Establishing Strategic Pay Plans

Multiple Choice

1. _____ refers to all forms of pay or rewards going to employees and arising
from their employment.
a. Reimbursement
b. Employee compensation
c. Salary
d. Benefits
e. Remuneration
(b; easy; p. 390)

2. Direct financial payments include all of the following except _____.

a. wages
b. insurance
c. salaries
d. incentives
e. commissions
(b; easy; p. 390)

3. Which of the following is categorized as an indirect payment portion of

employee compensation?
a. wages
b. salaries
c. employer-paid insurance
d. commissions
e. bonuses
(c; moderate; p. 390)

4. John is a sales representative in a jewelry store. He typically works 40 hours

per week and his pay is completely based on his sales. He earns a
commission on every sale he makes. John’s pay is based on _____.
a. time
b. pay
c. incentives
d. bonuses
e. seniority
(b; moderate; p. 390)

5. Which of the following factors affects the design of any pay plan?
a. legal
b. union
c. company policy
d. equity
e. all of the above
(e; easy; p. 390)

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6. Which law allows the secretary of labor to set wage rates for laborers and
mechanics employed by contractors working for the federal government?
a. Davis-Bacon Act
b. Walsh-Healey Public Contract
c. Fair Wages Act
d. Civil Rights Act
e. Fair Labor Standards Act
(a; difficult; p. 390)

7. The _____ sets basic labor standards for employees working on any
government contract that amounts to more than $10,000.
a. Davis-Bacon Act
b. Walsh-Healey Public Contract
c. Fair Wages Act
d. Civil Rights Act
e. Fair Labor Standards Act
(b; difficult; p. 390)

8. Which compensation-related law contains minimum wage, maximum hours,

overtime pay, equal pay, and child labor provisions?
a. Davis-Bacon Act
b. Walsh-Healey Public Contract
c. Fair Wages Act
d. Civil Rights Act
e. Fair Labor Standards Act
(e; difficult; p. 391)

9. Which of the following is addressed by the Fair Labor Standards Act?

a. minimum wage
b. maximum hours
c. overtime pay
d. child labor
e. all of the above
(e; easy; p. 391)

10. The Fair Labor Standards Act covers workers employed in _____.
a. manufacturing
b. retailing
c. agriculture
d. service industries
e. all of the above
(e; easy; p. 391)

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11. Which law makes it illegal to discriminate against any individual with respect
to compensation because of race, color, religion, sex, or national origin?
a. Fair Labor Standards Act
b. Civil Rights Act
c. Employer Retirement Income Security Act
d. Equal Pay Act
e. Davis-Bacon Act
(b; moderate; p. 390)

12. According to the Fair Labor Standards Act, if a worker covered by the act
works more than 40 hours, he or she will receive overtime pay at a rate of
_____ of normal pay for any hours worked over 40 in a workweek.
a. 50%
b. 100%
c. 125%
d. 150%
e. 200%
(d; difficult; p. 391)

13. Jill works as a cashier at a grocery store. She earns $8 an hour (or $320 for a
40-hour week). Last week, she worked 44 hours. What did she earn last
week?
a. $320
b. $336
c. $344
d. $368
e. $392
(d; difficult; p. 391)

14. Jack worked 6 hours of overtime this week but has decided to take time off
instead of overtime pay. How many hours will Jack get off?
a. 3 hours
b. 6 hours
c. 9 hours
d. 12 hours
e. 18 hours
(c; difficult; p. 391)

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15. Which of the following occupations must adhere to overtime and minimum
pay provisions stated in the Fair Labor Standards Act?
a. paralegals
b. pharmacists
c. attorneys
d. department heads
e. purchasing agents
(a; moderate; p. 391)

16. All of the following occupations are exempt from the overtime provisions
stated in the Fair Labor Standards Act except _____.
a. physicians
b. dentists
c. management trainees
d. teachers
e. architects
(c; moderate; p. 391)

17. Whether or not a position is exempt from provisions including overtime pay
in the Fair Labor Standards Act depends upon the _____ associated with
the job.
a. job responsibilities
b. job duties
c. salary
d. employee experience
e. a, b, and c
(e; moderate; p. 391)

18. The _____ states that employees of one sex may not be paid wages at a rate
lower than that paid to employees of the opposite sex for doing roughly
equivalent work.
a. American Disabilities Act
b. Civil Rights Act
c. Employer Retirement Income Security Act
d. Equal Pay Act
e. Davis-Bacon Act
(d; moderate; p. 391)

19. Under which condition below is it acceptable for employees of the opposite
sex to receive different pay for doing roughly equivalent work?
a. when the difference exists despite equal skills
b. when the difference exists despite equal efforts
c. when the difference exists despite similar responsibility
d. when the difference exists because of a merit system
e. it is never acceptable
(d; difficult; p. 391)

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20. Which act provided for the creation of government-run employer-financed
corporations to protect employees against the failure of their employer’s
pension plan?
a. Fair Labor Standards Act
b. Civil Rights Act
c. Employer Retirement Income Security Act
d. Equal Pay Act
e. Davis-Bacon Act
(c; moderate; p. 391)

21. _____ refers to the ownership employees build up in their pension plan
should their employment be terminated before retirement.
a. Portability
b. Equity
c. Vesting
d. Unemployment
e. 401k
(c; easy; p. 391)

22. The _____ prohibits discriminating against employees who are 40 years of
age and older in all aspects of employment, including compensation.
a. Fair Labor Standards Act
b. Civil Rights Act
c. Employer Retirement Income Security Act
d. Equal Pay Act
e. Age Discrimination in Employment Act
(e; moderate; p. 391)

23. According to the Family and Medical Leave Act, eligible employees can take
up to _____ weeks of unpaid, job-protected leave for the birth of a child or
for the care of a child, spouse, or parent.
a. two
b. four
c. six
d. twelve
e. sixteen
(d; moderate; p. 392)

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24. According to the Family and Medical Leave Act, eligible employees can take
unpaid, job-protected leave for the _____.
a. care of a child
b. birth of a child
c. care of a parent
d. care of a spouse
e. all of the above
(e; easy; p. 392)

25. Which of the following is true for employers who use independent
contractors?
a. Fair Labor Standards Act regulations do not apply
b. Social Security taxes are higher than for regular employees
c. Federal income taxes are charged at a reduced rate
d. State income taxes are charged at a higher rate
e. Social Security taxes are charged at a higher rate
(a; moderate; p. 391)

26. The _____ gave employees the right to organize, bargain collectively, and
engage in concerted activities for the purpose of collective bargaining.
a. Fair Labor Standards Act
b. Civil Rights Act
c. Employer Retirement Income Security Act
d. Equal Pay Act
e. National Labor Relations Act
(e; moderate; p. 394)

27. Historically, the main issue in collective bargaining is _____.

a. time off with pay
b. wage rates
c. income security
d. cost-of-living adjustments
e. health care benefits
(b; moderate; p. 394)

28. Unions negotiate all of the following pay-related issues except _____.
a. wage rates
b. income security
c. unpaid leave to care for an immediate family member
d. time off with pay
e. all of the above
(c; moderate; p. 394)

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29. When managers ask “how can I construct a total portfolio of reward programs
that link to both short and long-term business success, drive shareholder
value, encourage desired behaviors, and deliver value to our employees,”
they are seeking to produce a(n) _____.
a. wage curve
b. strategic compensation package
c. labor relations board
d. aligned reward strategy
e. pay-for-performance program
(d; moderate; p. 395)

30. When longer-term employees’ salaries are lower than those of workers
entering the firm today, _____ has occurred.
a. wage curve
b. salary compression
c. age discrimination
d. market expansion
e. reward strategy
(b; easy; p. 396)

31. Salary compression can be caused by _____.

a. recession
b. inflation
c. economic depression
d. all of the above
e. none of the above
(b; difficult; p. 396)

32. How are cost-of-living differentials handled by employers when employees

are transferred from one location to one with a higher cost of living?
a. payment of a nonrecurring, lump sum amount
b. payment of a differential for ongoing costs
c. raise employee’s base salary
d. pay an ongoing differential for ongoing costs plus a lump sum amount
e. all of the above
(e; easy; p. 396)

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33. When an employee transferred to an international location and his or her base
salary reflects his or her home country’s salary with allowances added for
cost-of-living differences, the employer has used a _____ salary plan.
a. transfer
b. home-based
c. host-based
d. cost-of-living
e. allowances included
(b; moderate; p. 397)

34. When an employee transferred to another country is assigned a salary based

on the base salary for that position in the country where he or she will
work, the employer has used a _____ salary plan.
a. transfer
b. home-based
c. host-based
d. cost-of-living
e. allowances included
(c; moderate; p. 397)

35. Who usually pays the extra tax burden resulting from taxes a manager on
international assignment is liable for over and above those he or she would
have to pay in the home country?
a. the employee
b. the employer
c. the home country
d. the host country
e. there are no additional tax burdens
(b; moderate; p. 397)

36. What theory of motivation states that people are strongly motivated to
maintain a balance between what they perceive as their inputs or
contributions and their rewards?
a. Maslow’s hierarchy of needs
b. Two-factor theory
c. Equity theory
d. Learned needs theory
e. Expectancy theory
(c; moderate; p. 396)

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37. Which of the following is not a form of equity that should be addressed by
managers dealing with compensation issues?
a. underreward
b. internal
c. external
d. individual
e. procedural
(a; moderate; p. 397)

38. Which form of equity refers to how a job’s pay rate in one company
compares to the job’s pay rate in other companies?
a. external
b. internal
c. distributive
d. individual
e. procedural
(a; easy; p. 397)

39. Jason is an information systems technician in a town in North Carolina with a

population of 100,000. He earns 35,000/year. He recently found out that a
nearby town with a similar population pays people in the same position
$40,000/year. Jason is concerned with the _____ form of equity.
a. distributive
b. procedural
c. internal
d. external
e. individual
(d; moderate; p. 397)

40. Which form of equity refers to how fair a job’s pay rate is, when compared to
other jobs within the same company?
a. external
b. internal
c. distributive
d. individual
e. procedural
(b; easy; p. 397)

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41. Jack is a sales manager and he recently learned that human resource
managers with similar responsibilities and spans of control earn more than
he does. Jack is concerned with the _____ form of equity.
a. external
b. internal
c. distributive
d. individual
e. procedural
(b; moderate; p. 397)

42. Which form of equity refers to the fairness of an individual’s pay as

compared with what his or her coworkers are earning for the same or very
similar jobs within the company, based on each individual’s performance?
a. external
b. internal
c. distributive
d. individual
e. procedural
(d; easy; p. 397)

43. Audrey is a lawyer in a mid-size firm in Chicago. She recently learned that
another lawyer who joined the firm at the same time earns a lower salary
than she does. Audrey is experiencing the _____ form of equity.
a. external
b. internal
c. distributive
d. individual
e. procedural
(d; easy; p. 397)

44. Which form of equity refers to the perceived fairness of the processes and
procedures used to make decisions regarding the allocation of pay?
a. external
b. internal
c. distributive
d. individual
e. procedural
(e; easy; p. 397)

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45. External equity refers to _____.
a. how a job’s pay rate in one company compares the job’s pay rate in
other companies
b. how fair the job’s pay rate is, when compared to other jobs within the
same company
c. the fairness of an individual’s pay as compared with what his or her
coworkers are earning for the same or very similar jobs within the
company, based on each individual’s performance
d. the perceived fairness of the processes and procedures used to make
decisions regarding the allocation of pay
e. the use of salary surveys to monitor levels paid for jobs industry-wide
(a; moderate; p. 397)

46. Internal equity refers to _____.

a. how a job’s pay rate in one company compares the job’s pay rate in
other companies
b. how fair the job’s pay rate is, when compared to other jobs within the
same company
c. the fairness of an individual’s pay as compared with what his or her
coworkers are earning for the same or very similar jobs within the
company, based on each individual’s performance
d. the perceived fairness of the processes and procedures used to make
decisions regarding the allocation of pay
e. the use of salary surveys to monitor levels paid for jobs industry-wide
(b; moderate; p. 397)

47. Individual equity refers to _____.

a. how a job’s pay rate in one company compares the job’s pay rate in
other companies
b. how fair the job’s pay rate is, when compared to other jobs within the
same company
c. the fairness of an individual’s pay as compared with what his or her
coworkers are earning for the same or very similar jobs within the
company, based on each individual’s performance
d. the perceived fairness of the processes and procedures used to make
decisions regarding the allocation of pay
e. the use of salary surveys to monitor levels paid for jobs industry-wide
(c; moderate; p. 397)

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48. Procedural equity refers to _____.
a. how a job’s pay rate in one company compares the job’s pay rate in
other companies
b. how fair the job’s pay rate is, when compared to other jobs within the
same company
c. the fairness of an individual’s pay as compared with what his or her
coworkers are earning for the same or very similar jobs within the
company, based on each individual’s performance
d. the perceived fairness of the processes and procedures used to make
decisions regarding the allocation of pay
e. the use of salary surveys to monitor levels paid for jobs industry-wide
(d; moderate; p. 397)

49. _____ is a formal and systematic comparison of jobs to determine the worth
of one job relative to another.
a. Job analysis
b. Job evaluation
c. Benchmark analysis
d. Compensable evaluation
e. Job ranking
(b; easy; p. 400)

50. Which of the following is not one of the compensable factors emphasized in
the Equal Pay Act?
a. skills
b. effort
c. accountability
d. responsibility
e. working conditions
(c; moderate; p. 400)

51. Factors that establish how the jobs compare to one another and set the pay for
each job are called _____.
a. compensable factors
b. job evaluation factors
c. comparison factors
d. ranking factors
e. analysis factors
(a; easy; p. 400)

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52. Another term for job classification is _____.
a. job ranking
b. job grading
c. job categorization
d. job evaluation
e. none of the above
(b; easy; p. 403)

53. When using the job classification method of job evaluation, raters categorize
jobs into groups of similar jobs called _____.
a. classes
b. grades
c. sections
d. schedules
e. cohorts
(a; moderate; p. 403)

54. When using the job classification method of job evaluation, raters categorize
jobs into groups of jobs that are similar in difficulty but not in context
called _____.
a. classes
b. grades
c. sections
d. schedules
e. cohorts
(b; moderate; p. 403)

55. The point method of job evaluation entails _____.

a. identifying several compensable factors, each having several degrees,
and the degree to which each of these factors is present in the job
b. ranking each job relative to all other jobs based on some overall factor
c. using raters to categorize jobs into groups
d. deciding which jobs have more of the chosen compensable factors
e. none of the above
(a; moderate; p. 404)

56. The ranking method of job evaluation entails _____.

a. identifying several compensable factors, each having several degrees,
and the degree to which each of these factors is present in the job
b. ranking each job relative to all other jobs based on some overall factor
c. using raters to categorize jobs into groups
d. deciding which jobs have more of the chosen compensable factors
e. none of the above
(b; moderate; p. 404)

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57. The job grading method of job evaluation entails _____.
a. identifying several compensable factors, each having several degrees,
and the degree to which each of these factors is present in the job
b. ranking each job relative to all other jobs based on some overall factor
c. using raters to categorize jobs into groups
d. deciding which jobs have more of the chosen compensable factors
e. none of the above
(c; moderate; p. 403)

58. The factor comparison method of job evaluation entails _____.

a. identifying several compensable factors, each having several degrees,
and the degree to which each of these factors is present in the job
b. ranking each job relative to all other jobs based on some overall factor
c. using raters to categorize jobs into groups
d. deciding which jobs have more of the chosen compensable factors
e. none of the above
(d; moderate; p. 404)

59. Which job evaluation method is a quantitative technique involving the

identification of several compensable factors and the degree to which each
of these factors is present in the job?
a. ranking method
b. point method
c. factor comparison
d. job grading method
e. job classification method
(b; moderate; p. 404)

60. Which job evaluation method entails deciding which jobs have more of the
chosen compensable factors?
a. ranking method
b. point method
c. factor comparison
d. job grading method
e. job classification method
(c; moderate; p. 404)

61. A _____ is comprised of jobs of approximately equal difficulty or importance

as established by job evaluation.
a. pay group
b. benchmark
c. pay grade
d. class
e. wage curve
(c; easy; p. 405)

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62. The _____ shows the pay rates currently paid for jobs in each pay grade,
relative to the points or rankings assigned to each job or grade by the job
evaluation.
a. pay group
b. benchmark
c. pay grade
d. class
e. wage curve
(e; easy; p. 405)

63. What is the purpose of the wage curve?

a. to show the relationship between the value of the job as determined by
one of the job evaluation methods and the current average pay rates for
your grades
b. to equate jobs of approximately equal difficulty or importance as
established by job evaluation
c. to cluster jobs into logical groupings
d. to assign pay rates to pay grades
e. to choose benchmark jobs within each pay grade
(a; difficult; p. 405)

64. If the current rate being paid for a job falls below the wage line, what step
should be taken?
a. a pay freeze should be enacted for that job
b. a pay decrease should be assessed
c. a pay raise should be provided
d. no steps are necessary
e. a bonus should be offered
(c; difficult; p. 405)

65. Which of the following is typically included in compensation packages for a

company’s top executives?
a. base pay
b. short-term and long-term incentives
c. perks
d. executive benefits
e. all of the above
(e; easy; p. 410)

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66. Supplemental executive retirement plans and supplemental life insurance are
classified as _____ in executive compensation packages.
a. base pay
b. short-term incentives
c. long-term incentives
d. executive benefits
e. bonuses
(d; easy; p. 410)

67. When employers set salary for professional employees by pricing

professional jobs in the marketplace to establish the values for benchmark
jobs, and then develop a salary structure based on the benchmarks and
their other professional jobs, the employer has used a _____ approach.
a. job evaluation
b. job ranking
c. market-pricing
d. cost
e. point
(c; moderate; p. 412)

68. A company using competency-based pay pays for all of the following except
an employee’s _____.
a. range of skills
b. job title
c. depth of knowledge
d. type of skills
e. all of the above are part of competency-based pay plans
(b; difficult; p. 412)

69. _____ means collapsing salary grades and ranges into just a few wide levels
or bands, each of which contains a relatively wide range of jobs and salary
levels.
a. Comparable worth
b. Strategic compensation
c. Job evaluation
d. Broadbanding
e. Job grading
(d; easy; p. 415)

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70. _____ refers to the requirement to pay men and women equal wages for jobs
of roughly equivalent value to the employer.
a. Comparable worth
b. Strategic compensation
c. Job evaluation
d. Broadbanding
e. Job grading
(a; easy; p. 418)

True/ False

71. Financial benefits like employer-paid insurance and vacations are not a part
of employee compensation. (F; easy; p. 390)
72. Indirect payments that contribute to an employee’s compensation include
variable pay like commissions and bonuses. (F; moderate; p. 390)
73. Direct financial payments may be based on increments of time and on
performance. (T; easy; p. 390)
74. Performance-based pay is more popular than time-based pay. (F; moderate; p.
390)
75. When employees work more than 40 hours per week, employers must pay
overtime at a rate of at least one and a half times the normal pay for any
hours worked over 40 in a workweek. (T; moderate; p. 391)
76. Employers prefer to give time off in lieu of overtime pay because they only
have to grant the same number of hours off as the employee worked
overtime while overtime pay is calculated at 150% of normal pay. (F;
difficult; p. 391)
77. Because the minimum wage is set by the Fair Labor Standards Act, all states
adhere to that wage. (F; difficult; p. 391)
78. The Equal Pay Act states that employees of one sex may not be paid wages at
a rate lower than that paid to employees of the opposite sex for doing
roughly equivalent work. (T; moderate; p. 391)
79. Portability rights refer to the ability for an employee to transfer his or her
vested rights from one organization to another. (T; moderate; p. 392)
80. While laws exist to protect against discrimination in compensation based on
gender and age, no law protects against such discrimination against
persons with disabilities. (F; moderate; p. 392)
81. The provision of the Family and Medical Leave Act that entitles employees
to take up to 12 weeks of unpaid, job-protected leave for the birth of a
child only applies to women. (F; moderate; p. 392)
82. In writing an offer, employers should refer to hourly pay rather than annual
salary, because courts could interpret the offer as a one-year contract. (T;
moderate; p. 393)
83. Some employers may misclassify employees as independent contractors to
reduce the taxes they must pay. (T; moderate; p. 393)

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84. The U.S. Department of Labor says there is a specific test for determining
whether an individual is an independent contractor or an employee. (F;
moderate; p. 393)
85. Wage rate has been the main issue negotiated by unions in collective
bargaining. (T; easy; p. 394)
86. A union is entitled to know the salary of each employee it is representing. (T;
moderate; p. 395)
87. Most expatriate salaries are set using the host-country base pay. (F; moderate;
p. 397)
88. External equity refers to how fair the job’s pay rate is, when compared to
other jobs within the same company. (F; moderate; p. 397)
89. Informal telephone or Internet surveys are good for checking on a relatively
small number of easily identified and quickly recognized jobs. (T; easy; p.
398)
90. The Equal Pay Act focuses on three compensable factors – know-how,
problem solving, and accountability. (F; difficult; p. 400)
91. Job evaluation is primarily a judgmental process. (T; moderate; p. 400)
92. Job classification is the simplest of the job evaluation methods. (F; easy; p.
400)
93. Most employers use a market-pricing approach to determine compensation
for professional employees. (T; easy; p. 412)
94. Competencies are demonstrable characteristics of a person including
knowledge, skills, and behaviors that enable performance. (T; moderate; p.
412)
95. There tends to be more opportunities for advancement with competency-
based pay plans than with job-based pay plans because the focus on skill-
building results in more developmental opportunities. (T; easy; p. 413)
96. Competency-based pay plans tie pay to seniority as well as to competence.
(F; moderate; p. 413)
97. The primary advantage of broadbanding is that it provides greater flexibility
into employee assignments. (T; difficult; p. 415)
98. Broadbanding refers to the requirement to pay men and women equal wages
for jobs of comparable value to the employer. (F; easy; p. 415)
99. In the broadest sense, comparable worth may mean comparing jobs that are
very dissimilar such as nursing to fire fighting. (T; moderate; p. 418)
100. A key issue in comparable worth is whether women should be paid equal
wages for jobs that are truly equal to men’s or just comparable to men’s
jobs. (T; easy; p. 418)

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Essay/ Short Answer

101. What are the advantages for employers of claiming that someone doing
work for them is an independent contractor rather than an employee?
(moderate; p. 393)

Answer: There are many advantages. The Fair Labor Standards Act does
not apply to independent contractors. The employer does not have to pay
unemployment compensation payroll taxes, Social Security taxes, or city,
state, and federal income taxes.

102. Describe the various approaches that an employer could take to address
the cost-of-living differences associated with transferring an employee to a
location with a higher cost-of-living. (moderate; p. 396)

Answer: Employers have different ways of handling cost-of-living

differentials. One is to give the transferred person a nonrecurring payment
in a lump sum amount. Another is to pay a differential for ongoing costs in
addition to a one time allocation. Others simply raise the employee’s base
salary.

103. List and explain the two basic international compensation policies that
companies use when compensating expatriate employees. (moderate; p.
397)

Answer: The two basic international compensation policies include home-

based and host-based plans. With a home-based salary plan, an
international transferee’s base salary reflects his or her home country’s
salary. The employer then adds allowances for cost-of-living differences
such as housing and schooling costs. This is a good approach for short-
term assignments and avoids the problem of changing an employee’s base
salary. In the host-based plan, the firm ties the international transferee’s
base salary to the host country’s salary structure. A manager sent to a
specific, international location would have his or her base salary changed
to the prevailing base salary for that position in that location. The firm
usually tacks on cost-of-living, housing, schooling, and other allowances.

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104. Explain the implications suggested by the equity theory of motivation.
What are the four forms of equity? (moderate; p. 396)

Answer: Equity theory states that people are strongly motivated to

maintain a balance between what they perceive as their inputs or
contributions and their rewards. If a person perceives an inequity, a
tension or drive will develop in the person’s mind and the person will be
motivated to reduce or eliminate the tension and perceived inequity. The
four forms are external, internal, individual, and procedural. External
equity refers to how a job’s pay rate in one company compares the job’s
pay rate in other companies. Internal equity refers to how fair the job’s pay
rate is, when compared to other jobs within the same company. Individual
equity refers to the fairness of an individual’s pay as compared with what
his or her coworkers are earning for the same or very similar jobs within
the company, based on each individual’s performance. Procedural equity
refers to the perceived fairness of the processes and procedures used to
make decisions regarding the allocation of pay.

105. How can managers assess and address each equity issue? (moderate; p.
397)

Answer: Managers can use various methods to address each of these

equity issues. They can use salary surveys to monitor and maintain
external equity. They can use job analysis and job evaluation to maintain
internal equity. They can use performance appraisal and various types of
incentive pay to maintain individual equity. They can use communication,
grievance mechanisms, and employee participation in developing the
company pay plan to help ensure that employees view the pay process as
transparent and fair. Managers can also use surveys to assess employee
attitudes regarding the pay plan.

106. List the steps used to establish pay rates while ensuring external, internal,
and procedural equity. (moderate; p. 398)

Answer: The five steps are as follows.

 Conduct a salary survey of what other employers are paying for
comparable jobs.
 Determine the worth of each job in your organization through job
evaluation.
 Group similar jobs into pay grades.
 Price each pay grade by using wave curves.
 Fine-tune pay rates.

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107. List the steps used in the job ranking method of job evaluation. (moderate;
p. 402)

Answer: The steps in the job ranking method are as follows.

 Obtain job information
 Select jobs
 Select compensable factors
 Rank jobs
 Combine ratings and average the rankings

108. What are the steps for pricing jobs with a wage curve? (difficult; p. 405)

Answer: First, find the average pay for each pay grade, since each of the
pay grades consists of several jobs. Next, plot the pay rates for each pay
grade. Then fit a line, called a wage line, through the points. Finally, price
the jobs. Wages along the wage line are the target wages or salary rats for
the jobs in each pay grade.

109. Explain the four key differences between competency-based pay and
traditional job-based pay. (difficult; p. 412)

Answer: With JBP, the employee receives the pay attached to the job
regardless of whether the employee has the necessary competence for
performing the job. With CBP, the supervisor certifies employee
competence prior to any pay increases. With JBP, pay changes when one
switches jobs. With CBP, one must demonstrate proficiency prior to
getting a raise. Also, one could do a lower-paying job but still receive a
higher pay based on skill. JBP systems may tie pay to grade or seniority.
CBP pays for competencies, not seniority. There is more advancement
possible with CBP plans than with JBP. CBP enhances organizational
flexibility because workers’ skills are applicable to more jobs and
therefore more portable.

110. What are the four main components of a competency-based pay plan?
(moderate; p. 412)

Answer: CBP plans usually contain a 1) system that defines specific skills
and a process for tying a person’s pay to his or her skill, 2) training system
that lets employees seek and acquire skills, 3) formal competency testing
system, and 4) work design that lets employees move among jobs to
permit work assignment flexibility.

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