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Chapter 11: Developing a Pay Structure
Test Bank
Multiple Choice
1. A ______ refers to the way in which an organization applies pay rates to different
jobs, skills, or competencies.
A. reward system
B. pay structure
C. total compensation
D. job evaluation
2. Kari is reviewing the value of her salary, benefits, health care, and paid time off. All of
these things make up Kari’s ______.
A. pay structure
B. relational returns
C. compensation package
D. equity
3. A ______ refers to the policies, procedures, and practices used by an organization to
determine the amount and types of returns individuals, teams, and the organization
receive in exchange for their membership and contributions.
A. reward system
B. pay structure
C. total compensation
D. job evaluation
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4. ______ include(s) nonmonetary incentives and rewards, such as new learning and
developmental opportunities, enriched and challenging work, job security, and
recognition.
A. Broadbanding
B. Relational returns
C. Pay compression
D. External equity systems
5. Which is an example of a relational return?
A. base salary
B. paid time off
C. 401(k) savings plan
D. tenure (lifetime employment)
6. ______ subsumes compensation and benefits, which are often referred to as direct
pay and indirect pay, respectively.
A. Pay compression
B. Total compensation
C. Pay inversion
D. Broadbanding
7. Which statement best describes the difference between total compensation and
relational returns?
A. Total compensation refers to money paid directly to employees; relational returns are
all other benefits and perks.
B. Total compensation refers to financial returns and tangible services; relational returns
are psychological in nature.
C. Total compensation refers to anything with monetary value given to the employee;
relational returns do not have an associated cost.
D. Total compensation includes all financial and nonfinancial returns to employees;
relational returns are the nonfinancial component of total compensation.
8. ______ include(s) health, life, and disability insurance; retirement programs; and
work–life balance programs.
A. Pay inversion
B. Pay grade
C. Benefits
D. Job structure
9. Benefits may be referred to as ______.
A. direct pay
B. indirect pay
C. base pay
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D. variable pay
10. Which is an example of a benefit?
A. employee recognition
B. job security
C. commission
D. health insurance
11. Total compensation includes ______.
A. base pay and health insurance
B. base pay and variable pay
C. compensation and benefits
D. variable pay and health insurance
12. Which of these is the greatest cost for employers?
A. compensation
B. retirement programs
C. disability insurance
D. health insurance
13. ______ provides a way of understanding how an individual’s sense of fairness is
influenced by others with whom they compare themselves.
A. The classification system
B. Equity theory
C. Organizational justice theory
D. The point-factor method
14. According to equity theory, which is an example of a referent?
A. a colleague in your department
B. a manager in your department
C. the president of your company
D. a friend in a different field
15. Striving to maintain a state of perceived equity between oneself and a referent is a
defining characteristic of ______ theory.
A. equality
B. equity
C. expectancy
D. reinforcement
16. Applying principles of equity theory, employees are likely to compare themselves to
other employees based on their perceived ratio of ______.
A. rewards to contributions
B. variable pay to base pay
C. compensation to benefits
D. work requirements to life desires
17. Applying principles of equity theory, why might employees steal from their
company?
A. They want to help others who are under-rewarded.
B. They want to see the company lose money and fail.
C. They are trying to compensate for being under-rewarded.
D. They are angry with a decision their manager made.
18. According to the equity theory, why might employees increase their contributions to
the company?
A. They are trying to compensate for being over-rewarded.
B. They are highly competitive and want to be seen as the best worker on the team.
C. They want to lessen tensions that have arisen with their boss.
D. They are fearful that they are about to be terminated.
19. Applying equity theory principles, an employee who experiences inequity related to
compensation might feel motivated to ______.
A. find additional jobs
B. ask for a raise
C. take on more projects
D. start a business
20. Theresa normally feels like she is overpaid relative to her contribution to the
company. However, this overpayment does not bother her. What does bother her is
being given a difficult project with a short deadline but not being given any extra money
for completing it on time. This makes her feel underpaid. She complains to her manager
about the lack of fair reward for this work. Theresa is displaying a(n) ______ orientation.
A. equity sensitive
B. benevolent
C. entitlement
D. distributive
21. Alli likes her job and the organization for which she works. She puts in extra hours
for which she is not paid. She is comfortable with being underpaid for her time because
she enjoys making a contribution to the firm. When her boss gives her a bonus for her
hard work, she is uncomfortable with what she perceives as over-reward. Alli is
displaying a(n) ______ orientation
A. equity-sensitive
B. benevolent
C. entitlement
D. distributive
22. A person comfortable with being over-rewarded has a(n) ______ orientation.
A. equity-sensitive
B. benevolent
C. entitlement
D. distributive
23. A person who is comfortable with being under-rewarded has a(n) ______
orientation.
A. entitlement
B. equity-sensitive
C. benevolent
D. equality-sensitive
24. ______ stems from equity theory and similarly focuses on perceptions of fairness in
the workplace.
A. The classification system
B. Compensable factors method
C. Organizational justice theory
D. The point-factor method
25. Organizational justice theory focuses on three types of perceived injustices, which
include ______.
A. entitlement, equity, and benevolent
B. distributive, procedural, and interactional
C. distributive, entitlement, and equity
D. equality, equity, and procedural
26. Another name for distributive justice is ______.
A. process fairness
B. interpersonal fairness
C. outcome fairness
D. progressive fairness
27. Tony thinks quarterly bonuses were allocated unfairly. Which type of organizational
justice is Tony concerned with?
A. distributive
B. procedural
C. process
D. interactional
28. ______ justice refers to employees’ perceptions of fairness regarding the
procedures used to determine how an outcome or resource is determined and
distributed.
A. Distributive
B. Procedural
C. Interactional
D. Internal
29. ______ justice refers to individuals’ perceptions that they are treated with respect,
consideration, dignity, and kindness as well as provided with an adequate explanation
regarding the details of a particular process.
A. Distributive
B. Procedural
C. Interactional
D. Internal
30. Sydnee works at a law firm where she is compensated fairly for her contribution to
the company. All of her coworkers also seem to feel that the allocation of rewards is
equitable. However, company leadership is often cold, unkind, or even disrespectful to
coworkers. Sydnee is considering leaving the firm, but she has to weigh its high
perceived ______ with the low perceived ______.
A. procedural justice; interactional justice
B. interactional justice; procedural justice
C. distributive justice; interactional justice
D. procedural justice; distributive justice
31. Another name for procedural justice is ______.
A. process fairness
B. interactional justice
C. process justice
D. distributive fairness
32. Using an ethical process to determine how to allocate rewards helps to ensure a
perception of ______.
A. procedural justice
B. legal compliance
C. interactional justice
D. external equity
33. Employees who perceive the way rewards are determined and allocated is unfair
are less likely to ______.
A. quit their job
B. be unhappy with their jobs
C. help others on the job
D. discourage new hires
34. Travis knows that the company did not make enough in the previous year to justify
giving everyone their customary cost-of-living adjustment. He wants to make sure that
the process of deciding who does get a pay increase is completely ethical. Travis is
attempting to balance what will be perceived as low ______ with high ______.
A. distributive justice; procedural justice
B. procedural justice; distributive justice
C. interactional justice; distributive justice
D. distributive justice; interactional justice
35. Drew, a manager, has to tell one of his direct reports that she will not receive a year–
end bonus, but her teammates will. Drew knows he will have to communicate this
information respectfully. What else does Drew need to do to help create a perception of
interactional justice?
A. provide her with an opportunity to do better next year
B. insist that the distribution of rewards was actually equitable
C. tell her decision might be changed if she improves
D. carefully explain that the process used to make this decision was fair
36. ______ refers to the fairness of pay rates across jobs within an organization.
A. Internal equity
B. Pay inversion
C. Compa-ratio
D. Procedural justice
37. A ______ refers to the ranking of jobs in an organization based on their respective
worth.
A. job evaluation
B. job structure
C. point-factor model
D. broadband
38. Internal equity means that ______.
A. all jobs are paid indirectly proportionally to their alignment with strategy
B. jobs of greater value to the organization are assigned higher pay rates
C. ranking jobs based on their respective worth is procedural and interactional
D. job analyses are conducted for all jobs annually
39. Another name for a job structure is ______.
A. internal alignment
B. job hierarchy
C. internal consistency
D. job evaluation
40. What method of job evaluation orders jobs based on their respective worth to the
company?
A. ranking method
B. job evaluation
C. classification method
D. job hierarchy
41. What is the first step in creating an equitable job structure?
A. performance appraisal
B. ranking
C. job analysis
D. job evaluation
42. The three prominent approaches for conducting a job evaluation include the ranking
method, the classification method, and the ______.
A. labor market method
B. compa-ratio method
C. point-factor method
D. benchmark method
43. The ______ method is perhaps the fastest and simplest way to perform a job
evaluation, especially when there are a relatively small number of jobs.
A. ranking
B. point-factor
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C. classification
D. taxonomy
44. Grayson is undertaking a job evaluation for his small company. The company has
only a few positions that need to be evaluated and only a short time in which to
complete this evaluation. Which method should Grayson use?
A. classification method
B. four-point method
C. point-factor method
D. ranking method
45. Which job evaluation method lacks clear criteria for determining why and how a job
was graded the way it was graded?
A. classification method
B. four-point method
C. point-factor method
D. ranking method
46. Grant is on a team of subject matter experts performing a job evaluation using the
ranking method. They have already gathered the job descriptions for the company’s
many positions. What should they undertake next?
A. categorize the jobs based on predefined criteria
B. compare the jobs to those of external companies
C. order the jobs in terms of their relative contribution
D. flag any redundant positions for consolidation
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47. The ______ method for job evaluation has discrete levels comprised of one or more
jobs that are developed in advance to cover different job types or levels within the
organization.
A. ranking
B. point-factor
C. classification
D. taxonomy
48. A similarity between the ranking method and the classification method is that
______.
A. neither provides for objectivity when ranking jobs from one level to the next level
B. neither provides a matching job description for a job from one level to the next level
C. neither provides an assessment of how much more valuable a job is from one level
to the next level
D. neither provides guidance for determining classification from level to the next level
49. The ______ method is a common job evaluation approach in organizations which
requires the identification, scaling, and application of weights to compensable factors.
A. ranking
B. point-factor
C. classification
D. taxonomy
50. Which job evaluation method involves an internal subject matter expert and an
external subject matter expert?
A. classification
B. ranking
C. distribution
D. point-factor
51. Conducting a point-factor method requires identifying, scaling, and applying weights
to the common dimensions by which jobs vary in terms of worth. These common
dimensions are called ______.
A. compensable factors
B. calculated points
C. benchmarks
D. compa-ratios
52. In job evaluation, ______ are the common dimensions by which jobs vary in terms
of worth.
A. rankings
B. point factors
C. compensable factors
D. distributions
53. An example of a compensable factor is ______.
A. education
B. wage or salary
C. benefits
D. daily schedule
54. Which approach to job evaluation yields a numerical measure for each job for the
sake of comparison with other jobs?
A. ranking method
B. classification method
C. point-factor method
D. distribution method
55. ______ refer(s) to the extent to which the pay for a particular job at a particular
organization is competitive and fair relative to the pay of the same or similar jobs at
other organizations.
A. Compensable factors
B. External equity
C. Classification
D. Organizational justice
56. The ______ refers to the availability of talent outside of an organization, which can
be viewed through the lens of talent supply and demand.
A. labor market
B. external equity
C. market pay line
D. product market
57. When an organization pays its employees less than the average competitor, it is
pursuing a ______ strategy.
A. beat-the-market
B. lag-the-market
C. lead-the-market
D. mixed-market
58. The ______ refers to the final sale of products and services in the marketplace.
A. labor market
B. market review
C. market pay line
D. product market
59. A ______ is the process of collecting pay data for benchmark jobs from other
organizations.
A. broadband
B. market review
C. market pay line
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D. product market
60. To conduct an effective market review, ______ need to be available for benchmark
jobs.
A. job descriptions
B. compensable factors
C. job evaluations
D. job titles
61. ______ refers to a process whereby the analyst identifies when the pay data were
originally collected and then weights the data based on the expected change in the
market pay rates based on merit-based increases, cost of living adjustments, and other
factors that affect pay.
A. Aging
B. Broadbanding
C. Market review
D. Delayering
62. Some organizations base their pay levels and pay structure directly on their
competitors’ pay levels and pay structures, a process that is referred to as ______.
A. market review
B. broadbanding
C. delayering
D. market pricing
63. The ______ reflects the relationship between the internal job structure of the
organization for benchmark jobs and the external pay practices of other organizations.
A. pay policy line
B. pay grade
C. pay rank
D. market pay line
64. A ______ represents how an organization translates information about the internal
job structure and external pay rates of competitors into actionable pay practices.
A. pay policy line
B. pay grade
C. pay rank
D. market pay line
65. A ______ represents a group of jobs with similar job evaluation point values that are
then assigned common pay midpoint, minimum, and maximum values.
A. pay policy line
B. pay grade
C. pay rank
D. broadband
66. The process of collapsing multiple pay grades into one large grade with a single
minimum and maximum is referred to as ______.
A. pay policy line
B. delayering
C. broadbanding
D. market pricing
67. ______ refers to the fairness of how pay is administered and distributed to individual
employees working similar jobs within the same organization.
A. Distributive justice
B. Individual equity
C. Pay justice
D. Interactional justice
68. What kind of pay structure emphasizes people’s unique competencies and skills
when determining pay?
A. person-based
B. job-based
C. skill-based
D. task-based
69. In job-based pay structures, employees are paid based on ______.
A. the content of the jobs they perform
B. their unique performance of a task
C. their previous job experience
D. their individual competencies or skills
70. When Maria was starting her small business, she took a class about pay structures.
She read about the benefits of person-based pay structures. She would like to use the
person-based pay structure at her small business. What should she do?
A. pay employees based on the jobs they perform
B. make sure pay grades are similar across the company
C. determine bonuses based on employees’ personal traits
D. tie employee pay to the unique abilities they contribute
71. Enacted in 1938, the Fair Labor Standards Act (FLSA) introduced major provisions
aimed at regulating ______, ______, hours worked, and record keeping.
A. executive pay; minimum wage
B. overtime pay; discrimination
C. worker safety; minimum wage
D. overtime pay; minimum wage
72. ______ refers to those employees who do not fall under the purview of minimum
wage and overtime provisions of the Fair Labor Standards Act.
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A. Full time
B. Laborer
C. Exempt
D. Requisite
73. ______, issued by President Lyndon B. Johnson in 1965, expanded the protections
for different forms of employment discrimination to include employers with federal
contracts or subcontracts in excess of $10,000.
A. Executive Order 11246
B. The Fair Labor Standards Act (FLSA)
C. The National Labor Relations Act (NLRA)
D. Internal Revenue Code
74. Enacted in 1935, the ______ includes a provision stipulating that employees
protected under the act have a right to discuss pay as part of activities related to
collective bargaining and protection, thereby providing an avenue through which
employees may uncover pay discrimination.
A. Executive Order 11246
B. The Fair Labor Standards Act (FLSA)
C. The National Labor Relations Act (NLRA)
D. Internal Revenue Code
75. ______ occurs when a recently hired employee with relatively little experience earns
nearly as much or the same as a more experienced, longer-tenured employee in the
same job.
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A. Internal equity
B. Aging of pay data
C. Pay inversion
D. Pay compression
76. What reflects how much employees are paid for a given job or pay grade as
compared to the espoused pay structure and policies?
A. employee tenure
B. compa-ratio
C. the systematic compression scale
D. pay transparency
77. Why do proponents of pay transparency think it is desirable to make pay information
public?
A. It can determine whether a reward system is effective.
B. It can increase equity sensitivity among employees.
C. It can identify people at risk for workplace deviance.
D. It can reduce gaps in gender and race/ethnicity earnings.
True/False
1. Employees rank pay as the number one reason for choosing one job over another.
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2. A reward system is not helpful in attracting the best talent if the selection process fails
to identify the best candidates.
3. According to equity theory, individuals compare themselves to referent others based
on their perceived ratio of the following factors: rewards and contributions.
4. In the context of equity theory, equality and equity are one and the same.
5. Procedural justice refers to the perceived equality regarding allocation of an outcome
or resource.
6. In a fair job structure, employees who work in jobs that contribute more directly to an
organization’s attainment of strategic objectives are paid at a higher rate.
7. In job evaluation, a secretary is an example of a benchmark job.
8. A pay policy line represents how an organization translates information about the
internal job structure and external pay rates of competitors into actionable pay practices.
9. The term “exempt” refers to employees who fall under the purview of the minimum
wage and overtime provisions of the Fair Labor Standards Act.
10. Pay inversion occurs when the CEO earns several times what the average worker is
paid.
11. The imbalance between what an executive earns and what the average worker
earns, in part, is attributed to stock options and other ownership programs related to
profits.
12. When executives are paid a lot more than the average employee, stakeholders view
the system as internally inequitable.
13. Pay openness refers to the degree to which employees can discuss pay with each
other.
14. In 2017, African American/Black and Hispanic/Latino workers earned $0.75 and
$0.74, respectively, for every $1.00 White workers earned.
15. Pay transparency may increase the pay gap between protected groups.
Essay
1. Prepare a strategy that supports an effective reward system.
2. Examine the difference between equality and equity as it relates to pay structure.
3. Provide an example that analyzes how a company develops and administers an
equitable pay structure.
4. Examine the benefits of a person-based pay structure.
5. Provide and analyze an example of pay compression.
