Chapter 10 – Strategic reward management

TRUE/FALSE

1. Reward management is one of the most insignificant, yet easy and uncontroversial, of all SHRM
functions.

ANS: F PTS: 1 DIF: Easy TOP: Introduction

2. The concept of reward applies only to the tangible things that an organisation provides to its
employees in exchange for their potential or actual work contributions.

ANS: F PTS: 1 DIF: Moderate TOP: Introduction

3. A combination of compatible financial and non-financial rewards is called a total reward.

ANS: T PTS: 1 DIF: Easy TOP: Total reward management

4. Career progression and performance support are examples of extrinsic rewards.

ANS: T PTS: 1 DIF: Moderate TOP: Total reward management

5. An organisation’s reward system has three primary objectives: to attract, retain and develop its
employees.

ANS: F PTS: 1 DIF: Moderate TOP: Strategic reward

management

6. An important secondary objective of a well-designed, well-administered reward system is to ensure

that there is an appropriate return on investment from total reward outlays.

ANS: T PTS: 1 DIF: Moderate TOP: Strategic reward management

7. An organisation’s reward practices should be tailored specifically to its particular strategy and, where
appropriate, to the specific strategies of its distinct business units.

ANS: T PTS: 1 DIF: Easy TOP: Aligning rewards with

business strategy

8. A critical step in the process of reward alignment is the formulation of a blueprint.

ANS: T PTS: 1 DIF: Easy TOP: Reward philosophy and

strategy

9. A reward strategy should not indicate the primary purposes to which reward management will be
directed.

ANS: F PTS: 1 DIF: Difficult TOP: Reward philosophy and

strategy

10. For much of the twentieth century, remuneration standards for the great majority of Australian
employees were shaped by agreement-making at enterprise, workplace and individual levels.
 ANS: F PTS: 1 DIF: Easy TOP: Pay determination in the
changing Australian regulatory environment

11. The Fair Work Act 2009 has empowered Fair Work Australia to set maximum wages for award and
agreement-free employees nationally.

ANS: F PTS: 1 DIF: Moderate TOP: Pay determination in the

changing Australian regulatory environment

12. Base pay can be described as that part of cash and other forms of reward that sets and enforces
maximum standards.

ANS: F PTS: 1 DIF: Easy TOP: Base pay

13. Base pay systems are quite diverse. There are three distinct approaches to building base pay: job-based
base pay, skill-based base pay and competency-based base pay.

ANS: T PTS: 1 DIF: Moderate TOP: Base pay

14. In job-based pay systems, the two main techniques for job pricing are market surveys and job
evaluation.

ANS: T PTS: 1 DIF: Moderate TOP: Valuing jobs

15. Points–factor techniques are qualitative job evaluation methods.

ANS: F PTS: 1 DIF: Easy TOP: Valuing jobs

16. One of the disadvantages of skill-based pay systems is that they reward both skill and actual skill
application.

ANS: T PTS: 1 DIF: Easy TOP: Skill-based base pay

17. A broadbanded pay structure is one in which a small number of job groupings have been eliminated in
favour of a larger number of narrow jobs arranged in a steep hierarchy.

ANS: F PTS: 1 DIF: Moderate TOP: Competency-based base pay

18. ‘Fringe benefits’ is the collective name for voluntary benefits, usually bestowed by the employer after
discussion or negotiation with the employee.

ANS: T PTS: 1 DIF: Easy TOP: Voluntary benefits

19. Performance-related rewards are also known as incentives.

ANS: T PTS: 1 DIF: Easy TOP: Performance-related rewards

20. Pay-for-performance plans can often increase the degree of uncertainty associated with the nature of
the employment exchange.

ANS: F PTS: 1 DIF: Moderate TOP: Performance-related rewards

21. Merit pay plans reward individuals on the basis of informal performance outcomes.
 ANS: F PTS: 1 DIF: Easy TOP: Merit pay

22. The discretionary bonus is one of the more complex forms of cash recognition for employees.

ANS: F PTS: 1 DIF: Moderate TOP: Individual recognition

awards

23. Social reinforcers are an example of an individual cash reward.

ANS: F PTS: 1 DIF: Moderate TOP: Individual recognition

awards

24. Gain-sharing plans are also known as self-funding.

ANS: T PTS: 1 DIF: Moderate TOP: Gain-sharing

25. Employee share plans are a way of rewarding employees for improvements over time in the
organisation’s share market performance.

ANS: T PTS: 1 DIF: Easy TOP: Organisation-wide (equity-

based) long-term incentive plans

26. Companies typically apply both short-term and long-term incentives to their executive-level
employees.

ANS: T PTS: 1 DIF: Easy TOP: Executive incentives

27. Executive long-term incentives generally involve rewards that take the form of company equity rather
than cash.

ANS: T PTS: 1 DIF: Moderate TOP: Executive long-term

incentives

28. An incorporated statement of reward philosophy, purpose and strategy can be developed once the main
human resource function has been identified.

ANS: F PTS: 1 DIF: Moderate TOP: Reward philosophy and

strategy

29. Developmental and social rewards play only a limited role in reinforcing the effects of remuneration.

ANS: F PTS: 1 DIF: Moderate TOP: Individual recognition

awards

30. When determining remuneration levels, an organisation following a prospector competitive strategy is
likely to pay the market average or less, so as to exploit labour market conditions and attract and retain
scarce talent.

ANS: F PTS: 1 DIF: Easy TOP: Base pay: nature and

importance

MULTIPLE CHOICE
1. _________ is anything tangible or intangible that an organisation provides to its employees in
exchange for the employee’s potential or actual work contribution, and that employees value.
A. Remuneration
B. Incentive-based pay
C. A reward
D. Performance support

ANS: C PTS: 1 DIF: Easy TOP: Introduction

2. Which of the following is not an example of an extrinsic reward?

A. Job trials
B. Fixed or base pay
C. Succession planning
D. Performance support

ANS: A PTS: 1 DIF: Moderate TOP: Total reward management

3. Which of the following statements about intrinsic rewards is true?

A. Intrinsic rewards are arguably the most powerful motivators of work effort.
B. Intrinsic rewards are of three main types: financial, developmental and social.
C. A key determinant of the level of intrinsic rewards in any organisation is the way in which
its jobs are designed.
D. Both A and C are correct.

ANS: D PTS: 1 DIF: Difficult TOP: Total reward management

4. Within reward system objectives, there should be a strong linkage between rewards and:
A. staff processes.
B. employee learning.
C. performance management.
D. A, B and C are all correct.

ANS: D PTS: 1 DIF: Moderate TOP: Performance-related rewards

5. A well-designed, well-administered reward system should have three important _________ objectives:
to be need-fulfilling, equitable and affordable.
A. primary
B. secondary
C. tertiary
D. A, B and C are all incorrect.

ANS: B PTS: 1 DIF: Easy TOP: Performance-related rewards

6. Which following pay type varies due to measured performance?

A. Base line pay
B. Incentives pay
C. Remuneration pay
D. A, B and C are all incorrect.

ANS: B PTS: 1 DIF: Difficult TOP: Total reward management

 7. Companies that offer high job security, a high level of prestige or opportunities for training and
development often find that, in relation to their competitors, they need to offer
____________________.
A. higher levels of remuneration.
B. consistent levels of remuneration.
C. lower levels of remuneration.
D. competitive bonuses.

ANS: C PTS: 1 DIF: Moderate TOP: Total reward management

8. Positive performance factors for companies following a _________ incentive scheme include
citizenship behaviour; technical knowledge and skill; quality; and creativity or innovation.
A. profit-sharing
B. gain-sharing
C. goal-sharing
D. collective

ANS: D PTS: 1 DIF: Difficult TOP: Collective short-term

incentive plans

9. Merit increment plan payments are calculated by means of a merit _________.

A. grid
B. matrix
C. guide chart
D. A, B and C are all correct.

ANS: D PTS: 1 DIF: Difficult TOP: Merit pay

10. Base pay is the largest component of total standard pre-tax remuneration for:
A. most night shift workers.
B. most supervisors.
C. most board members.
D. most employees.

ANS: D PTS: 1 DIF: Moderate TOP: Base pay

11. Pay ladders and narrow grades are typical of the structure of a _________ base pay system.
A. competency-based
B. skill-based
C. job-based
D. A, B and C are all incorrect.

ANS: C PTS: 1 DIF: Moderate TOP: Base pay

12. One evaluation technique for job-based pay is:

A. skill assessment.
B. market survey.
C. competency assessment.
D. merit assessment.

ANS: B PTS: 1 DIF: Difficult TOP: Base pay

13. Which of the following is not a potential weakness of the points–factor approach to job evaluation?
 A. It favours job size over job-holder contribution.
B. It reinforces managerial hierarchy and traditional bureaucracy.
C. It emphasises internal equity over external competitiveness.
D. It allows each organisation to determine the relative importance of its own specific jobs
using those criteria most relevant to its strategic purpose.

ANS: D PTS: 1 DIF: Moderate TOP: Valuing jobs

14. For base pay determination purposes, in a skill-based pay system, associated skill sets are commonly
housed in structures known as:
A. ability grades.
B. ability blocks.
C. comprehensive grades.
D. broad grades.

ANS: D PTS: 1 DIF: Moderate TOP: Skill-based base pay

15. In a competency-based pay system, a typical broadbanded structure will have between ____ and ____
bands.
A. 5; 10
B. 6; 12
C. 5; 12
D. 10; 15

ANS: A PTS: 1 DIF: Moderate TOP: Competency-based base pay

16. In a competency-based pay system, progression within a given broadband that is linked to a
combination of competency assessment and individual performance outcomes is called
______________ broadbanding.
A. competency-based
B. competency-related
C. competency-linked
D. competency-centred

ANS: B PTS: 1 DIF: Moderate TOP: Competency-based base pay

17. Employer-funded superannuation, subsidised canteens and self-education expenses are examples of
_________ employee benefits.
A. direct
B. indirect
C. compulsory
D. non-financial

ANS: A PTS: 1 DIF: Easy TOP: Benefits plans

18. Which of the following is not one of the four crucial considerations of performance-related pay plans
and rewards?
A. What form does the reward take?
B. What is being measured?
C. What time-frame is being observed?
D. Which department is being measured?

ANS: D PTS: 1 DIF: Easy TOP: Performance-related rewards

 19. McAdams (1999) suggests that there are seven basic classes of non-monetary recognition: social
reinforcers; in-house learning and development opportunities; merchandise; travel; symbolic awards;
______________; and adaptable or family-friendly work schedules.
A. earned time off
B. evolving rewards
C. societal rewards
D. flexible awards

ANS: A PTS: 1 DIF: Difficult TOP: Individual recognition

awards

20. Which of the following statements about executive incentive plans is not true?
A. Executive short-term incentives typically take the form of an annual cash bonus.
B. Executive performance is almost universally equated with organisational results.
C. It is rare for an executive’s option to purchase shares to be conditional on the satisfaction
of performance hurdles.
D. Both accounting-based and share market-based measures of performance are susceptible
to executive manipulation.

ANS: C PTS: 1 DIF: Moderate TOP: Executive incentives

SHORT ANSWER

1. ‘A strategic reward management approach has two main requirements.’ Discuss and explain.

ANS:
Students should firstly highlight that the choice of reward strategy and practice should be informed by
an organisation’s overall human resource strategy, plans and policies.

Second, as a key element of the organisation’s people strategy, reward strategy and practice should
align with and support the organisation’s overall strategic business plan or strategy to ensure effective
operation in its dynamic environmental context. This alignment between competitive strategy and the
approach to people management is also referred to as external fit.

The key point here is that a strategic approach to reward management involves selecting and applying
those reward practices that are best-suited to the organisation’s particular context, circumstances and
objectives.

Answers will require manual marking.

PTS: 1 DIF: Moderate TOP: Strategic reward management

2. Briefly describe the four main forms of organisation-wide share plans.

ANS:
Answers should discuss share price appreciation, annual dividend earnings, special bonus share issues
and special taxation concessions or exemptions. A good answer will also outline the benefits of such
plans; for example, the reinforcement of employee commitment to organisational success as the
organisation fosters an ownership mentality. Students should also discuss which organisations would
be most likely to implement such a plan – those that embrace a high degree of employee involvement
and participation.

Answers will require manual marking.

 PTS: 1 DIF: Moderate TOP: Organisation-wide (equity-based) long-term
incentive plans

ESSAY

1. Discuss how companies would meet the challenge of strategic reward alignment and the concept of
‘strategic fit’.

ANS:
Answers should initially address the three key steps of developing a strategic reward system: preparing
a statement of reward philosophy and strategy; determining total reward mix and target pay levels; and
ensuring strategic fit or alignment. Students should then outline how an organisation determines the
total reward mix, and which questions need to be asked during this process.

Once the total reward mix has been determined, the remuneration levels also need to be determined.
This determination will largely depend upon whether the reward strategy emphasises attraction and
retention or payroll cost containment.

Once all the development steps have been taken, how does the company ensure a strategic fit? Does
the strategy fit within the broad contours of the three archetypal business strategies (innovation, quality
improvement and cost reduction)? Lastly, how does the company communicate the deal to the rest of
the organisation?

Students should mention the importance of creating and maintaining employee understanding and
acceptance, especially among the key stakeholders.

Answers will require manual marking.

PTS: 1 DIF: Moderate TOP: Performance-related rewards

2. Discuss how an organisation could use its remuneration and reward systems – and any other strategies
– to attract in-demand employees in a time of skills shortages.

ANS.
Students should outline that organisations can take one of three approaches: they can trail the market
(that is, pay less than the market average); they can meet the market (that is, pay the market average);
or they can lead the market (that is, pay more than the market pays for that industry or role). Often,
within an organisation, at least two of these approaches are taken. For example, in regards to
remuneration, even though the majority of the workforce might be paid at market rates, specialist roles
in skills-shortage areas may be paid above the market, as their scarcity requires that greater
remuneration be provided to such specialists.

A range of rewards can be offered; the following are only some of the possible examples:

 an employee share acquisition plan

 discounts on travel, shopping, insurance, products, and so on (examples: up to $5000 off the
price of a new car, or $150 off a new vacuum cleaner)
 a total health service for employees
 full or partial funding of job-relevant tertiary education
part-time work, phasing into retirement and other work–life balance arrangements.
Additionally, beyond remuneration and reward systems, students could discuss that employers within
high-growth sectors need to review their hiring strategies and consider potential and existing
employees who have skills that can be transferred and developed with training. This may help to
alleviate pressure in other sectors, and expose companies to a potential new talent pool.

Organisations also need to be disciplined about workforce planning. Workforce planning should be
carried out with the same levels of rigour and discipline applied to financial and operational planning.

Answers will require manual marking.

PTS: 1 DIF: Moderate TOP: Performance-related rewards