compensation Challenges
11. Compensating Executives
12. Compensating the Flexible Workforce
PART 6: Compensation Around the World
13. Compensating Expatriates
14. Pay and Benefits outside the United States
15. Challenges Facing Compensation Professionals
Managing Human Resources Today
Managing Equal Opportunity and Diversity
Human Resource Strategy and Analysis
Job Analysis and Talent Management
Personnel Planning and Recruiting
Selecting Employees
Training and Developing Employees
Performance Management and Appraisal
Managing Careers
Developing Compensation Plans
Pay for Performance and Employee Benefits
Maintaining Positive Employee Relations
Labor Relations and Collective Bargaining
Improving Occupational Safety, Health, and Risk Management
Managing HR Globally
Managing Human Resources in Small and Entrepreneurial Firms
PHR and SPHR Knowledge Base
Comprehensive Cases
Human Resource Management: An Overview
Business Ethics and Corporate Social Responsibility
Equal Employment Opportunity, Affirmative Action, and Workforce Diversity
Strategic Planning, Human Resource Planning, and Job Analysis
Performance Management and Training
Performance Management and Appraisal
Training and Development
Direct Financial Compensation (Core Compensation)
Indirect Financial Compensation (Employee Benefits)
Labor Relations, Employee Relations, Safety, and Health
Labor Unions and Collective Bargaining
Internal Employee Relations
Employee Safety, Health, and Wellness
Operating in a Global Environment
Global Human Resource Management
Lectures, Test Bank, Case Study, Video Guides
Equal Opportunity,
Recruitment, Placement, Talent Management,
Job Analysis, Talent Management Process,
Personnel Planning, Recruiting,
Employee Testing, Selection,
Training, Development,
Developing Employees,
Performance Management, Appraisal,
Managing Careers, Retention,
Establishing Strategic Pay Plans,
Pay for Performance, Financial Incentives,
Benefits, Services,
Labor Relations,
Human Resource Management Lectures




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