Compensation exam 2
How is marginal product of labor found:
By multiplying the marginal product of labor (MPL) - the amount of additional output one additional worker can generate - by the price of output.
First labor market theory assumption
Employers seek to maximize profits
Compensating wage differentials theory:
Explains why pay structures differ between geographical areas. Higher pay in some areas relates to a higher cost of living; sometimes it is to compensate for a less pleasant working environment.
Exchange Value
External Market Value (the value of the product produced)
External Competitiveness
Focuses attention on the competitive positions reflected in the pay relationships among organizations
Most factors have _________ number of degrees;
Four-Eight
The roots of job-based pay structures are traced to?
Frederick Taylor
Classification Good and Bad
Good; can group wide range of work together in one system Bad; Descriptions may leave too much room for manipulation (145 pg)
Disadvantages of the point method according to the text;
Greatest disadvantage is the time, effort, and money required to set up the plan. May be going back to pay grades. Relies heavily on key jobs for valid market rates
The most widely used point method job evaluation is the:
Hay Plan
If Company A raises its pay rate by one dollar per hour to hire additional workers and competitors immediately match the increase , what will be the most likely result?
Higher labor costs for Company A, but not more workers
Correct sequence of events in the context of internal alignment;
Job description > Job evaluation > Job structure
Least expensive method for doing job evaluation is
Ranking Method
Advantages of lead policy-level:
Reduced vacancy rates, educed absenteeism, and better-quality employees NOT AN ADVANTAGE: reduced training time
Define pay level:
Refers to the average of the array of rates paid by an employer
Among pay-mix alternatives the percentage of base pay is highest in a __________________
Security or commitment policy
Shared choice policy
Starts with traditional alternatives; then offers employees choices (within limits) in the pay mix.
Steps and order in doing the point method
Steps in order: 1. Conduct job analysis, 2. Determine compensable factors; 3. Scale the factors; 4. Weight the factors according to importance; 5. Select criterion pay structure; 6. Communicate the plan and train users; 7. Apply to non-benchmark jobs; 8. Develop online software support.
Other things equal, the higher the pay level the higher the labor costs
TRUE
Pay level decisions have a significant impact on expenses
TRUE
What is NOT true about the relationship between employer size and its ability to pay?
Talented people prefer to work in larger organizations
Definition of job evaluation
The Process of systematically determining the relative worth of jobs to create a job structure.
Which of the following is the reason why skill-based pay plans have maximum flexibility?
They pay employees for the highest level of skill they have achieved regardless of the work they perform.
Research shows that _____ factor(s) account(s) for 98 to 99 percent of the variance in job evaluation plans.
Three
Neither the marginal product nor the marginal revenue is directly measurable.
True
Pay levels are not completely static
True
Pay levels can adjust over time to changing market conditions and/or business strategies
True
Pay levels have a significant impact on expenses
True
The marginal revenue product model is a valuable analytical framework; but it oversimplifies.
True
Validity refers to the degree to which an evaluation assesses the relative worth of jobs to an organization.
True.
Which of the following statements is true of a job evaluation plan?
True: It is developed using benchmark jobs and then applied to non-benchmark jobs. It is used to establish an internally aligned pay structure.
___________ reason makes competencies a risk foundation for a pay system.
Vagueness and subjectivity.
Definition of policy capturing in the context of job evaluation;
When a statistical process is used to duplicate an existing pay structure, it is called:
Compensating differentials labor demand theory
Work with negative characteristics requires higher pay to attract/retain workers. Job evaluation and compensable factors need to capture these characteristics.
The pay mix alternative in which the percentage of benefits is likely to be the highest is known as ______________
Work/life balance policy
compensable factors
based on strategic direction of the business and how the work contributes to these objectives.
Employees in a multi-skill system earn pay increases by?
by acquiring new knowledge.
Major decisions in job evaluation
choose among alternative approaches, Establishing the purpose of evaluation, use single or multiple plans, involvement of stakeholders, plan's usefulness (142 PG)
A job description is compared to class descriptions in the _____ of job evaluation.
classfication
Skill-based pay plans work best in organizations using _____ strategy.
cost-cutter.
The organization specific group for classifying competencies generally includes _________.
customer orientation.
Scaling
determining degrees is whether to make each defree equal distance
The reliability of job evaluation techniques is measured by?
determining if different evaluators produce the same results.
Compensable factors, skill blocks, and competency sets are used for?
determining what to value.
A camper is an employee who ________ in a skill-based pay system.
does not want to rotate jobs.
According to Frito-Lay's list of competencies for managerial work, the behavior of modeling, teaching, and coaching company values is linked to the _______ competency dimension?
doing it the right way
Competencies are derived from the ________ beliefs about the organization and its strategic intent.
executive leadership's
A ___________ approach controls costs by paying only as much as the work performed is worth, regardless of any greater skills the employee may possess.
job-based
Managers whose employees use ___________ plans focus on placing the right people in the right job
job-based
the majority of applications of skill-based pay have been in
manufacturing industries.
How marginal revenue and wage rate are connected: In a hiring situation, considering that other potential costs will not change in the short run, the level of demand that maximizes profits is that level which the _______________________ of the last hire is equal to the ___________ for that hire.
marginal revenue; wage rate
A study of 400 compensation specialists reveal that....
market data had a substantially larger effect on pay decisions than job evaluation data.
An employee's focus in a job-based approach is to?
seek promotions to earn more pay.
Routine work is also termed?
transactional work
Evidence shows that in manufacturing _________ is positively correlated with hourly wage level
Productivity
Recognize true or false comments about the usage of multiple plans vs. single job evaluation plans' characteristics of benchmark jobs;
A single universal plan is acceptable to employees if the work covered is highly diverse (False) Employers rarely evaluate all jobs in the organization at one time. (True) Many employers design different evaluation plans for different types of work. (True) Typically, a related group of jobs is used for evaluation. (True)
methods requires evaluators to agree on which jobs are the most and least valuable, then the next most and least valued, and so on until all the jobs have been ordered?
Alternation
In the context of job evaluation the two common ways of ranking are?;
Alternation and Paired Comparison
Employer size and pay relationship
An organizations size, ability to pay, and pay level is consistent with economic theory that says talented individuals have a higher marginal value in larger companies because they can influence.
The job evaluation method that most resembles a bookcase with many shelves is:
Classification
Which is least likely to be used in establishing skill-based certification methods?
College degree.
the process of identifying competencies in person-based structures resembles identifying _______ as part of job evaluation in job-based structures
Compensable factors.
Who is most likely to conduct job evaluations of senior management jobs?
Compensation Managers
________ are the observable behaviors that indicate the level of competency within each competency set.
Competency indicators.
________ translate each core competency into action.
Competency sets.
Underlying assumption in the assessment of job content
Content has intrinsic value outside external market.
________ are often linked to mission statements that express an organization's philosophy, values, business strategies, and plans.
Core competencies
Disadvantages of the ranking method
Cumbersome as number of jobs increases. Basis for comparisons is not called out.
Wages tend to be lowest in which indsutries?
Education and health care
Compensating differentials:
Defined as the additional amount of income that a given worker must be offered in order to motivate them to accept a given undesirable job, relative to other jobs that worker could perform
The downward-sloping portion of the marginal revenue product curve shows the number of employees a company will hire at each wage, so we can interpret this part of the curve as the firm's _____________
Demand for labor
An assumption held by the labor supply model about the behavior of potential employees
Job seekers do not face barriers to mobility
Chapter 5 Page 139-163
Job-Based Structures
Who among the following is examining the validity of a job evaluation?
Keira, who is measuring the degree to which the job evaluation plan matches an agreed-upon pay structure for benchmark jobs
What is a Bourse market?
Like stock exchange; bidding (example: eBay)
Marginal revenue product model
Managers who use this must 1) determine the pay level set by market forces 2)determine marginal revenue generated by each new hire
Leadership, customer orientation, and functional expertise are examples of which group of competencies?
Organization specific
Example of the demand side of labor:
Pay level offered by an employer; competition in the labor market for people with various skills; competition in the product and service markets which affect the organization
The _____ method of job evaluation uses compensable factors.
Point
The most commonly used job evaluation method in the United States and Europe;
Point Method
What is quoted market?
Price is stated outright (example: price of items at a store)
In what condition would product market competitor's data be given more weight than data from labor market competitors?
Product demand is responsive to price changes
What is a crucial factor that affects the perception of fairness of a skill-based plan
The design of the certification process.
What is a crucial factor that affects the perception of fairness of a skill-based plan?
The design of the certification process.
What happens if markets are incorrectly defined?
The estimates of competitors' pay rates will be incorrect and the pay level and pay mix are inappropriately established
What is linked to high pay levels?
The higher the pay level the higher the labor costs
Definition of the marginal product of labor:
The output associated with hiring an additional person, holding constant other production factors
Lead policy:
The pay-level policy that is most likely to reduce dissatisfaction
Marginal revenue product model is defined as:
The point on the graph at which the incremental income generated by an additional employee equals the wage rate.
Human capital theory is based on
The premise that higher earnings flow to those who improve their potential productivity by investing in themselves
____________ puts a lid on the maximum pay level and employer can set
The product market
An example of a bourse:
The total compensation for a top athlete
Which of the following is an advantage of skill-based pay plans?
They aid in deploying workers in a way that better matches the work flow.
