MGT of Compensation Chapter 8
The range maximum of a pay range is $81,000, and its range midpoint is $56,000. Calculate the range minimum of the pay range.
$31,000
The range maximum of a pay range is $68,000, and its range minimum is $34,000. Calculate the range midpoint of the pay range.
$51,000
In managerial jobs, larger pay ranges reflect _____.
greater scope for performance variations and individual discretions
In order to translate an external competitive pay policy into practice, an employer needs _____.
information on the external market
Unlike the job structure of a company, the pay structure _____.
is anchored by the company's external competitive position
_____ supply the information needed to translate an external competitive pay policy into pay mix, pay levels, and pay structures.
Surveys
Base pay (measures of compensation used in a pay survey)
The amount of cash each job and incumbent is worth
What are the steps involved in broad banding?
-Price the bands with reference to market rates -Set the number of bands
Unlike job evaluations, market surveys lack _____.
high standards of reliability and validity
If a pay survey's purpose is to price a company's entire pay structure, then _____ can be chosen to include the entire job structure, with all its important functions and all its levels.
benchmark jobs
The easiest way to convert market data to fit a skill or competency structure is to use _____ as anchors for the competency-based structures.
the wages for the lowest- and highest-paid benchmark jobs for the relevant skills in the market
Lead (In the context of how updating salary survey data reflects policy, match the terms used to describe the changes that an organization makes to its pay policy with their descriptions)
The organization ages the market data to a point at the end of the plan year and pays at this rate for the entire plan year.
The pay data for a salary survey are usually updated through a process called trending or aging to predict the _____.
competitive rates for the future date when the pay decisions will be implemented
What are the principal decisions involved in an organization determining externally competitive pay and forming corresponding pay structures through a survey?
-Designing the survey -Interpreting survey results and construct the market line -Defining the purpose of the survey
Survey data are used by employers to gather ____ ____ in order to better understand how competitors achieve their market share and price their products and services.
competitive intelligence
While verifying pay survey data, if a company job is found to be sufficiently similar to the survey job, particularly on the most fundamental aspects, an analyst can use _____ to multiply the survey data by a factor determined to be the difference between the two jobs.
benchmark conversion
What are the principal decisions involved in an organization determining externally competitive pay and forming corresponding pay structures through a survey?
-Defining the purpose of the survey -Interpreting survey results and construct the market line -Designing the survey
In the context of salary grades, identify the advantages of broad banding.
-It allows job responsibilities to be defined more broadly and flexibly than when using ranges. -It fosters cross-functional growth and development in downsized or boundary-less organizations. -It supports organizations that have eliminated levels of managerial positions.
What are the areas in which employers belonging to a labor market must compete?
-The same skills or occupations -The same services and products -Employees situated in the same geographic area
The distribution of rates around a measure of central tendency is called _____.
variation
It is evident from practice that different pay surveys imply _____.
varying levels of pay
Match the letters in the image of a grid with a pay range on the vertical axis (in the left column) with the salient features of the pay range they represent (in the right column).
A -> Range maximum B -> Range midpoint C -> Range minimum
Total cash (measures of compensation used in a pay survey)
The amount of cash each job and incumbent is worth plus bonus
How do frequency distributions aid an analyst during the statistical analysis of a pay survey?
They aid in visualizing information. (and reveal anomalies)
Since employees these days are easily able to compare their salaries to others' using data from the Bureau of Labor Statistics or Salary.com, managers must _____.
be able to defend the salaries they pay
Identify the three most commonly used measures of compensation in a pay survey.
-Base pay -Total cash (base + bonuses) -Total compensation (base + bonus + stock options + benefits)
What do unusual shapes of frequency distributions in a pay survey reflect?
-Issues with job matches -Greatly dispersed pay rates -Companies with very different pay policies
What are the differences among organizations that pay grades and pay ranges offer flexibility to deal with?
-Variations in quality among job applicants -Variations in the mix of pay forms competitors use -Variations in the value of quality differences
What are the anomalies in pay survey data that an analyst should look for when verifying the survey data?
-Whether all employers show similar patterns -Whether there are any outliers -Whether a single company dominates
Rank the jobs in an organization's hierarchy in decreasing order of the sizes of their pay ranges, beginning with the positions that have the largest percent above and below their range midpoint.
1. Top-level management positions 2. Entry to midlevel professional and managerial positions 3. Office and production work
In the image of an example depicting how choices for updating survey data reflect pay policy, match the letters in the image (in the left column) with the choices that they represent.
A -> Lag B -> Lead/lag C -> Lead
Which of the following summarizes the distribution of going rates paid by competitors in a labor market?
A market line
What are the two factors that merit increase grids use to guide pay increases in an organization?
Employee performance rating and position in the pay range
Which component of a total pay structure includes the salaries paid by relevant competitors for the benchmark jobs measured by a pay survey?
External competitive data
Identify the statistical measures of variation that are commonly found in pay surveys.
Quartiles and percentiles
Identify the best solution to the differing pay structures for a job that arise out of differences between market structures and rates and job evaluation rankings.
Reanalyzing the job evaluation or market data for the job
The range midpoint of a pay range that has been set at 30 percent above and 30 percent below the midpoint is $20,000. Calculate the range maximum (Rmax) and range minimum (Rmin) of the pay range.
Rmax is $26,000, and Rmin is $14,000.
Unlike grades-and-ranges approaches to designing pay structures, broad-banding approaches have controls in the form of _____.
a total salary budget that limits managers
Changes to the pay mix of an organization occur less frequently than changes to the pay level probably because of the _____.
lack of attention given to pay mix decisions
When collecting organizational data for a salary survey, financial data are typically used to _____.
categorize firms by size, expressed in terms of revenues or sales
The best way to answer questions on anomalies while analyzing pay survey data is to _____.
do an analysis of them alone
An issue encountered while adjusting an organization's pay structure is that the job structure that emerges from internal job evaluation _____.
may not match the pay structures of competitors
In a pay survey, a _____ is calculated by summing up the base wages of all organizations in the survey and dividing by the number of organizations.
mean
Why are market data weighed more heavily than internal job evaluation data when reconciling differences in pay structures?
Market data are usually perceived as more objective.
A(n) ____ ____ links a company's benchmark jobs on the horizontal axis with market rates paid by competitors on the vertical axis.
market line
In geographical areas with high concentrations of managers, scientists, and engineers, the primary market comparison is usually _____.
regional
In a pay survey, an analyst calculates the _____ by adding the base wages for all the employees in the survey and dividing that amount by the number of employees in the survey.
weighted mean
Identify a disadvantage of pay grades.
They are quite challenging to design.
Why are outside consulting firms often used in designing a survey?
To protect a company from price-fixing lawsuits
While verifying pay survey data, in most cases, the match between the survey job and an organization's job is _____.
imperfect
An organization has an employee with performance ratings that are consistently high. According to the salary increase matrix of the organization, the pay of the employee should be _____.
above the pay range midpoint
Analyses for the purpose of designing pay grades and pay ranges are usually done with _____.
base pay data
An analyst of a pay survey should avoid using the Consumer Price Index (CPI) for updating salary survey data because the CPI does not measure _____.
changes in wages in the labor markets
In most companies, the person responsible for managing a pay survey is the _____.
compensation manager
In an organization that uses a pure market pricing strategy, the pay structure is completely determined by _____.
competitors' pay decisions
Regular adjustments made by organizations to employees' pay levels may be based on _____.
performance, ability to pay, or terms specified in a contract
A band in broad banding encompasses many positions of varying values, so a _____ is usually not used.
range midpoint
Unlike broad-banding approaches to designing pay structures, grades-and-ranges approaches have guidelines and controls in the form of _____.
range minimums, range maximums, and range midpoints
Identify the principal decisions for an organization in determining externally competitive pay and creating corresponding pay structures.
-Choose relevant market competitors -Balance competitiveness with internal alignment -Create a pay policy line that reflects external pay policy
What do managers use pay ranges for?
-To encourage employees to stay with the company -To meet employees' expectations that their salary will rise over time -To acknowledge individual performance differences with pay
In the context of surveys for determining pay levels, why do surveys of upper-level and executive positions in an organization include reporting relationships and financial data?
Because the organization's financial performance is directly related to compensation for these positions
Total compensation (measures of compensation used in a pay survey)
The amount of cash each job and incumbent is worth plus bonus, stock options, and benefits
If the content of a company's jobs fails to sufficiently match that of jobs in a salary survey, an attempt can be made to quantify the dissimilarity through _____.
benchmark conversion
Broad banding leaves an organization vulnerable to charges of _____.
inconsistency and favoritism
_____ is used to estimate the relative value of job evaluation points for survey jobs and internal jobs in order to provide guidance for adjusting market data.
Benchmark conversion
What are common across various employers, have stable job content, and have sizable numbers of employees?
Benchmark jobs
A pay-policy line always specifies a percent above the market line so that an organization can match its competitors.
False (An employer may choose to match only a few top-paying competitors, or it may choose to lead the market for certain job families and lag for others.)
The different functions or groups within bands are usually priced the same due to external market differences.
False (The second step in broad banding is pricing the bands with reference to market rates. Since external market differences exist, the different functions or groups within bands are priced differently.)
What is the significance of the Employment Cost Index (ECI) that measures quarterly changes in employer costs?
It permits a firm to compare changes in its average costs to an all-industry or specific-industry average.
Identify a drawback of using the Bureau of Labor Statistics as a source in a pay survey.
Its data are usually not specific enough to be used alone.
What can make it difficult to maintain manager-employee differentials among pay grades?
Large overlap between pay grades
Which of the following approaches determines pay structures almost entirely on external market rates?
Market pricing
External competitiveness perspective (views on pay ranges)
Pay range is a control device because a range maximum is the highest an organization is willing to pay for the work and the range minimum is the lowest.
Internal alignment perspective (views on pay ranges)
Pay range reflects the variations in experience or performance that an organization wishes to acknowledge with pay.
Lead/Lag (In the context of how updating salary survey data reflects policy, match the terms used to describe the changes that an organization makes to its pay policy with their descriptions)
The organization ages the market data to a point in the middle of the plan year and updates the original survey rates to the end of the current year plus half the predicted amount for the plan year.
Lag (In the context of how updating salary survey data reflects policy, match the terms used to describe the changes that an organization makes to its pay policy with their descriptions)
The organization selects a "match" policy but then updates survey data to the start of the plan year/end of the current year and maintains this rate throughout the plan year.
How do market pricers approach nonbenchmark jobs?
They blend them into the pay structure created by external market rates.
Which of the following is true of adjustments to a company's pay mix?
They occur less frequently than do adjustments to overall pay level.
There is no research to show how much of a pay-grade differential is required to induce employees to seek promotion into a higher grade.
True (There is virtually no research to indicate how much of a differential is necessary to influence employees to work toward promotion into a higher grade. Tracing how an employee might move through a career path in the pay structure and what size pay increases will accompany that movement will help answer that question.)
Analyses for designing pay grades and pay ranges focus on the basic value of the work in consideration rather than the performance levels of employees.
True. (Analyses for designing pay grades and pay ranges usually use base pay data as base pay indicates the fundamental worth of the work being analyzed rather than the levels of performance of employees.)
What are the salient features of a pay range?
a midpoint, a minimum, and a maximum
The goal of using a salary increase matrix is to keep adjusting employee pay so that it is _____.
appropriately positioned relative to the market
Companies examine their own practices and costs in the area of compensation against their competitors in order to _____.
better comprehend how their competitors achieve their market share
____ ____ is a technique that collapses salary grades into only a few broad bands, each with a sizable range.
broad banding
A large amount of data in a pay survey can be reduced into a single number by using a measure of _____.
central tendency
In the context of salary grades, one of the advantages of broad banding is that it _____.
eases mergers and acquisitions
A low-high approach to selecting jobs for inclusion in surveys is used to determine the pay level when an organization _____.
has skill-competency-based structures
A pure market pricing strategy carried to the extreme ignores _____ entirely.
internal alignment
After the results of a pay survey have been interpreted and a market line constructed, two components of the total pay structure of an organization merge. These components are _____.
internal alignment and external competitiveness
One of the drawbacks of the salary data available on the Web is that much of the data _____.
is of uncertain quality
For determining the pay level of nonbenchmark jobs, _____ are useful.
market pay lines
Instead of reconciling an internal and external pay structure, some employers directly use _____ to determine their internal pay structures and mimic competitors' structures.
market surveys
When a company's job _____, a pay level can be selected that is a function of the pay of other companies as well as the role played by the job in executing the strategy of its own company.
matches a survey job well
The optimal overlap between the pay grades of employees and managers should be large enough to _____.
motivate employees to work toward promotion into a higher grade
Unlike the pay structure of an organization, the job structure _____.
orders the organization's jobs according to internal factors
Different jobs in an organization that are considered substantially equal for pay purposes are grouped into a _____ to build flexibility into the organization's pay structure.
pay grade
One of the methods used to translate pay policy determined through a pay survey into practice is to _____.
specify a percent below or above the market line that an organization intends to match
The most common statistical measure of variation is probably _____, which is rarely used in pay surveys.
standard deviation
The primary source of publicly available compensation data in the United States is _____.
the Bureau of Labor Statistics
Adjustments made by employers to workers' pay levels on a regular basis can be based on the overall movement of wage rates caused by _____.
the competition for labor in the market
According to supporters of broad banding, the principal benefit of this technique is _____.
the cross-fertilization of ideas within an organization
Pay grades enhance an organization's ability to _____.
transfer people among jobs with no change in pay
