BUS 532
Professor Allen
Fall 1998



  1. Write your name in the space above.  
  2. You have been given five blank sheets of paper, one for each question that you will answer. Write the number on this sheet on each of the blank sheets. DO NOT WRITE YOUR NAME ON THE SHEETS WITH YOUR ANSWERS. Anonymity will eliminate one potential source of rater error when I grade your exams.  
  3. Answer questions 1 and 2 (25 points each) and 3 out of the next 4 (17 points each). Answer each on a separate sheet of paper. Feel free to use more than one sheet of paper per question, but start each question on a fresh sheet.  
  4. When you are finished, return this sheet and your answers to me.  
  5. Your grade on each question will be based upon (1) the accuracy and appropriateness of your answer and (2) the quality of your explanation. The highest marks will go to answers that identify key issues and apply lessons from the course to those issues.  
  6. Do not expect to get much credit for mentioning a key concept without putting it into the context of the question and explaining how that concept applies in that case. I sometimes run into "scavenger hunt" answers in this course, i.e., a long paragraph or list containing many concepts -- a few of which are appropriate for the question at hand, but many of which are not. These answers waste a lot of time (yours and mine) and indicate that you are not sure you know what the right answer is. Scavenger hunts will not get you much credit either.  
  7. You have 2 hours to take the exam.


1. Lincoln Electric (25 points)

  1. Before turning to the specifics of the Lincoln Electric case, consider first a very general question: in designing a compensation system for a new facility in a country where it has no other facilities, briefly outline the objectives that any company (not just Lincoln Electric) would be trying to achieve with that compensation system. 
  2. Now turn to the specific situation of Lincoln Electric’s decision to open a plant in Indonesia. Which compensation system would you recommend to Mike Gillespie? Explain why you think it is best suited to this situation, drawing from your answer in part (a) as necessary.  

2. Kurt Landgraf (25 points)

When faced with charges of discrimination and harassment by women and minorities in DuPont’s pharmaceutical division in 1988, Landgraf’s responses included (1) establishing hiring goals for women and minorities (and using success or failure in meeting those goals as one factor in allocating raises and promotions to managers), (2) mandating sensitivity training and (3) setting up a Diversity Task Force. Now he is facing a similar situation in 1994 with African-American employees in the R&D division of Du Pont Merck Pharmaceutical Company threatening a lawsuit.  

If you were in Kurt Landgraf’s situation, how would you respond to the concerns of African-American employees? In your answer be sure to explain what the consequences would be of applying his 1988 actions to this situation and consider which (if any) of these steps would still be appropriate, which would not be, and what additional steps might be necessary. Briefly justify your recommendations. 

Answer any 3 of the remaining questions (51 points, 17 points each) 

3. Interviews are used in just about every hiring decision. What does the evidence say about the validity of interviews? What steps can a manager take to make the interview process as effective as possible? 

4. Traditionally performance appraisals are done by an employee’s direct supervisor. Now many organizations have begun using a system where all managers at a given level collectively evaluate all of their subordinates. Explain why they think this committee-based approach might work better.  

5. As we saw in the Merck case, many organizations follow a strategy of paying salaries that are designed to be above the average salary of their competitors. What is the business logic behind this practice?  

6. Select one of the following HR systems and briefly describe how it operates: up-or-out system, high-commitment system, internal labor market. Point out two examples of technical complementarities between the different HR policies in that system (i.e., how do they help re-enforce each other). Give one example of a situation (use a specific company if you like, or provide some firm or market characteristics) where that system would be a good fit with a firm’s overall business strategy and one example where it would not be a good fit.