SHRM Total Rewards & Compensation 5 — Questions and Answers
Question 1: Which long-term incentive grants employees the right to purchase company stock at a predetermined price after a vesting period?
- Restricted stock units (RSUs)
- Stock appreciation rights (SARs)
- Stock options (Correct answer)
- Employee stock purchase plans (ESPPs)
Correct answer: Stock options
Stock options grant the holder the right to buy shares at a fixed exercise (strike) price, profiting if the stock price rises above that price.
Question 2: An organization surveys 10 peer companies and finds its average pay is at the 50th percentile of the market. This organization's pay philosophy is best described as:
- Lead the market
- Lag the market
- Match the market (Correct answer)
- Hybrid market positioning
Correct answer: Match the market
Paying at the 50th percentile reflects a 'match the market' philosophy, aiming to be competitive without paying above or below average.
Question 3: Which component of total rewards strategy addresses flexible scheduling, remote work options, and employee well-being programs?
- Base compensation
- Variable pay
- Work-life effectiveness (Correct answer)
- Learning and development
Correct answer: Work-life effectiveness
Work-life effectiveness encompasses programs that help employees balance personal and professional responsibilities, boosting engagement and retention.
Question 4: A company provides a non-qualified deferred compensation plan. Which statement is true about this plan?
- Contributions are immediately tax-deductible for the employer
- ERISA's vesting and funding rules fully apply
- Employee contributions reduce current taxable income but funds remain at risk from company creditors (Correct answer)
- The IRS annual contribution limit is the same as a 401(k)
Correct answer: Employee contributions reduce current taxable income but funds remain at risk from company creditors
Non-qualified deferred compensation plans defer employee taxes on contributions, but plan assets are unsecured and subject to employer insolvency risk.
Question 5: Which job evaluation method ranks all jobs from highest to lowest value without analyzing individual factors?
- Point factor method
- Factor comparison method
- Job ranking method (Correct answer)
- Job classification method
Correct answer: Job ranking method
The job ranking method is the simplest evaluation approach, ordering jobs by overall worth without breaking down specific compensable factors.
Question 6: Under the Affordable Care Act employer mandate, large employers (50+ FTEs) that fail to offer minimum essential coverage may face what consequence?
- Immediate OSHA investigation
- Employer Shared Responsibility Payment (ESRP) penalties (Correct answer)
- Loss of 401(k) plan eligibility
- Mandatory wage increase for all employees
Correct answer: Employer Shared Responsibility Payment (ESRP) penalties
The ACA's employer shared responsibility provision imposes Employer Shared Responsibility Payments on large employers that don't offer qualifying coverage.
Question 7: Which pay-for-performance approach ties merit increases to a matrix that considers both the employee's performance rating and their position within the pay range?
- Lump-sum merit program
- Merit matrix (merit grid) (Correct answer)
- Profit sharing formula
- Broadband pay structure
Correct answer: Merit matrix (merit grid)
A merit matrix guides pay increase decisions by intersecting performance ratings with an employee's current position in their pay range (compa-ratio).
SHRM Total Rewards & Compensation 5
Which long-term incentive grants employees the right to purchase company stock at a predetermined price after a vesting period?