MGT 422 - Chapter 11 - Pay Structures

MGT 422 - JSU - Chapter 11 - Pay Structures

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Employee compensation accounts for _____ percent of revenues.

1- cash compensation: salary, merit increases, bonuses, stock options, and other incentives
2- Benefits: health insurance, paid vacation, and unemployment compensation

Total compensation consists of:

pay structure

The relative pay of different jobs (job structure) and how much they are paid (pay level).

pay level

The average pay, including wages, salaries, and bonuses, of jobs in an organization.

job structure

The relative pay of jobs in an organization.

efficiency wage theory

A theory stating that wages influence worker productivity.

benchmarking

Comparing an organization’s practices against those of the competition.

rate ranges

Different employees in the same job may have different pay rates.

key jobs

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

nonkey jobs

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

job evaluation

An administrative procedure used to measure internal job worth.

compensable factors

The characteristics of jobs that an organization values and chooses to pay for.

Pay policy line

A mathematical expression that describes the relationship between a job’s pay and its job evaluation points.

pay grades

Jobs of similar worth or content grouped together for pay administration purposes.

range spread

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

Compa-ratio

An index of the correspondence between actual and intended pay

Delayering

Reducing the number of job levels within an organization.

skill-based pay

Pay based on the skills employees acquire and are capable of using.

Comparable worth

A public policy that advocates remedies for any undervaluation of women’s jobs (also called pay equity).

Fair Labor Standards Act (FLSA)

The 1938 law that established the minimum wage and overtime pay.

Minimum wage

The lowest amount that employers are legally allowed to pay; the 1990 amendment of the Fair Labor Standards Act permits a subminimum wage to workers under the age of 20 for a period of up to 90 days.

exempt

Employees who are not covered by the Fair Labor Standards Act. Exempt employees are not eligible for overtime pay.

a significant organizational cost

Employee compensation requires scrutiny because it is typically ______.

overrated as a reason why employees leave for other jobs

a significant organizational cost

the best way to reduce overhead without affecting workforce size

the only meaningful indicator of organizational success

equity theory

The concept that suggests people evaluate the fairness of their situations by comparing them with others is called __________.

pay structure

equity theory

job structure

pay level

bring a sufficient return on investment

An organization that effectively competes in the product market is able to sell its goods and services at a quantity price that will ______.

bring a sufficient return on investment

reduce the responsibilities of management

limit the organization profit

cause employees to take wage cuts

resource that provides returns

Organizations compete in the labor market, so they should consider their employees not just as a cost but also as a(n) ________.

resource that provides returns

liability that needs to be minimized

threat that should be reduced

efficiency wage

The concept that wages affect worker productivity is called the ______ theory.

human nature

benchmarking

job involvement

efficiency wage

It influences the kind of employees attracted to the organization.

It can help align employees' interests with those of the organization.

It has an impact on employees' attitudes and behaviors.

In which of the following ways does pay affect an organization's strategic goals? (Select all that apply.)

It influences the kind of employees attracted to the organization.

It can help align employees' interests with those of the organization.

It determines how many employees the organization can terminate per year.

It has an impact on employees' attitudes and behaviors.

benchmarking

The process by which an organization compares its own practices to those of the competition is called _______.

evaluate their pay relative to other employees

When thinking about the consequences of pay decisions, managers should keep in mind that employees often ______.

evaluate their pay relative to other employees

bulk up their workloads when they feel they make less than others

believe that all employees are paid equally

ignore what compensation their colleagues receive

internal comparison

Miguel is vice president of marketing at XYZ Corp. He is disappointed to learn that the vice president of sales at XYZ earns 20 percent more than he does despite the two positions having similar levels of responsibility and impact. In this example, what method is Miguel using to evaluate the fairness of his pay?

benchmarking

internal comparison

job evaluation

external comparison

production

One of the most important factors that influences the price of a good or service is the cost of ______, which includes labor costs.

product

production

productivity

products

using pay grades

using market survey data

using the pay policy line

Which of the following are pay-setting approaches that vary in the relative importance they give to external and internal comparisons? (Select all that apply.)

using pay grades

using market survey data

using government standards

using the pay policy line

retain valued employees

draw better workers to produce higher-quality products than competitors

encourage desired employee behaviors

By paying higher labor costs than its competitors, a company can do which of the following? (Select all that apply.)

retain valued employees

reduce associated employee benefits

draw better workers to produce higher-quality products than competitors

encourage desired employee behaviors

reduces the administrative burden of setting separate pay rates for hundreds of jobs

One advantage of using a pay grade system in planning employee compensation is that it ______.

discourages employees from changing jobs within the organization

provides managers with the financial incentive to tracking costs closely

permits less flexibility for employees to move between jobs

reduces the administrative burden of setting separate pay rates for hundreds of jobs

It generates increased job satisfaction.

It attracts skilled workers.

It encourages increased productivity.

It helps retain top talent.

Which of the following are advantages of paying employee wages above the market average?

It generates increased job satisfaction.

It increases personnel costs.

It attracts skilled workers.

It encourages increased productivity.

It helps retain top talent.

pay surveys

Benchmarking against product market and labor market competitors is typically accomplished through the use of ______.

employee questionnaires

personal interviews

social networking

pay surveys

An organization must weigh its objectives and select the most appropriate strategy.

Which of the following statements about resolving conflicts between market pay surveys and job evaluation is true?

The appropriate solution is the one that will make the shareholders the most money and secure a competitive advantage for the company.

An organization must weigh its objectives and select the most appropriate strategy.

There is only one correct solution when resolving such conflicts, and that solution is to emphasize external comparisons.

Such conflicts are generally resolved by the board of directors.

job structure

What is the term for the relative worth of jobs in an organization based on internal comparisons?

job evaluation

job factor

job status

job structure

key jobs

In developing a pay structure, pay survey data and job evaluation data are commonly available for ______.

jobs unique to an organization

key jobs

nonkey jobs

external jobs

lags behind company pay policy

A compa-ratio less than 1.00 suggests that actual pay ______.

exceeds the cost of the company's pay policy

exceeds company pay policy

rates are too low to attract skilled workers

lags behind company pay policy

range

The distance between the maximum and minimum pay within a pay grade is known as the _________ spread.

efficiency wage

The concept that wages affect worker productivity is called the ______ theory.

human nature

benchmarking

efficiency wage

job involvement

Sophia's higher salary may create a sense of inequity among her Korean peers.

Sophia is paid a higher salary due to labor market conditions in the United States and Europe.

Sophia is an American manager who works at a company branch in Seoul. Her salary is determined by American standards, which are higher than South Korea's. Which of the following statements are true?

Sophia is paid a lesser amount than her Korean peers.

Sophia's higher salary may create a sense of inequity among her Korean peers.

Sophia is paid the same amount as her South Korean colleagues.

Sophia is paid a higher salary due to labor market conditions in the United States and Europe.

VP of software engineering

In a software company that caters to the federal government it would be most appropriate for which of the following positions to be paid at the highest percentile?

office manager

manager of human resources

VP of marketing

VP of software engineering

internal comparison

Miguel is vice president of marketing at XYZ Corp. He is disappointed to learn that the vice president of sales at XYZ earns 20 percent more than he does despite the two positions having similar levels of responsibility and impact. In this example, what method is Miguel using to evaluate the fairness of his pay?

benchmarking

external comparison

job evaluation

internal comparison

participating in a committee that is charged with recommending a pay program

explaining the company's rationale in implementing a specific pay program

serving on a task force that designs a pay program

Employees can take part in the compensation decision-making process by doing which of the following? (Select all that apply.)

participating in a committee that is charged with recommending a pay program

explaining the company's rationale in implementing a specific pay program

encouraging senior management to outsource the compensation program to consultants

serving on a task force that designs a pay program

compa-ratio

An index that measures the correspondence between actual pay and a company's intended pay policy is called the _______.

tax equalization

compa-ratio

geo-pay

market standard

two-tier wage plan

A system in which employees doing the same jobs are paid two different rates, depending on their hiring date, is known as a _________.

variable-wage system

discriminatory payment plan

flexible compensation package

two-tier wage plan

reduces the administrative burden of setting separate pay rates for hundreds of jobs

One advantage of using a pay grade system in planning employee compensation is that it ________.

reduces the administrative burden of setting separate pay rates for hundreds of jobs

discourages employees from changing jobs within the organization

provides managers with the financial incentive to tracking costs closely

permits less flexibility for employees to move between jobs

decreased lateral job movement

a growing bureaucracy

top-down decision making is reinforced

Which of the following problems can result from a job-based pay structure? (Select all that apply.)

decreased lateral job movement

a growing bureaucracy

employees do not know which specific tasks they are responsible for

top-down decision making is reinforced

the company's home country

Typically, expatriate pay and benefits are linked most closely to ______.

the company's home country

the company's internal pay grades

the company's host country

the employee's resident country

reward high performers with merit increases

Placing jobs in broader bands of classification gives managers the opportunity to ______.

limit salary increases

isolate non-performers

reward high performers with merit increases

increase opportunities for promotion

An organization must weigh its objectives and select the most appropriate strategy.

Which of the following statements about resolving conflicts between market pay surveys and job evaluation is true?

There is only one correct solution when resolving such conflicts, and that solution is to emphasize external comparisons.

Such conflicts are generally resolved by the board of directors.

The appropriate solution is the one that will make the shareholders the most money and secure a competitive advantage for the company.

An organization must weigh its objectives and select the most appropriate strategy.

They are unstable over time.

Which of the following is generally true of relative hourly labor costs?

They are unaffected by currency exchange rates.

They are higher in developing countries.

They are lower in countries with rapid productivity growth.

They are unstable over time.

necessary

When any change in existing pay practices is set to take place, the intimate involvement of line managers is ______.

necessary

detrimental for company morale

dispensable

not recommended

demonstrating significant remorse for implementing the pay cuts

providing detailed reasons why the pay cuts are necessary

In communicating pay cuts to employees, which of the following strategies are effective? (Select all that apply.)

demonstrating significant remorse for implementing the pay cuts

downplaying the pay cuts while conducting business as usual

ignoring the pay cuts until employees start complaining

providing detailed reasons why the pay cuts are necessary

lower labor costs and higher productivity

In general, which combination would lead to the lowest unit labor costs for one country relative to another?

lower labor costs and higher productivity

lower labor costs and lower productivity

higher labor costs and higher productivity

higher labor costs and lower productivity

jobs and associated responsibilities

The most widely used metric for defining pay structures is by ______.

jobs and associated responsibilities

employee skills

employee job experiences

academic requirements

a stock plan

In addition to salary, what is a major component of a typical CEO compensation package?

an extensive vacation package

a stock plan

a long-term insurance policy

substantial unpaid leave

delayering

The concept of reducing the number of job levels within an organization in order to gain flexibility in job assignments is called ______.

delayering

downsizing

job rotation

competency-based pay

decrease of white males in the workforce

Equal Employment Opportunity (EEO) compensation issues will likely remain in the spotlight because of the ______.

decrease of white males in the workforce

relatively high median earnings of Hispanic Latinos in comparison to whites

relatively low earnings of Asian Americans in comparison to whites

decrease of women in the workforce

unstable relative hourly labor costs

Fluctuations in currency exchange rates help explain which of the following?

decreasing international trade

unstable relative hourly labor costs

increasing worker flexibility

accelerating rates of product development

an hourly rate

Most nonexempt employees are paid ______.

more than $684 per week

an hourly rate

an annual salary

a weekly rate

participating in a committee that is charged with recommending a pay program

explaining the company's rationale in implementing a specific pay program

serving on a task force that designs a pay program

Employees can take part in the compensation decision-making process by doing which of the following? (Select all that apply.)

encouraging senior management to outsource the compensation program to consultants

participating in a committee that is charged with recommending a pay program

explaining the company's rationale in implementing a specific pay program

serving on a task force that designs a pay program

its gross domestic product (GDP) per person

One indicator of a country's productivity is ______.

the number of shuttered factories within its borders

its gross domestic product (GDP) per person

the average age of the country's population

its currency rate against the U.S. dollar

tone

performance

culture

Which of the following aspects of an organization do executives typically influence substantially? (Select all that apply.)

tone

performance

total labor costs

culture

changing demographics of the workforce

a shifting labor market

Which factors can influence a company's ability to adhere to Equal Employment Opportunity (EEO) pay regulations? (Select all that apply.)

changing demographics of the workforce

competition to hire skilled workers

a shifting labor market

competition from foreign firms

outside salespeople

executive positions

professional positions

Which of the following kinds of occupations are typically exempt from Fair Labor Standards Act (FLSA) coverage? (Select all that apply)

outside salespeople

those who are paid hourly

executive positions

professional positions

will wonder why they don't get increases.

If top executive bonuses seem unrelated to organization performance, JBL employees

probably won't care.

will wonder why they don't get increases.

will blame their union.

will think they performed poorly.

will seek work elsewhere.

when comparing their salaries with executives’ pay

According to equity theory, when would executive bonuses be a problem for JBL employees?

when bonuses are outrageous

when employees know the bonus amounts

when there's a government bail out

when comparing their salaries with executives’ pay

when bonuses are confidential

by explaining why the pay structure is designed the way it is, and be open to listening to their concerns

How might Katherine have provided an adequate explanation to employees regarding the bonuses to executives?

by explaining why the pay structure is designed the way it is, and be open to listening to their concerns

by outlining the compensation structure in the annual employee handbook

by reinforcing that employees compensation is unrelated to executive compensation

by reminding them that the company offers opportunities for promotion, improving their chances to receive bonuses

by explaining that such matters are confidential

managers.

A key role in explaining JBL's new bonus system will be played by

the CFO.

managers.

pay consultants.

the CEO.

the union.

underreward inequity

According to equity theory, when Alisa compares her union members’ wages to the executives receiving bonuses, she perceives there to be which type of inequity from the perspective of the union members?

overt inequity

subtle inequity

nonconsequential inequity

underreward inequity

overreward inequity

increase; outcome

Alisa, on behalf of her union members, is hoping to restore equity, at least to some extent, between them and the JBL executives. To do this, she is attempting to ________ the ________ for the union employees.

increase; input

maintain; outcome

increase; outcome

decrease; input

decrease; outcome

internal

Alisa and the union employees are comparing their compensation to that of their executives. This exemplifies a(n) ________ equity perspective.

blind

downward

upward

external

internal

executives’ help themselves in order to eventually give back to nonexecutive employees.

As seen is in other companies around the globe, a large disparity in pay between JBL’s executive and nonexecutive employees could create what is known as a “trust gap.” Which of the following does not represent elements of a trust gap?

executives’ self-congratulatory pay is resented.

executives’ help themselves in order to eventually give back to nonexecutive employees.

executives’ competence is doubted.

executives’ receives a larger ratio of outcomes to input than nonexecutive employees.

executives’ intentions are not trusted.