Chapter 11 - Pay Structure Decisions

Chapter 11 - Pay Structure Decisions
Chapter 11
Pay Structure Decisions
True / False Questions
1. Conceptually, a job structure can be defined as the relative pay of various jobs in an
organization.
True False
2. The equity theory suggests that people often evaluate their situations by comparing them
with those of other people.
True False
3. Internal equity pay comparisons focus on what employees in other organizations are paid
for doing the same general job.
True False
4. Product market competition places a lower bound on labor costs and compensation.
True False
5. Essentially, labor market competition is the amount an organization must pay to compete
against other companies that hire similar types of employees.
True False
6. Benchmarking is a procedure in which a company compares its own practices against those
of the competition.
True False
11-1
7. Product market comparisons that focus on labor costs deserve greater weight when labor
costs represent a large share of total costs.
True False
8. It is usually valid to compare return-on-investment ratios, such as revenues/labor costs,

among organizations in different industries.
True False
9. Nonkey, or benchmark, jobs have relatively stable content and are common to many
organizations.
True False
10. Job evaluation can be defined as the relative worth of various jobs in the organization
based on internal comparisons.
True False
11. A market pay policy line may be developed using job evaluation data and market pay
survey data.
True False
12. A disadvantage of using pay grades is the increased administrative burden and costs.
True False
13. Market rates are used in the pay policy line approach, but not in the market survey data
approach.
True False
11-2
14. When resolving conflicts between external and internal pay data, there is a growing
sentiment that external comparisons deserve greater weight because organizations are finding
it increasingly difficult to ignore market competitive pressures.
True False
15. A compa-ratio equivalent to 1 suggests that actual pay is not consistent with the pay
policy.
True False
16. Under a two-tier wage plan, employees doing the same job are paid two different rates,
depending on their background and training.
True False
17. Broad band pay programs can lead to weaker budgetary controls and rising labor costs.
True False
18. Skill-based pay systems fit well with the increased breadth and depth of skill that
changing technology continues to bring.
True False
19. The use of "banding" in organizations may mean fewer promotional opportunities for
employees.
True False
20. The quality and productivity of national labor forces do not vary dramatically between
industrialized countries and developing countries.
True False
11-3
21. Any consideration of where to locate production can be based on labor considerations
alone.
True False
22. Long-term compensation, typically in the form of stock plans, is the major component of
CEO pay.
True False
23. A comparable worth policy has a major impact on the relative earnings of women in the
private sector.
True False
24. If an employer knows an employee is working overtime but neither moves to stop it nor
pays time and a half, a violation of the FLSA has likely occurred.
True False
25. The Fair Labor Standards Act requires that employees be paid one and a half times their
hourly rate after eight hours of work on a daily basis.
True False
Multiple Choice Questions
26. _____ refers to the relative pay of different jobs and how much they are paid.
A. Equity structure
B. Pay structure
C. Task structure
D. Job structure
11-4
27. _____ refers to the relative pay of jobs in an organization.

A. Pay structure
B. Equity structure
C. Job structure
D. Task structure
28. Consider the same two jobs in two different organizations. In Organization 1, jobs A and
B are paid an annual average compensation of $30,000 and $50,000, respectively. In
Organization 2, the pay rates are $25,000 and $55,000, respectively. Which of the following is
true?
A. Organizations 1 and 2 have the same pay level
B. Organizations 1 and 2 have the same job structures
C. Organizations 1 and 2 have the same individual pay rates
D. Organizations 1 and 2 use incentive pay systems
29. Both pay level and job structure are characteristics of organizations and reflect decisions
about:
A. human resource development.
B. individual employees.
C. organizational goals.
D. jobs.
30. Implications of the equity theory for managing employee compensation include all but
one of the following. Name the exception.
A. Employees evaluate their pay by comparing it with what others get paid.
B. Employees look at the intrinsic aspect of their work when making pay evaluations.
C. Employees work attitudes and behaviors are influenced by their pay comparisons.
D. Employee perceptions are what determine their pay evaluations.
31. All of the following are counterproductive ways of restoring equity EXCEPT:
A. decreasing one's outcomes.
B. reducing one's own inputs.
C. leaving the situation that generates perceived inequity.
D. refusing to cooperate with employees who are perceived as overrewarded.
11-5
32. Which of the following is a consequence of external equity perceptions in making pay
level decisions?
A. Transfer
B. Promotion
C. Cooperation among employees
D. Attraction and retention of quality employees
33. _____ pay comparisons focus on what employees within the same organization, but in
different jobs, are paid.
A. External equity
B. Interior incentive
C. Internal equity
D. Exterior incentive
34. Which of the following is not a true statement concerning product market competition?
A. In the absence of clear evidence of on productivity differences, costs need to be closely
monitored.
B. Organizations compete on multiple dimensions (e.g., quality, service, and price).
C. It is the degree to which an organization must pay to compete against other companies that
hire similar employees.
D. It places an upper bound on labor costs and compensation.
35. Which of the following is an example of an indirect payment?

A. Wages
B. Health insurance
C. Bonuses
D. Salaries
36. All of the following are ways of enhancing the organization's competitive position in the
product market EXCEPT:
A. staff expansion.
B. wage and salary freezes.
C. hiring freezes.
D. sharing benefits costs with employees.
11-6
37. Which of the following theories describes the conditions under which the benefits of
higher pay outweigh the higher costs?
A. Equity theory
B. Expectancy theory
C. Agency theory
D. Efficiency wage theory
38. According to the efficiency wage theory, being a higher-pay employer is more beneficial
when organizations:
A. can easily monitor employee performance.
B. are centralized.
C. require highly skilled employees.
D. have specialized work structures.
39. When using pay surveys to establish pay levels, all of the following are important
activities EXCEPT:
A. include all jobs in an organization in the survey.
B. include both labor market and product market competitors.
C. decide if multiple surveys will be used.
D. decide how to weigh and combine pay data.
40. Which of the following comparisons is NOT important when deciding how to combine
and weigh pay survey data from product market competitors?
A. The ratio of labor costs to total costs
B. The elasticity of product demand
C. The costs of recruiting replacements
D. The elasticity of the supply of labor
41. What type of business is most likely to have a high revenue-to-labor-cost ratio?
A. A capital-intensive business
B. A newly formed business
C. A labor-intensive business
D. A diversified business
11-7
42. _____ comparisons may be more important when attracting and retaining qualified
employees is difficult, and when the costs of recruiting replacements is high.
A. Labor market
B. International
C. Product market
D. Commodity market
43. Key, or benchmark, jobs have all of the following characteristics EXCEPT:
A. relatively stable content.
B. are common to many organizations.
C. are jobs on which it is possible to obtain market pay survey data.
D. have many incumbents within the organization.
44. _____ are the different pay rates various employees may get for the same job.
A. Wage differentials
B. Key proximities
C. Compensable factors
D. Rate ranges
45. In developing a job evaluation system, compensable factors:

A. are generally statistically derived.
B. are the characteristics of jobs that a firm values and chooses to pay for.
C. usually vary significantly across job-evaluation systems.
D. describe all aspects of the jobs being evaluated.
46. An example of a typical compensable factor is:

A. social status.
B. working conditions.
C. longevity.
D. gender.
11-8
47. Which of the following HR activities provides basic descriptive information on job
attributes and the job itself?
A. Market survey
B. Job analysis
C. Recruitment
D. Strategic planning
48. The job evaluation process includes all of the following EXCEPT:
A. compensable factors.
B. a weighting scheme.
C. pay ranges.
D. scores (ratings).
49. Weighting factors based on expert judgment refers to:

A. pay policy weights.
B. empirical weights.
C. a priori weights.
D. ex post weights.
50. Which pay-setting approach places the highest relative emphasis on external
comparisons?
A. Basing pay on market surveys that cover as many key jobs as possible.
B. Deriving pay rates for all jobs based on the number of job evaluation points.
C. Grouping jobs into a smaller number of pay grades.
D. Basing pay on skills employees have acquired.
51. A market pay policy line:

A. is developed using nonkey jobs.
B. can be generated using a statistical procedure called regression analysis.
C. requires market pay rate data on all jobs in the organization.
D. is always expressed as a linear relationship between job evaluation points and pay rates.
11-9
52. Which of the following is NOT a pay-setting approach to developing pay structure?
A. Market survey data
B. Pay remuneration
C. Pay policy line
D. Pay grades
53. Pay grades are desirable pay structures when:

A. there are only a few jobs in the organization.
B. there are broad distinctions between jobs within a pay grade.
C. there is concern about overpaying some jobs.
D. an organization desires greater flexibility in moving employees.
54. A disadvantage of using the pay-setting approach that groups jobs into a smaller number
of pay grades is that:
A. it increases administrative burden.
B. it permits less flexibility in moving employees from job to job.
C. it results in some jobs being underpaid and others overpaid.
D. it increases costs of surveying the market.
55. Pay rate range spreads:

A. are usually larger at higher grade levels.
B. represent the distance between the midpoint and the maximum pay rates in each grade.
C. represent a measure of the range of pay rates paid across an entire organization.
D. are usually largest for blue-collar jobs in unionized settings.
56. The compa-ratio:

A. measures the degree to which actual pay is consistent with pay policy.
B. is defined as actual average pay for the grade divided by the minimum pay for the grade.
C. can range from 0 to 100 percent.
D. uses data from market pay surveys.
11-10
57. Actual pay is lagging behind the pay policy when the compa-ratio is:
A. greater than 1.00.
B. less than 1.00.
C. greater than 100.
D. in the range of 1 to 10.
58. Which of the following compa-ratios would be of greatest concern to a management team
in a tight product market environment?
A. 1.00
B. 0.85
C. 1.25
D. 1.11
59. Compensation management could be improved in most organizations by:

A. improving the technical merit of compensation decisions.
B. developing better theoretical bases for pay decisions.
C. increasing employee participation in compensation decision making.
D. offering better justification for the selection of compensation programs.
60. As in other areas of human resource management, _____ are typically responsible for
making policies work.
A. top management teams
B. team leaders
C. consultants
D. line managers
61. In a recent research study, more effective communication of the reasons for an
organization's pay-cuts had:
A. little effect on employees' attitudes and behaviors.
B. a negative effect on employee retention rates.
C. a large effect on reducing employee theft rates.
D. no effect on employees' perceived equity of pay.
11-11
62. Research on the effects of two-tier wage plans has found that:
A. lower-paid employees were less satisfied on average than higher-paid employees.
B. those in the lower tier used lower comparison standards than those in the higher tier.
C. lower-paid employees compared their pay to those in the higher tier.
D. lower-paid employees expected over time to be promoted into the second tier.
63. _____ play the most crucial communication role because of their day-to-day interactions
with employees.
A. Managers
B. Owners
C. Subordinates
D. Competitors
64. Which of the following is not a recognized limitation of a job-based pay structure?
A. It encourages a bureaucratic orientation due to its reliance on inflexible job descriptions.
B. It reinforces top-down decision making and information flow.
C. It may not reward desired behaviors, particularly in a rapidly changing environment.
D. It is difficult to explain to employees.
65. _____ is reducing the number of job levels to achieve more flexibility in job assignments
and in assigning merit increases.
A. Remunerating
B. Reorganization
C. Downsizing
D. Delayering
66. A broad band:

A. is a combination of pay grades that reduces the number of levels in a pay structure.
B. refers to the distance between the minimum and maximum pay rate in a pay grade.
C. is the salary range attached to white-collar jobs.
D. reduces flexibility in assigning merit increases.
11-12
67. Which of the following is a possible disadvantage of delayering and banding?

A. They do not work for a small sample of jobs.
B. There is a reduced opportunity for promotion.
C. They do not permit the organization to reward employees for learning.
D. The lesser spread does not allow managers to recognize high performers.
68. Competency-based pay is generally directed toward:

A. nonexempt employees.
B. international employees.
C. exempt employees.
D. unionized employees.
69. Skill-based and competency-based approaches have all but one of the following potential
disadvantages. Name the exception.
A. Increased bureaucracy.
B. The challenge an organization faces in terms of using new skills effectively.
C. Decreased worker flexibility.
D. Employees "topping out."
70. Skill-based pay systems generally are not appropriate for organizations that:
A. desire worker flexibility.
B. rely on market-based rates.
C. emphasize decentralization of decision making.
D. desire a climate of learning.
71. Which of the following is a factor to consider in keeping many types of production in
one's own country which has high labor costs rather than shifting to low labor cost countries?
A. Relative labor costs are stable over time.
B. The quality and productivity of national labor forces generally do not vary.
C. Any consideration of where to locate production can be based on labor considerations
alone.
D. The combination of lower labor costs and higher productivity translates into lower unit
labor costs.
11-13
72. 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 "bail out"
money.
A. NCUA Corporate Stabilization Program
B. Troubled Asset Relief Program
C. Equal Pay Act
D. Civil Rights Act
73. Top executive pay in the United States:

A. is not questioned by American citizens.
B. is justified because of the high pay of many athletes/entertainers.
C. is the highest in the world.
D. is lesser when compared to other more developed countries.
74. In employees' minds, a "frame of mind that mistrusts senior management's intentions,
doubts its competence, and resents its self-congratulatory pay" is the:
A. trust gap.
B. communication gap.
C. subordination gap.
D. compliance gap.
75. The U.S. law that prohibits sex- or race-based differences in employment outcomes such
as pay, unless justified by business necessity, is:
A. the National Labor Relations Act.
B. Title VII of the Civil Rights Act.
C. the Fair Labor Standards Act.
D. Executive Order 11246.
11-14
76. The major use of job evaluation procedures is:

A. in helping to capture the market pay policy and then applying that to nonkey jobs for
which market data are not available.
B. typically to replace the market in pay setting.
C. in helping people evaluate the fairness of their situations by comparing them with those of
other people.
D. that they are the main advertising tool organizations use to design job structures.
77. Which theory states that market forces provide the most efficient means of pricing and
allocating people to jobs?
A. Equity theory
B. Efficiency wage theory
C. Economic theory
D. Expectancy theory
78. The "crowding" hypothesis, as related to aspects of pay determination responsible for
differences between male and female pay, argues that:
A. adjusting for differences in pay related to education, labor-market experience, and
occupation does not explain all earning differences.
B. market surveys perpetuate earnings differences based on sex.
C. women were historically restricted to entering a small number of occupations.
D. as the labor force participation rates of women has risen, the female-to-male earnings ratio
has increased.
79. Comparable worth is a public policy that:

A. advocates remedies for any undervaluation of jobs based on market-pay data.
B. advocates equal pay for jobs of equal content.
C. has been consistently upheld in court rulings.
D. advocates the use of job evaluation to replace the market in pay-setting.
11-15
80. The courts have consistently ruled that using the going market rates of pay:
A. is unconstitutional.
B. favors minorities.
C. favors the majority group.
D. is an acceptable defense in comparable worth litigation suits.
81. _____ is a situation where there are statistically significant compensation disparities
between similarly situated employees, after taking into account the legitimate factors which
influence compensation, such as: education, prior work experience, performance,
productivity, and time in the job.
A. Workers' compensation discrimination
B. Systemic compensation discrimination
C. Delayering
D. Banding
82. The Fair Labor Standards Act of 1938 establishes a minimum wage for jobs that now
stands at:
A. 4.75 per hour.
B. 6.00 per hour.
C. 7.25 per hour.
D. 8.30 per hour.
83. Glass ceiling refers to a(n):

A. situation where actual job performance is used in decisions in which women are less likely
to encounter unequal treatment.
B. advancement opportunity for women and other protected groups that may be hindered by
unequal access to the "old boy" or informal network.
C. situation where there are statistically significant compensation disparities between
similarly situated employees.
D. opportunity that allows women and minorities to come within sight of the top
management, but not advance to them.
11-16
84. The 1938 law that established the minimum wage and overtime pay is the:
A. Fair Labor Standards Act.
B. Walsh-Healy Act.
C. Equal Pay Act.
D. Employment Standards Act.
85. The FLSA requirement that employees be paid overtime includes the provision that:
A. overtime rates of two times employees' hourly rate worked beyond 40 hours in a week be
paid.
B. the hourly rate is based solely on the base wage.
C. professional occupations are covered under the law.
D. overtime must be paid for work done beyond 40 hours per week regardless of whether the
work is done at the workplace.
86. Which of the following is NOT true of the Fair Labor Standards Act?
A. The act applies to all employers with 15 or more employees working 20 or more weeks a
year.
B. State laws may specify higher minimum wages than the FLSA.
C. The FLSA permits a subminimum training wage equal to 85 percent of the minimum wage.
D. Nonexempt employees are covered and include most hourly workers.
87. Which of the following statements about exemption is TRUE?

A. Exempt occupations include most hourly jobs.
B. Exempt status depends on job qualifications and experience.
C. Exempt employees are covered by the Fair Labor Standards Act.
D. Exempt employees are not eligible for overtime pay.
88. Which group of employees is not exempt from the Fair Labor Standards Act?
A. Professionals
B. Administrative personnel
C. Firefighters
D. Outside sales occupations
11-17
89. Which piece of U.S. legislation, along with the 1931 Davis-Bacon Act, legislated that
federal contractors pay employees no less than the prevailing wage in the area?
A. The FLSA
B. The Walsh-Healy Act
C. The Equal Pay Act
D. The Employment Standards Act
90. Which act covers construction contractors receiving federal money of more than $2,000?
A. The 1931 Davis-Bacon Act
B. The 1936 Walsh-Healy Public Contracts Act
C. The 1938 Fair Labor Standards Act
D. The 1908 Federal Employers Liability Act
Essay Questions
91. Why are pay policies often attached to particular jobs, rather than tailored to individual
employees?
92. Discuss the equity theory and its importance to compensation decision making.
11-18
93. Describe the differences between internal equity comparisons and external equity
comparisons, and explain their consequences on the organization.
94. Describe key jobs and nonkey jobs. For which of these are market surveys attainable?
Give an example of a key job and a nonkey job.
95. What are some potential limitations of using a job-based pay structure?
96. What is skill-based pay, and when is it most appropriately used?
11-19
97. What labor-related factors should be considered when deciding where to locate production
from an international perspective?
98. Why has there been widespread criticism of executive pay in recent years?
99. What does the existing evidence suggest regarding equality of treatment in pay
determination for women and racial minorities in the United States in recent years?
100. Discuss comparable worth by (1) defining it and (2) citing four potential problems in its
implementation.
11-20
101. Describe how the Fair Labor Standards Act of 1938 has impacted employee
compensation. Who is included or excluded from these laws?
11-21
Chapter 11 Pay Structure Decisions Answer Key
True / False Questions
1. (p. 501) Conceptually, a job structure can be defined as the relative pay of various jobs in an
organization.
TRUE
AACSB: Business Knowledge and Analytic Skills

BT: Knowledge
Difficulty: Easy
Learning Objective: 11-1
Topic: Introduction
2. (p. 502) The equity theory suggests that people often evaluate their situations by comparing
them with those of other people.
TRUE

BT: Knowledge
Difficulty: Medium
Topic: Equity Theory and Fairness
3. (p. 503) Internal equity pay comparisons focus on what employees in other organizations are
paid for doing the same general job.
FALSE

BT: Knowledge
Difficulty: Medium
11-22
4. (p. 504) Product market competition places a lower bound on labor costs and compensation.
FALSE

BT: Knowledge
Difficulty: Easy
Topic: Market Pressures
5. (p. 504) Essentially, labor market competition is the amount an organization must pay to
compete against other companies that hire similar types of employees.
TRUE

BT: Knowledge
Difficulty: Medium
6. (p. 505) Benchmarking is a procedure in which a company compares its own practices against
those of the competition.
TRUE

BT: Knowledge
Difficulty: Medium
Topic: Market Pay Surveys
7. (p. 506) Product market comparisons that focus on labor costs deserve greater weight when
labor costs represent a large share of total costs.
TRUE

BT: Knowledge
Difficulty: Medium
11-23
8. (p. 506) It is usually valid to compare return-on-investment ratios, such as revenues/labor

costs, among organizations in different industries.
FALSE
AACSB: Reflective Thinking Skills

BT: Comprehension
Difficulty: Medium
9. (p. 507) Nonkey, or benchmark, jobs have relatively stable content and are common to many
organizations.
FALSE

BT: Knowledge
Difficulty: Easy
10. (p. 507) Job evaluation can be defined as the relative worth of various jobs in the
organization based on internal comparisons.
FALSE

BT: Knowledge
Difficulty: Medium
Topic: Developing a Job Structure
11. (p. 509) A market pay policy line may be developed using job evaluation data and market
pay survey data.
TRUE

BT: Knowledge
Difficulty: Medium
Topic: Developing a Pay Structure
11-24
12. (p. 510) A disadvantage of using pay grades is the increased administrative burden and
costs.
FALSE

BT: Knowledge
Difficulty: Easy
13. (p. 510) Market rates are used in the pay policy line approach, but not in the market survey
data approach.
FALSE

BT: Knowledge
Difficulty: Medium
14. (p. 512) When resolving conflicts between external and internal pay data, there is a growing
sentiment that external comparisons deserve greater weight because organizations are finding
it increasingly difficult to ignore market competitive pressures.
TRUE

BT: Knowledge
Difficulty: Medium
Topic: Conflicts Between Market Pay Surveys and Job Evaluation
15. (p. 513) A compa-ratio equivalent to 1 suggests that actual pay is not consistent with the pay
policy.
FALSE

BT: Knowledge
Difficulty: Medium
Topic: Monitoring Compensation Costs
11-25
16. (p. 517) Under a two-tier wage plan, employees doing the same job are paid two different
rates, depending on their background and training.
FALSE

BT: Knowledge
Difficulty: Medium
Topic: Communication
17. (p. 520) Broad band pay programs can lead to weaker budgetary controls and rising labor
costs.
TRUE

BT: Knowledge
Difficulty: Medium
Topic: Responses to Problems With Job-Based Pay Structures
18. (p. 520) Skill-based pay systems fit well with the increased breadth and depth of skill that
changing technology continues to bring.
TRUE

BT: Comprehension
Difficulty: Medium
19. (p. 520) The use of "banding" in organizations may mean fewer promotional opportunities
for employees.
TRUE

BT: Comprehension
Difficulty: Easy
11-26
20. (p. 523) The quality and productivity of national labor forces do not vary dramatically
between industrialized countries and developing countries.
FALSE
AACSB: Business Knowledge and Analytic Skills, Domestic and Global Economic Environments of Organizations
BT: Knowledge
Difficulty: Medium
Topic: Can the U.S. Labor Force Compete?
21. (p. 524) Any consideration of where to locate production can be based on labor
considerations alone.
FALSE
AACSB: Reflective Thinking Skills, Domestic and Global Economic Environments of Organizations
BT: Comprehension
Difficulty: Medium
22. (p. 526) Long-term compensation, typically in the form of stock plans, is the major
component of CEO pay.
TRUE

BT: Knowledge
Difficulty: Medium
Topic: Executive Pay
23. (p. 530) A comparable worth policy has a major impact on the relative earnings of women in
the private sector.
FALSE

BT: Knowledge
Difficulty: Medium
Topic: Equal Employment Opportunity
11-27
24. (p. 532) If an employer knows an employee is working overtime but neither moves to stop it
nor pays time and a half, a violation of the FLSA has likely occurred.
TRUE
AACSB: Business Knowledge and Analytic Skills, Ethical/Legal Responsibilities in Organizations & Society
BT: Knowledge
Difficulty: Medium
Topic: Minimum Wage, Overtime, and Prevailing Wage Laws
25. (p. 532) The Fair Labor Standards Act requires that employees be paid one and a half times
their hourly rate after eight hours of work on a daily basis.
FALSE
BT: Knowledge
Difficulty: Medium
Multiple Choice Questions
26. (p. 501) _____ refers to the relative pay of different jobs and how much they are paid.
A. Equity structure
B. Pay structure
C. Task structure
D. Job structure
Pay structure entails a consideration of pay level and job structure.

BT: Knowledge
Difficulty: Easy
Topic: Introduction
11-28
27. (p. 501) _____ refers to the relative pay of jobs in an organization.
A. Pay structure
B. Equity structure
C. Job structure
D. Task structure
The organization's choice of job structure influences its employees' internal comparisons and
their consequences.

BT: Knowledge
Difficulty: Easy
Topic: Introduction
28. (p. 501) Consider the same two jobs in two different organizations. In Organization 1, jobs A
and B are paid an annual average compensation of $30,000 and $50,000, respectively. In
Organization 2, the pay rates are $25,000 and $55,000, respectively. Which of the following is
true?
A. Organizations 1 and 2 have the same pay level
B. Organizations 1 and 2 have the same job structures
C. Organizations 1 and 2 have the same individual pay rates
D. Organizations 1 and 2 use incentive pay systems
Job structure refers to the relative pay of jobs in an organization.

BT: Application
Difficulty: Medium
Topic: Introduction
11-29
29. (p. 501) Both pay level and job structure are characteristics of organizations and reflect
decisions about:
A. human resource development.
B. individual employees.
C. organizational goals.
D. jobs.
Pay level is defined here as the average pay of jobs in an organization. Job structure refers to
the relative pay of jobs in an organization.

BT: Knowledge
Difficulty: Easy
Topic: Introduction
30. (p. 502) Implications of the equity theory for managing employee compensation include all
but one of the following. Name the exception.
A. Employees evaluate their pay by comparing it with what others get paid.
B. Employees look at the intrinsic aspect of their work when making pay evaluations.
C. Employees work attitudes and behaviors are influenced by their pay comparisons.
D. Employee perceptions are what determine their pay evaluations.
Equity theory's main implication for managing employee compensation is that to an important
extent, employees evaluate their pay by comparing it with what others get paid, and their
work attitudes and behaviors are influenced by such comparisons. Also, employee perceptions
are what determine their evaluation.

BT: Comprehension
Difficulty: Hard
11-30
31. (p. 502) All of the following are counterproductive ways of restoring equity EXCEPT:
A. decreasing one's outcomes.
B. reducing one's own inputs.
C. leaving the situation that generates perceived inequity.
D. refusing to cooperate with employees who are perceived as overrewarded.
Increasing one's outcomes is one of the counterproductive ways of restoring equity.

BT: Comprehension
Difficulty: Medium
32. (p. 503) Which of the following is a consequence of external equity perceptions in making
pay level decisions?
A. Transfer
B. Promotion
C. Cooperation among employees
D. Attraction and retention of quality employees
External equity pay comparisons focus on what employees in other organizations are paid for
doing the same general job. Such comparisons are likely to influence the decisions of
applicants to accept job offers as well as the attitudes and decisions of employees about
whether to stay with an organization or take a job elsewhere.

BT: Knowledge
Difficulty: Medium
11-31
33. (p. 503) _____ pay comparisons focus on what employees within the same organization, but
in different jobs, are paid.
A. External equity
B. Interior incentive
C. Internal equity
D. Exterior incentive
Internal equity pay comparisons focus on what employees within the same organization, but
in different jobs, are paid.

BT: Knowledge
Difficulty: Medium
34. (p. 503-504) Which of the following is not a true statement concerning product market
competition?
A. In the absence of clear evidence of on productivity differences, costs need to be closely
monitored.
B. Organizations compete on multiple dimensions (e.g., quality, service, and price).
C. It is the degree to which an organization must pay to compete against other companies that
hire similar employees.
D. It places an upper bound on labor costs and compensation.
Labor market competition is the amount an organization must pay to compete against other
companies that hire similar employees.

BT: Comprehension
Difficulty: Medium
11-32
35. (p. 504) Which of the following is an example of an indirect payment?

A. Wages
B. Health insurance
C. Bonuses
D. Salaries
A major component is the average cost per employee. This is made up of both direct
payments (such as wages, salaries, and bonuses) and indirect payments (such as health
insurance, social security, and unemployment compensation).

BT: Application
Difficulty: Medium
36. (p. 504) All of the following are ways of enhancing the organization's competitive position in
the product market EXCEPT:
A. staff expansion.
B. wage and salary freezes.
C. hiring freezes.
D. sharing benefits costs with employees.
Staff reductions, hiring freezes, wage and salary freezes, and sharing benefits costs with
employees are several ways of enhancing the organization's competitive position in the
product market.

BT: Application
Difficulty: Medium
11-33
37. (p. 505) Which of the following theories describes the conditions under which the benefits of
higher pay outweigh the higher costs?
A. Equity theory
B. Expectancy theory
C. Agency theory
D. Efficiency wage theory
Efficiency wage theory states that wages influence worker productivity.

BT: Knowledge
Difficulty: Medium
Topic: Deciding What to Pay
38. (p. 505) According to the efficiency wage theory, being a higher-pay employer is more
beneficial when organizations:
A. can easily monitor employee performance.
B. are centralized.
C. require highly skilled employees.
D. have specialized work structures.
Efficiency wage theory states that wages influence worker productivity.

BT: Knowledge
Difficulty: Medium
Topic: Deciding What to Pay
11-34
39. (p. 505-506) When using pay surveys to establish pay levels, all of the following are important
activities EXCEPT:
A. include all jobs in an organization in the survey.
B. include both labor market and product market competitors.
C. decide if multiple surveys will be used.
D. decide how to weigh and combine pay data.
The use of pay surveys requires answers to several important questions. Like, which jobs are
included in the survey? Because only a sample of jobs is ordinarily used, care must be taken
that the jobs are representative in terms of level, functional area, and product market. Also,
the job content must be sufficiently similar.

BT: Comprehension
Difficulty: Medium
40. (p. 506) Which of the following comparisons is NOT important when deciding how to
combine and weigh pay survey data from product market competitors?
A. The ratio of labor costs to total costs
B. The elasticity of product demand
C. The costs of recruiting replacements
D. The elasticity of the supply of labor
Labor market comparisons may be more important when the costs (administrative, disruption,
and so on) of recruiting replacements are high.

BT: Comprehension
Difficulty: Medium
11-35
41. (p. 506) What type of business is most likely to have a high revenue-to-labor-cost ratio?
A. A capital-intensive business
B. A newly formed business
C. A labor-intensive business
D. A diversified business
Labor market comparisons may be more important when the costs of recruiting replacements
are high.

BT: Knowledge
Difficulty: Medium
42. (p. 506) _____ comparisons may be more important when attracting and retaining qualified
employees is difficult, and when the costs of recruiting replacements is high.
A. Labor market
B. International
C. Product market
D. Commodity market
Labor market comparisons may be more important when (1) attracting and retaining qualified
employees is difficult and (2) the costs of recruiting replacements are high.

BT: Knowledge
Difficulty: Medium
11-36
43. (p. 507) Key, or benchmark, jobs have all of the following characteristics EXCEPT:
A. relatively stable content.
B. are common to many organizations.
C. are jobs on which it is possible to obtain market pay survey data.
D. have many incumbents within the organization.
Key jobs are benchmark jobs, used in pay surveys that have relatively stable content and are
common to many organizations. Therefore, it is possible to obtain market pay survey data on
them.

BT: Comprehension
Difficulty: Medium
44. (p. 506) _____ are the different pay rates various employees may get for the same job.
A. Wage differentials
B. Key proximities
C. Compensable factors
D. Rate ranges
The use of rate ranges permits a company to recognize differences in employee performance,
seniority, training, and so forth in setting individual pay.

BT: Knowledge
Difficulty: Medium
11-37
45. (p. 507) In developing a job evaluation system, compensable factors:

A. are generally statistically derived.
B. are the characteristics of jobs that a firm values and chooses to pay for.
C. usually vary significantly across job-evaluation systems.
D. describe all aspects of the jobs being evaluated.
A job evaluation system is composed of compensable factors and a weighting scheme based
on the importance of each compensable factor to the organization.

BT: Knowledge
Difficulty: Medium
46. (p. 507) An example of a typical compensable factor is:

A. social status.
B. working conditions.
C. longevity.
D. gender.
Compensable factors are the characteristics of jobs that an organization values and chooses to
pay for.

BT: Application
Difficulty: Medium
11-38
47. (p. 507) Which of the following HR activities provides basic descriptive information on job
attributes and the job itself?
A. Market survey
B. Job analysis
C. Recruitment
D. Strategic planning
Job analysis provides basic descriptive information on job attributes, and the job evaluation
process assigns values to these compensable factors.

BT: Knowledge
Difficulty: Medium
48. (p. 507) The job evaluation process includes all of the following EXCEPT:
A. compensable factors.
B. a weighting scheme.
C. pay ranges.
D. scores (ratings).
Rate ranges include pay ranges. It is used for setting the midpoint of pay ranges for either jobs
or pay grades.

BT: Knowledge
Difficulty: Easy
11-39
49. (p. 507) Weighting factors based on expert judgment refers to:
A. pay policy weights.
B. empirical weights.
C. a priori weights.
D. ex post weights.
In the point-factor system, weights can be generated in two ways. Assigning priori weights is
one of the ways.

BT: Knowledge
Difficulty: Medium
50. (p. 509) Which pay-setting approach places the highest relative emphasis on external
comparisons?
A. Basing pay on market surveys that cover as many key jobs as possible.
B. Deriving pay rates for all jobs based on the number of job evaluation points.
C. Grouping jobs into a smaller number of pay grades.
D. Basing pay on skills employees have acquired.
The approach with the greatest emphasis on external comparisons, market survey data, is
achieved by directly basing pay on market surveys that cover as many key jobs as possible.

BT: Knowledge
Difficulty: Medium
11-40
51. (p. 509) A market pay policy line:

A. is developed using nonkey jobs.
B. can be generated using a statistical procedure called regression analysis.
C. requires market pay rate data on all jobs in the organization.
D. is always expressed as a linear relationship between job evaluation points and pay rates.
Basically, a market pay policy line is developed based on the key jobs.

BT: Knowledge
Difficulty: Medium
52. (p. 509-510) Which of the following is NOT a pay-setting approach to developing pay
structure?
A. Market survey data
B. Pay remuneration
C. Pay policy line
D. Pay grades
The approach with the greatest emphasis on external comparisons, market survey data, is
achieved by directly basing pay on market surveys that cover as many key jobs as possible.

BT: Knowledge
Difficulty: Medium
11-41
53. (p. 510) Pay grades are desirable pay structures when:
A. there are only a few jobs in the organization.
B. there are broad distinctions between jobs within a pay grade.
C. there is concern about overpaying some jobs.
D. an organization desires greater flexibility in moving employees.
In pay grades jobs of similar worth or content are grouped together for pay administration
purposes.

BT: Knowledge
Difficulty: Medium
54. (p. 511) A disadvantage of using the pay-setting approach that groups jobs into a smaller
number of pay grades is that:
A. it increases administrative burden.
B. it permits less flexibility in moving employees from job to job.
C. it results in some jobs being underpaid and others overpaid.
D. it increases costs of surveying the market.
In pay grades jobs of similar worth or content are grouped together for pay administration
purposes.

BT: Knowledge
Difficulty: Medium
11-42
55. (p. 511) Pay rate range spreads:

A. are usually larger at higher grade levels.
B. represent the distance between the midpoint and the maximum pay rates in each grade.
C. represent a measure of the range of pay rates paid across an entire organization.
D. are usually largest for blue-collar jobs in unionized settings.
Range spread is the distance between the minimum and maximum amounts in a pay grade.

BT: Knowledge
Difficulty: Medium
56. (p. 513) The compa-ratio:

A. measures the degree to which actual pay is consistent with pay policy.
B. is defined as actual average pay for the grade divided by the minimum pay for the grade.
C. can range from 0 to 100 percent.
D. uses data from market pay surveys.
Compa-ratio is an index of the correspondence between actual and intended pay.

BT: Knowledge
Difficulty: Easy
57. (p. 513) Actual pay is lagging behind the pay policy when the compa-ratio is:
A. greater than 1.00.
B. less than 1.00.
C. greater than 100.
D. in the range of 1 to 10.

BT: Knowledge
Difficulty: Easy
11-43
58. (p. 513) Which of the following compa-ratios would be of greatest concern to a management
team in a tight product market environment?
A. 1.00
B. 0.85
C. 1.25
D. 1.11

BT: Comprehension
Difficulty: Medium
59. (p. 516) Compensation management could be improved in most organizations by:
A. improving the technical merit of compensation decisions.
B. developing better theoretical bases for pay decisions.
C. increasing employee participation in compensation decision making.
D. offering better justification for the selection of compensation programs.
Employee participation in compensation decision making can take many forms.

BT: Comprehension
Difficulty: Medium
Topic: The Importance of Process: Participation and Communication
11-44
60. (p. 516) As in other areas of human resource management, _____ are typically responsible
for making policies work.
A. top management teams
B. team leaders
C. consultants
D. line managers
It is important to distinguish between participation by those affected by policies and those

who must actually implement the policies. Managers are in the latter group. Line manager's
intimate involvement in any change to existing pay practices is, of course, necessary.

BT: Knowledge
Difficulty: Medium
Topic: The Importance of Process: Participation and Communication
61. (p. 516-517) In a recent research study, more effective communication of the reasons for an
organization's pay-cuts had:
A. little effect on employees' attitudes and behaviors.
B. a negative effect on employee retention rates.
C. a large effect on reducing employee theft rates.
D. no effect on employees' perceived equity of pay.
Managers play the most crucial communication role because of their day-to-day interactions
with their employees. Therefore, they must be prepared to explain why the pay structure is
designed as it is and to judge whether employee concerns about the structure need to be
addressed with changes to the structure.

BT: Knowledge
Difficulty: Medium
11-45
62. (p. 517) Research on the effects of two-tier wage plans has found that:
A. lower-paid employees were less satisfied on average than higher-paid employees.
B. those in the lower tier used lower comparison standards than those in the higher tier.
C. lower-paid employees compared their pay to those in the higher tier.
D. lower-paid employees expected over time to be promoted into the second tier.
The lower-tier employees compared their jobs with unemployment or lower-paying jobs they
had managed to avoid. As a result, they were more satisfied, despite being paid less money for
the same work.

BT: Knowledge
Difficulty: Medium
63. (p. 517) _____ play the most crucial communication role because of their day-to-day
interactions with employees.
A. Managers
B. Owners
C. Subordinates
D. Competitors
Managers must be prepared to explain why the pay structure is designed as it is and to judge
whether employee concerns about the structure need to be addressed with changes to the
structure.
AACSB: Communication Abilities, Business Knowledge and Analytic Skills

BT: Knowledge
Difficulty: Medium
11-46
64. (p. 517-519) Which of the following is not a recognized limitation of a job-based pay
structure?
A. It encourages a bureaucratic orientation due to its reliance on inflexible job descriptions.
B. It reinforces top-down decision making and information flow.
C. It may not reward desired behaviors, particularly in a rapidly changing environment.
D. It is difficult to explain to employees.
Job-based pay structure encourages bureaucracy. It also encourages lack of flexibility and a
lack of initiative on the part of employees. The structure's hierarchical nature reinforces a top-
down decision making and information flow as well as status differentials. The job-based pay
structure may not reward desired behaviors, particularly in a rapidly changing environment
where the knowledge, skills, and abilities needed yesterday may not be very helpful today and
tomorrow.

BT: Knowledge
Difficulty: Medium
Topic: Problems With Job-Based Pay Structures
65. (p. 519) _____ is reducing the number of job levels to achieve more flexibility in job
assignments and in assigning merit increases.
A. Remunerating
B. Reorganization
C. Downsizing
D. Delayering
In response to the problems caused by job-based pay structures, some organizations are
delayering.

BT: Knowledge
Difficulty: Medium
11-47
66. (p. 519-520) A broad band:

A. is a combination of pay grades that reduces the number of levels in a pay structure.
B. refers to the distance between the minimum and maximum pay rate in a pay grade.
C. is the salary range attached to white-collar jobs.
D. reduces flexibility in assigning merit increases.
Broad bands, with their greater spread between pay minimums and maximums, can also lead
to weaker budgetary control and rising labor costs.

BT: Knowledge
Difficulty: Easy
67. (p. 520) Which of the following is a possible disadvantage of delayering and banding?
A. They do not work for a small sample of jobs.
B. There is a reduced opportunity for promotion.
C. They do not permit the organization to reward employees for learning.
D. The lesser spread does not allow managers to recognize high performers.
To the extent that there are separate ranges within bands, the new structure may not represent
as dramatic a change as it might appear. These distinctions can easily become just as
entrenched as they were under the old system.

BT: Comprehension
Difficulty: Easy
11-48
68. (p. 520) Competency-based pay is generally directed toward:

A. nonexempt employees.
B. international employees.
C. exempt employees.
D. unionized employees.
The basic idea of exempt employees is that if you want employees to learn more skills and
become more flexible in the jobs they perform, you should pay them to do it.

BT: Knowledge
Difficulty: Easy
69. (p. 522) Skill-based and competency-based approaches have all but one of the following
potential disadvantages. Name the exception.
A. Increased bureaucracy.
B. The challenge an organization faces in terms of using new skills effectively.
C. Decreased worker flexibility.
D. Employees "topping out."
Skill-based and competency-based approaches have potential disadvantages. Although the

plan will likely enhance skill acquisition, the organization may find it a challenge to use the
new skills effectively. If pay growth is based entirely on skills, problems may arise if
employees "top out" by acquiring all the skills too quickly, leaving no room for further pay
growth. Skillbased plans may generate a large bureaucracy—usually a criticism of job-based
systems.

BT: Comprehension
Difficulty: Medium
11-49
70. (p. 522) Skill-based pay systems generally are not appropriate for organizations that:
A. desire worker flexibility.
B. rely on market-based rates.
C. emphasize decentralization of decision making.
D. desire a climate of learning.
Skill-Based Pay is based on the skills employees acquire and are capable of using.

BT: Comprehension
Difficulty: Medium
71. (p. 523) Which of the following is a factor to consider in keeping many types of production
in one's own country which has high labor costs rather than shifting to low labor cost
countries?
A. Relative labor costs are stable over time.
B. The quality and productivity of national labor forces generally do not vary.
C. Any consideration of where to locate production can be based on labor considerations
alone.
D. The combination of lower labor costs and higher productivity translates into lower unit
labor costs.
One indicator of productivity is gross domestic product per person, adjusted for differences in
purchasing power.
BT: Comprehension
Difficulty: Medium
11-50
72. (p. 526) 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 "bail out"
money.
A. NCUA Corporate Stabilization Program
B. Troubled Asset Relief Program
C. Equal Pay Act
D. Civil Rights Act
Regulatory and labor market factors, like, Troubled Asset Relief Program (TARP) influence
executive pay.

BT: Knowledge
Difficulty: Medium
73. (p. 526) Top executive pay in the United States:

A. is not questioned by American citizens.
B. is justified because of the high pay of many athletes/entertainers.
C. is the highest in the world.
D. is lesser when compared to other more developed countries.
Long-term compensation, typically in the form of stock plans, is the major component of
CEO pay, which means that CEO pay varies with the performance of the stock market.
BT: Knowledge
Difficulty: Medium
11-51
74. (p. 528) In employees' minds, a "frame of mind that mistrusts senior management's
intentions, doubts its competence, and resents its self-congratulatory pay" is the:
A. trust gap.
B. communication gap.
C. subordination gap.
D. compliance gap.
The fact that the differential between top executive pay and that of an average manufacturing
worker is so much higher in the United States than in some other countries has been described
as creating a "trust gap."

BT: Knowledge
Difficulty: Medium
75. (p. 529) The U.S. law that prohibits sex- or race-based differences in employment outcomes
such as pay, unless justified by business necessity, is:
A. the National Labor Relations Act.
B. Title VII of the Civil Rights Act.
C. the Fair Labor Standards Act.
D. Executive Order 11246.
Equal employment opportunity (EEO) regulation such as Title VII of the Civil Rights Act
prohibits sex- and race-based differences in employment outcomes such as pay, unless
justified by business necessity like pay differences stemming from differences in job
performance.
AACSB: Reflective Thinking Skills, Ethical/Legal Responsibilities in Organizations & Society

BT: Knowledge
Difficulty: Easy
11-52
76. (p. 530) The major use of job evaluation procedures is:
A. in helping to capture the market pay policy and then applying that to nonkey jobs for
which market data are not available.
B. typically to replace the market in pay setting.
C. in helping people evaluate the fairness of their situations by comparing them with those of
other people.
D. that they are the main advertising tool organizations use to design job structures.
Job evaluation has typically been used to help apply the market pay policy, quite the opposite
of replacing the market in pay setting.

BT: Knowledge
Difficulty: Medium
77. (p. 530) Which theory states that market forces provide the most efficient means of pricing
and allocating people to jobs?
A. Equity theory
B. Efficiency wage theory
C. Economic theory
D. Expectancy theory
In economic theory, moving away from a reliance on market forces would result in some jobs
being paid too much and others too little, leading to an oversupply of workers for the former
and an undersupply for the latter.
AACSB: Business Knowledge and Analytic Skills, Financial Theories

BT: Knowledge
Difficulty: Medium
11-53
78. (p. 530) The "crowding" hypothesis, as related to aspects of pay determination responsible
for differences between male and female pay, argues that:
A. adjusting for differences in pay related to education, labor-market experience, and
occupation does not explain all earning differences.
B. market surveys perpetuate earnings differences based on sex.
C. women were historically restricted to entering a small number of occupations.
D. as the labor force participation rates of women has risen, the female-to-male earnings ratio
has increased.
As a result of the "crowding" hypothesis, the supply of workers far exceeded demand,
resulting in lower pay for such occupations.

BT: Knowledge
Difficulty: Medium
79. (p. 530) Comparable worth is a public policy that:

A. advocates remedies for any undervaluation of jobs based on market-pay data.
B. advocates equal pay for jobs of equal content.
C. has been consistently upheld in court rulings.
D. advocates the use of job evaluation to replace the market in pay-setting.
The idea of comparable worth is to obtain equal pay, not just for jobs of equal content but for
jobs of equal value or worth, on the basis of Title VII of the Civil Rights Act.

BT: Knowledge
Difficulty: Hard
11-54
80. (p. 531) The courts have consistently ruled that using the going market rates of pay:
A. is unconstitutional.
B. favors minorities.
C. favors the majority group.
D. is an acceptable defense in comparable worth litigation suits.
Organizations face competitive labor and product markets. Paying less or more than the
market rate will put the organization at a competitive disadvantage. Thus there is no
comparable worth legal mandate in the U.S. private sector.

BT: Knowledge
Difficulty: Hard
81. (p. 532) _____ is a situation where there are statistically significant compensation disparities
between similarly situated employees, after taking into account the legitimate factors which
influence compensation, such as: education, prior work experience, performance,
productivity, and time in the job.
A. Workers' compensation discrimination
B. Systemic compensation discrimination
C. Delayering
D. Banding
Although comparable worth is not mandated in the U.S. private sector, the Department of
Labor (Office of Federal Contracts Compliance) which enforces Executive Order 11246, put
into place new enforcement standards and guidelines in 2006 that prohibit race or sex-based
"systemic compensation discrimination."

BT: Knowledge
Difficulty: Medium
11-55
82. (p. 532) The Fair Labor Standards Act of 1938 establishes a minimum wage for jobs that
now stands at:
A. 4.75 per hour.
B. 6.00 per hour.
C. 7.25 per hour.
D. 8.30 per hour.
Fair Labor Standards Act (FLSA) is the 1938 law that established the minimum wage and
overtime pay.

BT: Knowledge
Difficulty: Medium
83. (p. 532) Glass ceiling refers to a(n):

A. situation where actual job performance is used in decisions in which women are less likely
to encounter unequal treatment.
B. advancement opportunity for women and other protected groups that may be hindered by
unequal access to the "old boy" or informal network.
C. situation where there are statistically significant compensation disparities between
similarly situated employees.
D. opportunity that allows women and minorities to come within sight of the top
management, but not advance to them.
A "glass ceiling" is believed to exist in some organizations.

BT: Knowledge
Difficulty: Medium
11-56
84. (p. 532) The 1938 law that established the minimum wage and overtime pay is the:
A. Fair Labor Standards Act.
B. Walsh-Healy Act.
C. Equal Pay Act.
D. Employment Standards Act.
The 1938 Fair Labor Standards Act (FLSA) establishes a minimum wage for jobs that is
$6.55 per hour as of July 2008, and $7.25 per hour as of July 24, 2009.
BT: Knowledge
Difficulty: Medium
85. (p. 532) The FLSA requirement that employees be paid overtime includes the provision that:
A. overtime rates of two times employees' hourly rate worked beyond 40 hours in a week be
paid.
B. the hourly rate is based solely on the base wage.
C. professional occupations are covered under the law.
D. overtime must be paid for work done beyond 40 hours per week regardless of whether the
work is done at the workplace.
Fair Labor Standards Act (FLSA) is the 1938 law that established the minimum wage and
overtime pay.

BT: Knowledge
Difficulty: Medium
11-57
86. (p. 532-533) Which of the following is NOT true of the Fair Labor Standards Act?
A. The act applies to all employers with 15 or more employees working 20 or more weeks a
year.
B. State laws may specify higher minimum wages than the FLSA.
C. The FLSA permits a subminimum training wage equal to 85 percent of the minimum wage.
D. Nonexempt employees are covered and include most hourly workers.
The FLSA permits a subminimum training wage that is approximately 85 percent of the
minimum wage, which employers are permitted to pay most employees under the age of 20
for a period of up to 90 days.

BT: Comprehension
Difficulty: Medium
87. (p. 533) Which of the following statements about exemption is TRUE?
A. Exempt occupations include most hourly jobs.
B. Exempt status depends on job qualifications and experience.
C. Exempt employees are covered by the Fair Labor Standards Act.
D. Exempt employees are not eligible for overtime pay.
Exempt employees are not covered by the Fair Labor Standards Act. Exempt employees are
not eligible for overtime pay.

BT: Knowledge
Difficulty: Medium
11-58
88. (p. 533) Which group of employees is not exempt from the Fair Labor Standards Act?
A. Professionals
B. Administrative personnel
C. Firefighters
D. Outside sales occupations
Exempt employees are not covered by the Fair Labor Standards Act. Exempt employees are
not eligible for overtime pay.

BT: Knowledge
Difficulty: Easy
89. (p. 533) Which piece of U.S. legislation, along with the 1931 Davis-Bacon Act, legislated
that federal contractors pay employees no less than the prevailing wage in the area?
A. The FLSA
B. The Walsh-Healy Act
C. The Equal Pay Act
D. The Employment Standards Act
Walsh-Healy covers all government contractors receiving $10,000 or more in federal funds.

BT: Knowledge
Difficulty: Medium
11-59
90. (p. 533) Which act covers construction contractors receiving federal money of more than
$2,000?
A. The 1931 Davis-Bacon Act
B. The 1936 Walsh-Healy Public Contracts Act
C. The 1938 Fair Labor Standards Act
D. The 1908 Federal Employers Liability Act
Davis-Bacon covers construction contractors receiving federal money of more than $2,000.

BT: Knowledge
Difficulty: Medium
Essay Questions
91. (p. 501) Why are pay policies often attached to particular jobs, rather than tailored to
individual employees?
Pay policies are attached to particular jobs, rather than tailored to individual employees, to
reduce the number of human resource management decisions that must be made as the
number of employees in an organization increase; to reduce the burden of compensation
administration; and to make compensation more equitable in an organization.

BT: Comprehension
Difficulty: Easy
Topic: Introduction
11-60
92. (p. 502) Discuss the equity theory and its importance to compensation decision making.
The equity theory suggests that people evaluate the fairness of their situations by comparing
them to those of other people. A person (P) compares his/her own ratio of perceived outcomes
O (pay, benefits, working conditions) to perceived inputs (e.g., ability, effort, experience,
education) to the ratio of a comparison other (o). Op/Ip <, >, or = Oo/Io.
According to the theory, if the person's ratio (Op/Ip) is smaller than the referent's ratio
(Oo/Io), underreward inequity will result. If the person's ratio is larger, overreward inequity
results, although research suggests that this type of inequity is less likely to occur. If the ratios
are equal, then there is no inequity perceived.
If inequity is perceived, then change is expected in the person's attitudes and behaviors (e.g.,
reducing inputs, increasing outcomes, or leaving the situation).
The implications for compensation management are that employees evaluate their pay to an
important extent by comparing it to what others get paid, and those comparisons can affect
employee attitudes and behaviors. If employees do not perceive that they are paid well
compared to others, then compensation programs may not achieve their objectives.
Management's beliefs about employee compensation may not necessarily match employees'
beliefs.

BT: Analysis
Difficulty: Medium
11-61
93. (p. 502-503) Describe the differences between internal equity comparisons and external equity
comparisons, and explain their consequences on the organization.
External equity pay comparisons focus on what employees in other organizations are paid for
doing the same general job. Such comparisons are likely to influence the decisions of
applicants to accept job offers as well as the attitudes and decisions of employees about
whether to stay with an organization or take a job elsewhere. A market pay survey is the
primary administrative tool organizations use in choosing a pay level.
Internal equity pay comparisons focus on what employees within the same organization, but
in different jobs, are paid. These comparisons may influence general attitudes of employees;
their willingness to transfer to other jobs within the organization; their willingness to accept
promotions; their inclination to cooperate across jobs; and their commitment to the
organization. Job evaluation is the administrative tool organizations use to design job
structures.

BT: Analysis
Difficulty: Medium
94. (p. 506-507) Describe key jobs and nonkey jobs. For which of these are market surveys
attainable? Give an example of a key job and a nonkey job.
Key jobs have relatively stable content and are common to many organizations. Therefore, it
is possible to obtain market pay survey data on them. Nonkey jobs are unique to
organizations; thus, they cannot be directly valued or compared through the use of market
surveys. Therefore, they are treated differently in the pay-setting process. Student examples
will vary.

BT: Analysis
Difficulty: Easy
11-62
95. (p. 517-519) What are some potential limitations of using a job-based pay structure?
A job-based pay structure may encourage a bureaucratic orientation and a lack of flexibility
through emphasis on specific tasks and activities for which an incumbent is responsible and,
by implication, for which the incumbent is not responsible.
The structure's hierarchical nature reinforces top-down decision making and information flow
as well as status differentials.
Changes to job descriptions involve significant investments of time and money, therefore
becoming a barrier to change.
The structure may not reward desired behaviors, particularly in a rapidly changing
environment.
The structure discourages lateral employee movement and encourages promotion-seeking
behavior.

BT: Analysis
Difficulty: Medium
Topic: Problems With Job-Based Pay Structures
96. (p. 520-522) What is skill-based pay, and when is it most appropriately used?
Skill-based pay (SBP) differs from job-based pay in that employees are paid for the skills they
have versus being paid for the job they are doing at a particular point in time.
SBP is desirable in situations where employees need to learn more skills and become more
flexible in the jobs they perform, particularly in environments where the technology is
changing. SBP has the following potential advantages: increased worker flexibility,
decentralization of decision making, opportunities for leaner staffing levels, contributing to a
climate of learning and adaptability, and better utilization of employee know-how and ideas.

BT: Analysis
Difficulty: Medium
11-63
97. (p. 523-524) What labor-related factors should be considered when deciding where to locate
production from an international perspective?
Average hourly labor costs. However, changes in currency exchange rates have a very
important influence on such comparisons, and these rates often fluctuate significantly from
year to year, making relative labor costs very unstable over time.
The quality and productivity of national labor forces can vary dramatically. As a result,
certain types of skilled labor are often not available in low-labor-cost countries.
BT: Analysis
Difficulty: Easy
98. (p. 526-528) Why has there been widespread criticism of executive pay in recent years?
Looking beyond average pay levels, some executives are very highly paid. The very highly
paid receive a great deal of attention in the media. U.S. executives are the highest paid in the
world. The fact that the differential between top-executive pay and that of an average
manufacturing worker is so much higher in the United States than in some other countries has
created a "trust gap." This raises issues of perceived fairness during difficult economic
periods.

BT: Analysis
Difficulty: Easy
11-64
99. (p. 530) What does the existing evidence suggest regarding equality of treatment in pay
determination for women and racial minorities in the United States in recent years?
Raw earnings ratios (i.e., without adjustments for differences in education, labor-market
experience, and occupation) show that in 2007, among full-time workers, the percentage of
female-to-male average earnings was 0.80, and the percentage of black-to-white earnings was
0.79.
Adjusting for differences reduces earnings differentials based on race and sex, but significant
differences remain.
AACSB: Multicultural/Diversity Understanding, Reflective Thinking Skills

BT: Analysis
Difficulty: Medium
100. (p. 530-531) Discuss comparable worth by (1) defining it and (2) citing four potential
problems in its implementation.
Comparable worth is a public policy that advocates remedies for any undervaluation of
women's jobs. The idea is to obtain equal pay, not just for jobs of equal content, but for jobs
of equal value or worth.
Potential problems: (1) Job evaluation procedures were never designed to establish job worth
independent of the market. Rather, their major use is in helping to capture the market pay
policy and then applying that to nonkey jobs for which market data are not available. (2) Any
reliance on job evaluation procedures rather than the marketplace would result, according to
economic theory, in some jobs being paid too much and other too little, leading to an
oversupply of workers for the former and undersupply for the latter. (3) Another limitation of
such a policy is that it targets single employers, ignoring the fact that men and women tend to
work for different employers. In other words, to the extent that sex-based pay differences are
the result of men and women working in different organizations with different pay levels,
such policies will have little impact. (4) Finally, despite potential problems with market rates,
the courts have consistently ruled that using the going market rates of pay is an acceptable
defense in comparable worth litigation suits. Thus, there is no legal comparable worth
mandate in the U.S. private sector.

BT: Analysis
Difficulty: Medium
11-65
101. (p. 532-533) Describe how the Fair Labor Standards Act of 1938 has impacted employee
compensation. Who is included or excluded from these laws?
The 1938 Fair Labor Standards Act (FLSA) established a minimum wage for jobs that now
stands at $7.25 per hour. The FLSA also requires that employees be paid at a rate of one and a
half times their hourly rate for each hour of overtime worked beyond 40 hours per week.
Executive, professional, administrative, outside sales, and certain "computer employees"
occupations are exempt from FLSA coverage. Nonexempt occupations are covered and
include most hourly jobs. The exemptions do not apply to police, fire fighters, paramedics,
and first responders.

BT: Analysis
Difficulty: Medium
11-66

Chapter 11 - Pay Structure Decisions

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Chapter 11 - Pay Structure Decisions

True / False Questions

8. It is usually valid to compare return-on-investment ratios, such as revenues/labor costs,

Multiple Choice Questions

27. _____ refers to the relative pay of jobs in an organization.

35. Which of the following is an example of an indirect payment?

45. In developing a job evaluation system, compensable factors:

46. An example of a typical compensable factor is:

49. Weighting factors based on expert judgment refers to:

51. A market pay policy line:

53. Pay grades are desirable pay structures when:

55. Pay rate range spreads:

56. The compa-ratio:

59. Compensation management could be improved in most organizations by:

66. A broad band:

67. Which of the following is a possible disadvantage of delayering and banding?

68. Competency-based pay is generally directed toward:

73. Top executive pay in the United States:

76. The major use of job evaluation procedures is:

79. Comparable worth is a public policy that:

83. Glass ceiling refers to a(n):

87. Which of the following statements about exemption is TRUE?

96. What is skill-based pay, and when is it most appropriately used?

Chapter 11 Pay Structure Decisions Answer Key

True / False Questions

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

8. (p. 506) It is usually valid to compare return-on-investment ratios, such as revenues/labor

AACSB: Reflective Thinking Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Reflective Thinking Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

Multiple Choice Questions

Pay structure entails a consideration of pay level and job structure.

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills

Job structure refers to the relative pay of jobs in an organization.

AACSB: Reflective Thinking Skills

AACSB: Reflective Thinking Skills

AACSB: Business Knowledge and Analytic Skills

Increasing one's outcomes is one of the counterproductive ways of restoring equity.

AACSB: Reflective Thinking Skills

AACSB: Business Knowledge and Analytic Skills

AACSB: Business Knowledge and Analytic Skills