CHAPTER 18
1. A merit budget
(a) includes all personnel pay costs in gross figures
(b) is theoretically the money allocated for rewarding value performance
(c) is money allocated to be used to pay the top performers of the organization
(d) provides for an annual review of all jobs and their assigned grade levels
2. In most organizations, the _________ department is usually responsible for developing the
budget allocation.
(a) human resources
(b) finance
(c) executive
(d) compensation
3. A small, select committee of members of the board of directors who review the pay and benefits
practices of the organization is the ________ committee.
(a) executive
(b) merit budget
(c) compensation
(d) salary administration
4. Which one of the following variables is least likely to be included in pay increase policies and
guidelines?
(a) past pay increases
(b) employee’s tenure
(c) employee’s performance rating
(d) timing of employee’s pay adjustments
5. Which one of the following pay-related decisions makes the poorest use of steps inside a pay
grade?
(a) cost-of-living
(b) seniority
(c) merit
(d) performance improvements
6. If an organization’s current payroll cost is $100,000 and the cost increases 10% every year, what
will the payroll cost be at the end of five years?
(a) $140,000
(b) $150,000
(c) $161,000
(d) $173,000
7. Excluding state tax and Social Security, what gross payment would be required to yield an after-
tax payment of $1,000 to an employee in a 20% tax bracket?
(a) $800
(b) $1,000
(c) $1,200
(d) $1,250
8. At the beginning of a given year, the Shipping Department has four people, each paid $1,000 a
month In that year, each of these employees receives a monthly pay raise of $100. These raises
are given March 1, June 1, August 1, and November 1, respectively. The raises increased the
payroll cost for the year by
(a) 5%
(b) 7%
(c) 9%
(d) 10%
9. A pay structure policy that lags the market is one that adjusts the pay structure for
(a) the projected market at the end of the operating/budget year
(b) the market level at start of the operating/budget year
(c) the market level at the middle of the operating/budget year
(d) the market level at the time of a pay survey (normally 3 months before the start of the
operating/budget year)
10. What level of performance does the following describe? Consistently performs all
responsibilities in a fully satisfactory manner is fully trained and normally has 2 to 4 years’
experience on the job?
(a) 1st quartile
(b) 90th percentile
(c) probationary range
(d) midpoint
11. When an employee is being paid in the 4th quartile of a pay grade, it means that
(a) the employee is on the job with less than minimal qualifications
(b) the employee has performed in a superior manner for a sustained period of time
(c) the employee has consistently performed in an acceptable manner for at least two years
(d) the employee performs at a marginal level
12. Merit guidecharts are being used in conjunction with performance appraisal to determine pay
adjustments. Guidecharts usually identify
(a) the employee’s last pay increase and any bonuses received
(b) the employee’s current performance rating and location in the pay grade
(c) the employee’s performance ratings during employment
(d) the employee’s attendance and overtime records
13. If an organization has six different levels of performance with distinguished being the highest and
wishes to approximate a normal distribution, what percentage of employees would receive the
distinguished rating?
(a) 1
(b) 5
(c) 10
(d) 35
14. Which one of the following is normally not considered in designing a merit guidechart?
(a) job value score
(b) employee’s location in pay grade
(c) employee’s performance rating
(d) time since last rating
15. A common date for reviewing the performance of all employees may be most appropriate when
salary adjustments are based on
(a) date of entry into job
(b) date of hire into organization
(c) performance as compared with the performance of other employees
(d) performance rating based strictly on individual’s performance
16. When using maturity curve data for salary administration purposes and an organization groups its
employees into the top 10 percent, next 15 percent, middle 50 percent, etc, the second group (next
15 percent) would probably be paid equivalent to the ______ percentile in their respective years
since BS degree.
(a) 25
(b) 50
(c) 75
(d) 90
17. Which one of the following factors has the least influence on the percentage pay increase an
employee receives when moving from one job to another?
(a) seniority in the organization
(b) pay of grade at prior job and pay grade of new job
(c) difference in overall job requirements
(d) difference in points assigned prior job and points assigned new job (where a point factor
job evaluation plan is used)
18. Many organizations establish in their compensation policy a minimum difference between the pay
of a supervisor and his or her highest-paid subordinate. The most commonly found pay difference
is (a) 10%
(b) 40%
(c) 15%
(d) 50%
19. Compa ratio can be defined as the ratio of:
(a) pay of employee_____
average pay of all employees
(b) pay of individual(s), unit, etc________________
midpoint x n (if more than one ‘n’ is included in the numerator)
(c) midpoint rate of pay__________
pay of individual or unit being measured
(d) pay of individual, unit, etc__
maximum possible rate of pay
20. Concerning the compa ratio, an index number of _______ normally indicates that there is an
acceptable distribution of employees in the grade.
(a) 10
(b) 12
(c) 08
(d) 20
21. Which one of the following is not a valuable use of the compa ratio?
(a) correctly evaluating job worth
(b) comparing pay distribution among departments
(c) relating performance ratings to pay adjustments
(d) establishing merit budgets
22. What is the compa ratio of an employee who has a salary of $4,300 a month with a range of
$3,400 minimum to $5,000 maximum?
(a) .79
(b) .86
(c) 1.02
(d) 1.5
23. What would a compa ratio of 110 indicate?
(a) salary range is competitive with market
(b) salary range is low in relation to market
(c) salary range is high in relation to market
(d) average salaries paid are ten percent above the midpoint of the salary range
24. A compa ratio index moving toward 12 would seem to indicate all but one of the following:
(a) a senior work force in the pay grade
(b) possible inflation of employee performance when recognizing merit in in-step increases
(c) pay rates not in line with market conditions
(d) many entry-level employees in the pay grade
25. By using a control point based salary administration program, an organization can eliminate the
need for
(a) job evaluation
(b) setting minimum and maximum rates of pay on pay grades
(c) annually rating employee performance
(d) analyzing market pay data
26 The actual rate of pay minus the minimum rate of pay divided by the spread of the range is
(a) efficiency ratio
(b) compa ratio
(c) range index
(d) range spread
27. If an employee’s rate of pay is $12,000 and the employee’s job is assigned to a pay grade with a
maximum of $15,000 and a minimum of $10,000, the Range Index is
(a) 20 percent
(b) 40 percent
(c) 50 percent
(d) 60 percent
28. Red circle commonly refers to someone who
(a) is on probation
(b) is paid above the maximum of the range
(c) receives a pay increase that exceeds the guidelines
(d) has a compa ratio higher than can be justified by the performance appraisal
29. A major reason for giving seniority based pay increases is to recognize
(a) long life
(b) performance
(c) demonstrated abilities
(d) loyalty
30. The term “keeping an employee whole” means
(a) job requirements must never be lowered
(b) pay equals responsibilities and duties
(c) pay keeps abreast of economic changes
(d) pay relates directly to performance
31. Cost-of-living adjustments are usually related to which one of the following indexes?
(a) GNP
(b) CPI
(c) CLU
(d) CUI
Chapter 18