SPHR Total Rewards 5 — Questions and Answers
Question 1: Which of the following best describes the concept of 'internal equity' in compensation design?
- Ensuring all employees receive the same base salary regardless of role
- Paying employees consistently relative to the value and contribution of their jobs within the organization (Correct answer)
- Matching competitor pay rates at the 50th percentile for all roles
- Providing equal benefits to part-time and full-time employees
Correct answer: Paying employees consistently relative to the value and contribution of their jobs within the organization
Internal equity ensures that employees are paid fairly relative to one another based on the relative value of their jobs inside the organization.
Question 2: A company's flexible benefits plan (cafeteria plan) must satisfy requirements under which section of the Internal Revenue Code to allow employees to pay for benefits with pre-tax dollars?
- Section 401(k)
- Section 125 (Correct answer)
- Section 403(b)
- Section 457
Correct answer: Section 125
Section 125 of the IRC governs cafeteria plans, allowing employees to choose from a menu of benefits and pay for qualifying benefits with pre-tax payroll deductions.
Question 3: An organization is considering replacing individual merit pay with team-based incentives. What is a key risk of this change?
- It eliminates the ability to conduct performance appraisals
- High-performing individuals may feel under-rewarded relative to lower contributors on the team (Correct answer)
- It violates FLSA regulations by aggregating pay across employees
- Team incentives are prohibited under ERISA for non-executive employees
Correct answer: High-performing individuals may feel under-rewarded relative to lower contributors on the team
Team-based incentives can demotivate high performers if they perceive that weaker team members dilute the reward they would have earned individually.
Question 4: A vesting schedule that requires employees to complete a full five-year tenure before gaining any rights to employer retirement contributions is known as:
- Graded vesting
- Cliff vesting (Correct answer)
- Immediate vesting
- Accelerated vesting
Correct answer: Cliff vesting
Cliff vesting means employees receive no vested rights until a specific date, at which point they become fully vested all at once.
Question 5: Which WorldatWork Total Rewards element encompasses organizational culture, learning opportunities, and career development?
- Compensation
- Benefits
- Work-Life Effectiveness (Correct answer)
- Performance and Recognition
Correct answer: Work-Life Effectiveness
The WorldatWork Total Rewards model includes Work-Life Effectiveness as the element that covers flexible work, development opportunities, and culture supporting employee wellbeing.
Question 6: Which metric best measures the effectiveness of a long-term incentive (LTI) plan in retaining key talent?
- Average grant date fair value of equity awards
- Voluntary turnover rate among LTI-eligible employees compared to non-eligible peers (Correct answer)
- Total shares outstanding after equity issuance
- Percentage of LTI awards that expire unexercised
Correct answer: Voluntary turnover rate among LTI-eligible employees compared to non-eligible peers
Comparing voluntary turnover between LTI-eligible and non-eligible groups directly tests whether the retention 'golden handcuffs' effect is working.
Question 7: Under the Equal Pay Act of 1963, an employer may legally pay different wages for equal work if the difference is based on:
- The employee's gender or national origin
- A seniority system, merit system, or a system measuring earnings by quantity or quality of production (Correct answer)
- The employee's educational background regardless of job relevance
- Departmental budget constraints rather than job-related factors
Correct answer: A seniority system, merit system, or a system measuring earnings by quantity or quality of production
The Equal Pay Act permits wage differentials for equal work only when justified by a seniority system, merit system, incentive pay system, or any factor other than sex.
SPHR Total Rewards 5
Which of the following best describes the concept of 'internal equity' in compensation design?