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Chapter 11
<Pay Structure Decisions>
True / False Questions
1. | Pay level refers to the relative pay of jobs in an organization.
True False |
2. | The equity theory suggests that people evaluate the fairness of their situations by comparing them with how they were treated in their previous organization.
True False |
3. | Job evaluation is a more appropriate tool for internal equity pay comparisons than market pay surveys.
True False |
4. | The upper bound placed by product market competition is more constrictive when labor costs are a larger share of total costs.
True False |
5. | Labor market competition reflects the number of available workers relative to the number of available jobs.
True False |
6. | Benchmarking is a procedure in which a company compares its different practices with the standard set by the management.
True False |
7. | Product market comparisons that focus on labor costs deserve greater weight when the product demand is inelastic.
True False |
8. | For blue-collar jobs, particularly those covered by collective bargaining contracts, there may be a single rate of pay for all employees within the job.
True False |
9. | Nonkey jobs are those that are common to many organizations.
True False |
10. | Internal job worth can be measured using the administrative tool of job evaluation.
True False |
11. | Organizations usually develop a market pay policy line based on the key jobs for which there are both job evaluation and market pay survey data available.
True False |
12. | Actual market rates are used for key jobs in the pay policy line approach rather than in the market survey data approach.
True False |
13. | The disadvantage of using the pay grade approach is that it increases the administrative burden of setting separate rates of pay for hundreds of different jobs.
True False |
14. | The compa-ratio directly assesses the degree to which actual pay is consistent with the pay policy.
True False |
15. | When you move an employee higher in the pay structure to compensate for higher living costs, it becomes easier to adjust the salary downward when the employee moves to a low-cost area.
True False |
16. | Under a two-tier wage plan, employees doing the same job are paid two different rates, depending on when they were hired.
True False |
17. | The emphasis that job-based pay structures lay on job levels and status differentials encourages promotion-seeking behavior.
True False |
18. | Broad bands with their greater spread between pay minimums and maximums can lead to rising labor costs.
True False |
19. | Skill-based pay systems are not suitable for increasing demands that changing technology continues to bring.
True False |
20. | The number of organizations that are focusing on nonlabor forces while deciding production location is decreasing.
True False |
21. | Inventory levels can be dramatically reduced through just-in-time production, but suppliers need to be in close physical proximity for this to work.
True False |
22. | Long-term compensation, typically in the form of stock plans, is the major component of CEO pay.
True False |
23. | Title VII of the Civil Rights Act focuses on equal pay for jobs of equal content, while the Equal Pay Act of 1963 focuses on equal pay for jobs of equal value or worth.
True False |
24. | One limitation of the comparable worth policy is that it targets single employers, ignoring that men and women tend to work for different employers.
True False |
25. | Under the Fair Labor Standards Act, nonexempt employees are eligible for overtime pay.
True False |
Multiple Choice Questions
26. | Which of the following is true about pay?
A. | Pay is not helpful when it comes to aligning employees' interests with those of the broader organization. |
B. | Pay has a small impact on employee attitudes and behavior. |
C. | From the employees' view, pay policies do not affect their standard of living. |
D. | Companies often look for ways to reduce pay by jeopardizing their relationship with the workforce. |
E. | Employees attach great importance to pay decisions when they evaluate their relationship with the organization. |
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27. | Which of the following is part of the benefits offered to employees?
B. | Unemployment compensation |
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28. | Which of the following is part of the cash compensation offered to employees?
B. | Unemployment compensation |
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29. | _____ is the relative pay of different jobs and how much one is paid.
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30. | The average compensation—including wages, salaries, and bonuses—of jobs in an organization is called the _____.
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31. | _____ is the relative pay of jobs in an organization.
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32. | According to the _____, a person (p) compares her own ratio of perceived outcomes to perceived inputs to the ratio of a comparison other (o).
B. | predicted outcome value theory |
C. | social exchange theory |
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33. | External equity pay comparisons focus on what
A. | other employees in the same organization in the same job are paid. |
B. | other employees in the same organization but in a different job are paid. |
C. | employees in other organizations are paid for doing the same general job. |
D. | employees in other organizations are paid for doing other jobs with higher responsibility. |
E. | employees in other organizations are paid for doing other jobs with lower responsibility. |
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34. | Which of the following observations is true about the equity theory?
A. | It suggests that managers compare the performance of employees with their potential to improve. |
B. | It suggests that employees' performance should be evaluated based on their developmental needs. |
C. | It suggests that internal equity pay comparisons focus on what employees in other organizations are paid for doing the same general job. |
D. | It suggests that when a person's outcome-input ratio is greater than the comparison other's ratio, underreward inequity is perceived. |
E. | It suggests that people evaluate the fairness of their situations by comparing them with those of other people. |
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35. | Which of the following is a likely consequence of external equity perception?
E. | Cooperation among employees |
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36. | Which of the following is a likely consequence of an internal equity perception?
A. | Attraction of efficient employees |
B. | Retention of quality employees |
E. | Pay scales of competitors |
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37. | Which of the following is true of external equity pay comparison?
A. | It involves comparisons with employees with lower-level jobs in the organization. |
B. | It involves comparisons with employees with higher-level jobs in the organization. |
C. | It influences whether employees accept transfers. |
D. | It influences employees' willingness to accept promotions. |
E. | It influences employees’ decisions regarding whether to stay or move to another organization. |
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38. | Internal equity pay comparison is
A. | influenced primarily by an organization's choice of pay level. |
B. | the primary administrative tool organizations use in choosing a pay level. |
C. | focused on what employees within the same organization but in different jobs are paid. |
D. | determined using market pay surveys. |
E. | more likely to influence the decisions of applicants to accept job offers than external equity pay comparison. |
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39. | Which of the following administrative tools is used by organizations to design job structures?
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40. | Which of the following is true of labor market competition?
A. | The labor market focuses primarily on competing through providing a quality product or service at a competitive price in the market. |
B. | The labor market places an upper bound on labor costs and compensation. |
C. | The upper bound placed by the labor market is more constrictive when labor costs are a very small share of the total costs. |
D. | An indirect payment such as Social Security, a major component of labor costs, is not included in calculating the average cost of an employee. |
E. | Labor market competition places a lower bound on pay levels. |
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41. | A firm that has a manufacturing unit in China considers shifting production to Cambodia. Which of the following would be a possible reason for it to not shift the production base?
A. | Lower wages for labor in Cambodia |
B. | Less skilled labor in Cambodia |
C. | Higher productivity in Cambodia |
D. | Rising labor costs in China |
E. | Higher transportation costs in China |
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42. | Which of the following theories describes the conditions when the benefits of higher pay outweigh higher costs?
D. | Efficiency wage theory |
E. | Social exchange theory |
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43. | Which of the following theories states that pay influences worker productivity?
B. | Social exchange theory |
C. | Efficiency wage theory |
D. | Perceptual-motor theory |
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44. | Which of the following is a procedure in which an organization compares its own practices against those of the competition?
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45. | Organizations use benchmarking primarily to compete
D. | on product differentiation. |
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46. | 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. |
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47. | Labor market comparisons are more important than product market comparisons when
A. | product demand is elastic. |
B. | the costs of recruiting replacements are low. |
C. | attracting and retaining qualified employees is difficult. |
D. | the supply of labor is inelastic. |
E. | employee skills are specific to the product market. |
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48. | Which of the following concepts addresses the fact that different employees in the same job may have different pay rates?
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49. | Which of the following is true of key jobs?
A. | They are unique to organizations. |
B. | They can be used in pay surveys. |
C. | They have unstable content. |
D. | They cannot be compared through market surveys. |
E. | They are not benchmark jobs. |
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50. | Which of the following is true of nonkey jobs?
A. | They have stable content. |
B. | They can be used in pay surveys. |
C. | They can be valued directly. |
D. | They can be compared through market surveys. |
E. | They are unique to organizations. |
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51. | Which of the following is an administrative procedure used to measure internal job worth using measurable factors?
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52. | A _____ system is composed of compensable factors and a weighting scheme based on the importance of each compensable factor to the organization.
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53. | Which of the following is the definition of compensable factors?
A. | They are jobs that are unique to organizations and that cannot be directly valued or compared through the use of market surveys. |
B. | They are the characteristics of jobs that an organization values and chooses to pay for. |
C. | They are the jobs that have relatively stable content and are common to many organizations. |
D. | They are the factors that describe the relationship between a job's pay and its job evaluation points. |
E. | They are the jobs that are of similar worth or content grouped together for pay administration purposes. |
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54. | Compensable factors are employees' job characteristics that
B. | go unrecognized by the company. |
C. | do not motivate employees to work better. |
D. | primarily lead to intrinsic motivation. |
E. | the company is willing to pay for. |
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55. | Which of the following is the most widely used method in job evaluation that yields scores for each compensable factor?
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56. | Which of the following is true of the point-factor system?
A. | In this system, job evaluators apply a weighting method before generating scores for the compensable factors. |
B. | When a priori weights method is used, factors are weighted using expert judgments. |
C. | In a priori weights method, weights are assigned to noncompensable factors. |
D. | Multiple regression is an example of a priori weights method. |
E. | When the weights are derived empirically, factors determining pay in the labor market are excluded. |
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57. | The _____ is a mathematical expression that describes the relationship between a job's pay and its job evaluation points.
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58. | Under the _____ approach, jobs of similar worth or content are grouped together for pay administration purposes.
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59. | Which of the following is true of the pay grade approach to developing a pay structure?
A. | It permits greater flexibility in moving employees from job to job. |
B. | It increases the administrative burden of setting up rates of pay. |
C. | It has a range spread that is smaller at higher levels. |
D. | It ensures that all of the jobs have fair rates of pay. |
E. | It tends to contribute to reduced labor costs. |
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60. | Which of the following is a disadvantage of the pay grade approach?
A. | The administrative burden of setting separate rates of pay for numerous employees is increased. |
B. | It is inflexible when it comes to moving employees from job to job. |
C. | Demotions are not well received in a pay grade system when compared to a job-based system. |
D. | It might give rise to some jobs being underpaid and some being overpaid. |
E. | It does not recognize that performance difference in the higher levels has much impact on the organization. |
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61. | The _____ is an index of the correspondence between actual and intended pay.
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62. | According to the study by Peter Cappelli and Peter Sherer, which of the following is true of two-tier wage plans?
A. | The plans are characterized by instances in which two employees doing different levels of jobs get the same pay. |
B. | Lower-paid employees always move to the higher-paying tier. |
C. | Lower-tier employees are more satisfied, despite being paid less money for the same work. |
D. | The employees in the lower tier have lower comparison standards than those in the higher tier. |
E. | The lower-tier employees remain dissatisfied until they move into the higher-paying tier. |
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63. | A 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.
B. | social exchange theory |
E. | efficiency wage theory |
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64. | Which of the following is true of a job-based pay structure?
A. | It encourages employee initiatives. |
B. | It allows the organization to take advantage of the skills of those closest to production. |
C. | It encourages lateral movement of employees. |
D. | It reinforces a topdown decision-making process. |
E. | It discourages promotion-seeking behavior. |
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65. | Job-based pay structure
A. | discourages topdown decision-making. |
B. | encourages lateral employee movement. |
C. | discourages promotion-seeking behavior. |
D. | encourages a lack of initiative on the part of employees. |
E. | discourages performance evaluation by the manager. |
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66. | _____ is to the process of reducing the number of job levels to achieve more flexibility in job and merit increase assignments.
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67. | Athen Tech., a software company, changed its pay structure from 3,000 job titles and 12 pay grades to a simpler structure with 1,000 jobs and 5 pay grades. The managers were then asked to choose pay levels that were based on the market. This is an example of _____.
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68. | Which of the following best describes a broad band in job-based pay structures?
A. | The distance between the minimum and maximum pay in a grade |
B. | The wider grouping of jobs accomplished through delayering |
C. | An index of the correspondence between actual and intended pay |
D. | A mathematical expression that describes the relationship between a job's pay and its job evaluation points |
E. | The characteristics of jobs that an organization values and chooses to pay for |
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69. | Which of the following is true of broad bands?
A. | More use of broad brands, the less use of delayering in a firm. |
B. | More use of broad brands, the less the opportunity for promotions. |
C. | Broad bands with greater range spread lead to weaker budgetary control. |
D. | Broad bands with greater range spread give rise to lower labor costs. |
E. | Broad bands with smaller range spread permit managers to recognize high performance with high pay. |
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70. | Which type of pay is similar to pay structures based on individual characteristics such as skill or knowledge but usually refers to a plan that covers exempt employees?
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71. | Which of the following pay structures would a company adopt if it wanted a pay structure that rewards employees based on their knowledge and competency?
B. | Skill-based pay approach |
D. | Market survey data approach |
E. | Pay policy line approach |
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72. | 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 gives rise to centralization of decision-making. |
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73. | Which of the following is a disadvantage of skill-based pay?
A. | It is not suited for jobs that require skills to adapt to change in technology. |
B. | It decreases worker flexibility. |
C. | It does not give knowledgeable people opportunities to make decisions. |
D. | It does not help deal with absenteeism or turnover. |
E. | It may give rise to large new labor costs, but with little payoff. |
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74. | Which of the following best describes gross domestic product?
A. | It is a measure of personal income. |
B. | It is the cost of producing a certain number of outputs produced in an economy. |
C. | It is the output produced by an employee, in contrast to the input used by the employee. |
D. | It is the total output of an economy. |
E. | It is the total input used by an economy to produce a definite output. |
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75. | 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 (TARP) |
C. | Public-Private Investment Program |
D. | Lilly Ledbetter Fair Pay Act |
E. | Emergency Economic Stabilization Act |
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76. | Which of the following is an example of an equal employment opportunity regulation that prohibits sex- and race-based differences in employment outcomes such as pay, unless justified by business necessity?
A. | 2009 Lilly Ledbetter Fair Pay Act |
B. | Title VII of the Civil Rights Act |
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77. | 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?
E. | Calibration hypothesis |
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78. | _____ is a public policy that focuses primarily on advocating remedies for any undervaluation of women's jobs.
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79. | Which of the following is the primary focus of Title VII of the Civil Rights Act?
A. | It makes it mandatory for firms to give women maternity leave. |
B. | It restricts the setting up of labor unions. |
C. | It promotes the setting up of labor unions. |
D. | It supports equal pay for jobs of equal content. |
E. | It supports equal pay for jobs of equal value. |
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80. | Which of the following is typically used to measure pay equity?
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81. | Executive Order 11246 is enforced by the _____.
D. | Bureau of Labor Statistics |
E. | Department of Commerce |
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82. | _____ allows women and minorities to come within sight of the top echelons of management, but not advance to them.
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83. | The Fair Labor Standards Act (FLSA)
A. | established an eight-hour workday. |
B. | established the requirement for paying prevailing wages on public works projects. |
C. | laid the responsibility of economic stability onto the federal government. |
D. | established a minimum wage for jobs. |
E. | failed to set pay regulations for overtime work. |
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84. | As per the Fair Labor Standards Act, the current minimum wage stands at _____.
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85. | According to the Fair Labor Standards Act,
A. | employees should be paid at the rate of one and a half times their hourly rate for overtime worked beyond 40 hours in a week. |
B. | federal contractors should pay employees no less than the prevailing wages in the area. |
C. | outside sales employees are included in the coverage. |
D. | employers who are not aware of the overtime work done by the employees are violating the law. |
E. | occupations that have hourly wages are exempt from the law. |
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86. | Which of the following occupations is exempt from the Fair Labor Standards Act (FLSA)?
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87. | Which of the following statements is true about the Fair Labor Standards Act (FLSA)?
A. | The current minimum wage set by the FLSA is $5.25 per hour. |
B. | It states that employees cannot be made to work overtime. |
C. | Exempt employees are eligible for overtime pay. |
D. | It exempts executive, professional, and administrative occupations from FLSA coverage. |
E. | Under FLSA, exempt status is independent of job responsibilities and salary. |
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88. | Which of the following acts requires federal contractors to pay employees no less than the prevailing wages in the area?
A. | Walsh-Healy Public Contracts Act |
B. | McNamara-O'Hara Service Contract Act (SCA) |
C. | Fair Labor Standards Act |
D. | Lilly Ledbetter Fair Pay Act |
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89. | The Davis-Bacon Act covers
A. | all government contractors receiving $10,000 or more in federal funds. |
B. | executive, professional, and administrative occupations that are exempt from FLSA coverage. |
C. | all private retail firms in the United States that receive no federal funds. |
D. | construction contractors receiving federal money of more than $2,000. |
E. | manufacturing units that employ more than 2,000 employees. |
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90. | The Walsh-Healy Act covers
A. | all government contractors receiving $10,000 or more in federal funds. |
B. | executive, professional, and administrative occupations that are exempt from FLSA coverage. |
C. | all private retail firms in the United States that receive no federal funds. |
D. | construction contractors receiving federal money of more than $2,000. |
E. | manufacturing units that employ less than 2,000 employees. |
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Essay Questions
91. | Differentiate between pay level and job structure with an example.
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92. | Discuss in detail the equity theory and how employees perceive fairness.
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93. | Distinguish between external equity pay comparisons and internal equity pay comparisons.
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94. | Describe key jobs and nonkey jobs.
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95. | Explain the role of employee participation in compensation decision-making.
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96. | List some of the potential limitations of using a job-based pay structure.
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97. | What is skill-based pay, and what are its advantages?
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98. | What labor-related factors should be considered when deciding where to locate production?
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99. | Explain the reasons for the controversy over executive pay.
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100. | Discuss some of the concerns over the Equal Employment Opportunity (EEO) regulation.
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