Deck 11: Pay Structure Decisions

Question 1

Labor market competition is the amount an organization must pay to compete against other companies that hire similar types of employees.

Answer 1

True
Explanation: Essentially, labor market competition is the amount an organization must pay to compete against other companies that hire similar employees. These labor market competitors typically include not only companies that have similar products but also those in different product markets that hire similar types of employees.

Question 2

It is usually valid to compare return-on-investment ratios, such as revenues/labor costs, among organizations in different industries.

Answer 2

False
Explanation: To find their return on investment, some organizations examine ratios such as revenues/employees and revenues/labor cost. But, comparing these ratios across organizations requires caution. For example, different industries rely on different labor and capital resources. So comparing the ratio of revenues to labor costs of a petroleum company (capital intensive, high ratio)to a hospital (labor intensive, low ratio)would be like comparing apples and oranges.

Question 3

Benchmarking is a procedure in which a company compares its own practices against those of the competition.

Answer 3

True
Explanation: To compete for talent, organizations use benchmarking, a procedure in which an organization compares its own practices against those of the competition. In compensation management, benchmarking against product market and labor market competitors is typically accomplished through the use of one or more pay surveys, which provide information on going rates of pay among competing organizations.

Question 4

Product market comparisons that focus on labor costs deserve greater weight when labor costs represent a large share of total costs.

Question 5

Product market competition places a lower bound on labor costs and compensation.

Question 6

Under a two-tier wage plan, employees doing the same job are paid two different rates, depending on when they were hired.

Question 7

Actual market rates are used for key jobs in the pay policy line approach, but not in the market survey data approach.

Question 8

Internal equity pay comparisons focus on what employees in other organizations are paid for doing the same general job.

Question 9

Basically, organizations develop a market pay policy line based on the key jobs for which there are both job evaluation and market pay survey data available.

Question 10

A compa-ratio less than 1.00 suggests that actual pay exceeds that of the policy.

Question 11

Broad bands, with their greater spread between pay minimums and maximums, can lead to weaker budgetary controls and rising labor costs.

Question 12

The disadvantage of using pay grade approach is that it increases the administrative burden of setting separate rates of pay for hundreds of different jobs.

Question 13

Skill-based pay systems fit well with the increased breadth and depth of skill that changing technology continues to bring.

Question 14

When resolving conflicts between external and internal equity, there is a growing sentiment that external comparisons deserve greater weight because organizations are finding it increasingly difficult to ignore market competitive pressures.

Question 15

The use of delayering and banding in organizations reduces opportunity for promotion.

Question 16

Job evaluation can be defined as the relative worth of various jobs in the organization based on internal comparisons.

Question 17

The equity theory suggests that people evaluate the fairness of their situations by comparing them with those of other people.

Question 18

The quality and productivity of national labor forces do not vary dramatically between industrialized countries and developing countries.

Question 19

Job structure refers to the relative pay of jobs in an organization.

Question 20

Nonkey jobs have relatively stable content and are common to many organizations.

Question 21

Which of the following theories of pay suggests that people evaluate the fairness of their situations by comparing them with those of other people?

A)Reinforcement theory
B)Predicted outcome value theory
C)Social exchange theory
D)Equity theory
E)Expectancy theory

Question 22

Which of the following theories states that wages influence worker productivity?

A)Reinforcement theory
B)Social exchange theory
C)Efficiency wage theory
D)Equity theory
E)Expectancy theory

Question 23

Which of the following statements about product market competition and labor market competition is true?

A)An organization that has higher labor costs than its product market competitors will have to charge lower average prices for products of similar quality.
B)The upper bound placed by the labor market is more constrictive when labor costs are a larger share of total costs.
C)Product market competition places an upper bound on labor cost whereas, labor market competition places a lower bound.
D)Product market competition is the amount an organization must pay to compete against other companies that hire similar employees.
E)Indirect payments are not considered while calculating the average cost per employee.

Question 24

If a person's ratio is smaller than the comparison other's ratio:

A)overreward inequity results.
B)underreward equity results.
C)overreward equity results.
D)equity results.
E)underreward inequity results.

Question 25

_____ refers to the relative pay of jobs in an organization.

A)Pay level
B)Equity structure
C)Job structure
D)Range spread
E)Compa-ratio

Question 26

Which of the following is true regarding pay?

A)Pay is often considered a sign of status and success.
B)Pay has a small impact on employee attitudes and behavior.
C)It influences the kind of employees who are attracted to but do not remain with the organization.
D)Pay rarely succeeds in aligning current employees' interests with those of the broader organization.
E)Employee compensation is seldom considered as an organizational cost.

Question 27

External equity pay comparisons:

A)focus on what employees in other organizations are paid for doing the same general job.
B)focus on what employees within the same organization, but in different jobs are paid.
C)happen when employees make comparisons with lower level jobs.
D)happen when employees make comparisons with jobs at same level but in different skill areas.
E)happen when employees make comparisons with jobs at higher levels.

Question 28

Which of the following observations is true about the equity theory?

A)Equity theory suggests that managers compare the performance of employee's with their potential to improve.
B)Job evaluation is the primary administrative tool organizations use in choosing a pay level.
C)Internal equity pay comparisons focus on what employees in other organizations are paid for doing the same general job.
D)The organization's choice of job structure influences its employees' external comparisons and their consequences.
E)Employees' evaluations of their pay relative to that of other employees influence their work attitudes and behaviors.

Question 29

Which of the following theories describes the conditions under which the benefits of higher pay outweigh higher costs?

A)Equity theory
B)Expectancy theory
C)Reinforcement theory
D)Efficiency wage theory
E)Social exchange theory

Question 30

The Fair Labor Standards Act requires that employees be paid at a rate of one and a half times their hourly rate for each hour of overtime worked beyond 50 hours in a week.

Question 31

The idea behind comparable worth policy is to obtain equal pay, not just for jobs of equal content (mandated by Title VII of the Civil Rights Act)but for jobs of equal value or worth, on the basis of Equal Pay Act of 1963.

Question 32

_____ refers to the relative pay of different jobs and how much they are paid.

A)External equity
B)Pay structure
C)Efficiency wage
D)Benchmark
E)Internal equity

Question 33

Which of the following refers to a procedure in which an organization compares its own practices against those of the competition?

A)Delayering
B)Forecasting
C)Offshoring
D)Benchmarking
E)Job evaluation

Question 34

The 1938 Fair Labor Standards Act establishes a minimum wage for jobs, which now stands at $7.25 per hour.

Question 35

Any consideration of where to locate production can be based on labor considerations alone.

Question 36

The average pay including wages, salaries, and bonuses, of jobs in an organization are part of the:

A)range spread.
B)compa-ratio.
C)pay level.
D)job structure.
E)pay grades.

Question 37

Long-term compensation, typically in the form of stock plans, is the major component of CEO pay.

Question 38

Which of the following is a part of the benefit?

A)Stock options
B)Unemployment compensation
C)Salary
D)Merit increases
E)Bonuses

Question 39

Internal equity pay comparison:

A)is influenced by the organization's choice of pay level.
B)is the primary administrative tool organizations use in choosing a pay level.
C)focuses on what employees within the same organization, but in different jobs, are paid.
D)is determined using market pay surveys.
E)is likely to influence the decisions of applicants to accept job offers.

Question 40

Which of the following administrative tools is used by organizations to design job structures?

A)Benchmarking
B)Job evaluation
C)Market pay survey
D)Job analysis
E)Job rotation

Question 41

Which of the following refers to a procedure in which an organization compares its own practices against those of the competition?

A) Delayering
B) Forecasting
C) Offshoring
D) Benchmarking
E) Job evaluation

Question 42

KCM & Associates, an international management consulting firm, uses a market pay survey to gather information regarding the going rates of pay among competing organizations.To that the company gets the best talent available, the compensation management department uses the information obtained from the market pay survey to compare its compensation policies with those used by the competitors. In this example, KCM & Associates uses which of the following techniques?

A)Offshoring
B)Delayering
C)Forecasting
D)Job evaluation
E)Benchmarking

Question 43

Jobs that are unique to organizations and that cannot be directly valued or compared through the use of market surveys are known as:

A)A-level jobs.
B)noncompensable jobs.
C)delayered jobs
D)nonkey jobs.
E)deadweight jobs.

Question 44

Which of the following is an administrative procedure used to measure internal job worth?

A)Job analysis
B)Job description
C)Job design
D)Job rotation
E)Job evaluation

Question 45

The compa-ratio:

A)directly assesses the degree to which actual pay is consistent with the pay policy.
B)reduces the number of job levels to achieve more flexibility in job assignments.
C)reduces the opportunity for employee promotions.
D)supports pay based on employee skills.
E)directly assesses the relative labor costs.

Question 46

When compensable factors are weighed using expert judgments about the importance of each factor, a(n)_____ weight is said to be assigned.

A)statistical
B)multiple regression
C)a priori
D)empirical
E)factorial

Question 47

Which of the following is true regarding range spread?

A)It is larger at higher levels.
B)It is smaller at higher levels.
C)It is larger at lower levels.
D)It is used to calculate the compa-ratio.
E)It is used to determine the correspondence between the actual and intended pay.

Question 48

Under the _____ approach, jobs of similar worth or content are grouped together for pay administration purposes.

A)market survey data
B)pay policy line
C)compa-ratio
D)delayered
E)pay grade

Question 49

Which of the following human resource activities provides basic descriptive information on job attributes?

A)Selection
B)Job analysis
C)Recruitment
D)Strategic planning
E)Job structure

Question 50

The characteristics of jobs that an organization values and chooses to pay for are known as:

A)compensable factors.
B)range spreads.
C)comparable worth factors.
D)calibration factors.
E)ergonomics.

Question 51

The major disadvantage of using _____ is that some jobs will be underpaid and other jobs will be overpaid.

A)delayering
B)pay grades
C)pay policy line
D)market survey data
E)compa-ratio

Question 52

The _____ is an index of the correspondence between actual and intended pay.

A)pay grade
B)mode
C)compa-ratio
D)range spread
E)mean

Question 53

Product market comparisons that focus on labor costs are likely to deserve greater weight when:

A)product demand is inelastic.
B)the supply of labor is elastic.
C)attracting and retaining qualified employees is difficult.
D)the costs of recruiting replacements are high.
E)labor costs represent a large share of total costs.

Question 54

Labor market comparisons are more important when:

A)attracting and retaining qualified employees is difficult.
B)the costs of recruiting replacements are low.
C)product demand is elastic.
D)the supply of labor is inelastic.
E)employee skills are specific to the product market.

Question 55

Benchmark jobs, used in pay surveys that have relatively stable content and are common to many organizations are known as:

A)delayered jobs.
B)broad bands.
C)key jobs.
D)nonkey jobs.
E)compensable factors.

Question 56

A market pay policy line:

A)is developed using nonkey jobs.
B)can be generated using regression analysis.
C)does not use actual market rates for key jobs.
D)puts emphasis on internal comparisons but not external comparisons.
E)groups together jobs that have similar worth or content.

Question 57

The _____ is a mathematical expression that describes the relationship between a job's pay and its job evaluation points.

A)range spread
B)compa-ratio
C)rate range
D)pay policy line
E)pay grade

Question 58

The _____ refers to the distance between the minimum and maximum amounts in a pay grade.

A)range spread
B)mean
C)median
D)mode
E)standard deviation

Question 59

The _____ yields job evaluation points for each compensable factor.

A)range spread
B)point-factor system
C)market survey system
D)pay policy line
E)pay grade

Question 60

The pay policy line:

A)is used to determine the correspondence between the actual and intended pay.
B)reduces the number of job levels to achieve more flexibility in job assignments.
C)does not use actual market rates for key jobs.
D)groups together jobs that have similar worth or content.
E)is used to calculate the compa-ratio.

Question 61

Atena Technologies, a software company greatly reduced the bureaucratic nature of its pay structure, by going from 3,000 job titles and 12 pay grades to a simpler 1,000 jobs and 5 pay grades. In this example, Atena Technologies used:

A)decentralizing.
B)departmentalizing.
C)forecasting.
D)delayering.
E)benchmarking.

Question 62

Title VII of the Civil Rights Act:

A)makes it mandatory for firms to give women maternity leave.
B)makes it mandatory for firms to follow environmental regulations.
C)promotes the setting up of labor unions.
D)restricts monopolistic competition.
E)supports equal pay for jobs of equal content.

Question 63

Which of the following is true of a job-based pay structure?

A)It seldom facilitates control by the manager but encourages employee initiatives.
B)It allows the organization to take advantage of the skills of those closest to production.
C)It facilitates change.
D)It encourages bureaucracy.
E)It rarely facilitates performance evaluation but encourages flexibility.

Question 64

The Executive Order 11246 is enforced by the:

A)Department of Justice.
B)Office of Federal Contracts Compliance.
C)court systems.
D)Equal Employment Opportunity Commission.
E)Employment Standards Administration.

Question 65

Which of the following is true of delayering and banding?

A)They lead to stronger budgetary control.
B)They reduce the opportunity for promotion.
C)They lower labor costs.
D)They rarely permit managers to recognize high performers.
E)They seldom permit the organization to reward employees for learning.

Question 66

A study by Peter Cappelli and Peter Sherer on the effects of two-tier wage plans has found that:

A)lower-paid employees were less satisfied on average than higher-paid employees.
B)employees in the lower tier had lower comparison standards than those in the higher tier.
C)all employees were equally satisfied, irrespective of they pay.
D)lower-paid employees remain dissatisfied until they move into the higher-paying tier.
E)only the actual pay and not the comparison standard influences employee attitudes.

Question 67

One indicator of productivity is gross domestic product per person. The gross domestic product refers to the:

A)market value of all products produced in one year.
B)comparative measure of life expectancy and literacy.
C)index of human well-being.
D)total output of the economy.
E)personal consumption expenditures.

Question 68

A broad band:

A)reduces the number of job levels within an organization.
B)refers to the distance between the minimum and maximum pay rate in a pay grade.
C)is an index of the correspondence between actual and intended pay.
D)increases opportunity for promotions.
E)reduces flexibility in job assignments.

Question 69

_____ refers to the process of reducing the number of job levels to achieve more flexibility in job assignments and in assigning merit increases.

A)Decentralizing
B)Departmentalizing
C)Forecasting
D)Delayering
E)Benchmarking

Question 70

Typically, which of the following human resource tools is used to measure pay equity?

A)Job evaluation
B)Job analysis
C)Job description
D)Job design
E)Job enlargement

Question 71

Job-based pay structure:

A)encourages top-down decision making
B)encourages lateral employee movement
C)discourages promotion-seeking behavior
D)encourages flexibility in employees
E)discourages performance evaluation by the manager

Question 72

_____ is a public policy that advocates remedies for any undervaluation of women's jobs.

A)Acceptability
B)Glass ceiling
C)Efficiency wage
D)Comparable worth
E)Exempt

Question 73

Which of the following phenomena allows women and minorities to come within sight of the top echelons of management, but not advance to them?

A)Departmentalization
B)Employment-at-will
C)Glass ceiling
D)Whistle-blowing
E)Centralization

Question 74

Actual pay is lagging behind the pay policy when the compa-ratio is:

A)greater than 1.00.
B)less than 1.00.
C)greater than 100.
D)in the range of 1 to 10.
E)equal to 1.00

Question 75

The two-tier wage plan supports the _____ through its focus on the way employees compare their pay with other jobs and the need for managers to take this into consideration.

A)efficiency wage theory
B)social exchange theory
C)equity theory
D)expectancy theory
E)reinforcement theory

Question 76

During the recent financial crisis, the U.S. government, as part of the _____, decided it was appropriate to further regulate executive pay in firms receiving government "bailout" money.

A)NCUA Corporate Stabilization Program
B)Troubled Asset Relief Program
C)Public-Private Investment Program
D)Glass-Steagall Act
E)Emergency Economic Stabilization Act

Question 77

Which of the following pays is similar to pay structures based on individual characteristics such as skill or knowledge but usually refers to a plan that covers exempt employees?

A)Internal equity pay
B)Market survey pay
C)Competency-based pay
D)Job-based pay
E)External equity pay

Question 78

Which of the following equal employment opportunity regulation prohibits sex- and race-based differences in employment outcomes such as pay, unless justified by business necessity?

A)Ashurst-Sumners Act
B)Title VII of the Civil Rights Act
C)National Service Act
D)Taft-Hartley Act
E)Mann Act

Question 79

Which of the following hypotheses argues that women were historically restricted to entering a small number of occupations and as a result, the supply of workers far exceeded demand, resulting in lower pay for such occupations?

A)Compa-ratio hypothesis
B)Range rate hypothesis
C)Crowding hypothesis
D)Agency shop hypothesis
E)Calibration hypothesis

Question 80

Which of the following is true of skill-based pay?

A)It rarely provides the opportunity for leaner staffing levels.
B)It helps in making alternative arrangements for employee turnover.
C)It reduces worker flexibility.
D)It leads to a shortage of multi-skilled employees.
E)It facilitates the centralization of decision making.