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Student name:__________
TRUE/FALSE – Write ‘T’ if the statement is true and ‘F’ if the statement is false.
1) The final step in determining externally competitive pay levels and structures is the
merging of internal and external pressures.
⊚ true
⊚ false
2) Adjustments to the different forms of pay competitors use and the relative importance
they place on each form occur more frequently than adjustments to overall pay level.
⊚ true
⊚ false
3) Many employers use market surveys to validate their own job evaluation results.
⊚ true
⊚ false
4) When there is an unusual level of turnover in a job, an employer is likely to conduct a
market survey.
⊚ true
⊚ false
5) The distribution of rates around a measure of central tendency is called weighted mean.
⊚ true
⊚ false
6) Identifying pay survey participants by company name is considered price fixing under the
Sherman Act.
⊚ true
⊚ false
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7) If the purpose of a survey is to price the entire structure of a job, then benchmark jobs can
be selected to include the entire job structure.
⊚ true
⊚ false
8) Turnover and organizational revenues are examples of survey data collected to gather
competitive intelligence.
⊚ true
⊚ false
9) In cases where the content of an organization’s jobs does not sufficiently match that of the
jobs in the salary survey, an effort can be made to quantify the difference via benchmark
conversion.
⊚ true
⊚ false
10) Regression smoothes large amounts of data while minimizing variations.
⊚ true
⊚ false
11) As a measure of compensation, base pay includes performance incentives, and therefore
it gives a true picture if competitors offer low base but high incentives.
⊚ true
⊚ false
12) A pay range exists whenever two or more rates are paid to employees in the same job.
⊚ true
⊚ false
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13) Pay ranges for top-level management positions are smaller than pay ranges for entry-level
managerial positions.
⊚ true
⊚ false
14) Pay ranges for managerial jobs are larger than ranges for other jobs because these jobs
have greater opportunity for both discretion and performance than lower-level jobs.
⊚ true
⊚ false
15) Smaller pay ranges may reduce the opportunities for promotion.
⊚ true
⊚ false
16) Skill-based plans establish single flat rates for each skill level regardless of performance
or seniority.
⊚ true
⊚ false
17) Career moves between bands are more common than within bands.
⊚ true
⊚ false
18) Managers often regard external market data as more objective than internal job
evaluation.
⊚ true
⊚ false
19) A pure market pricing strategy carried to its extreme tends to ignore internal alignment
completely.
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⊚ true
⊚ false
20) Market pricers emphasize any unique or difficult-to-imitate aspects of an organization’s
pay structure.
⊚ true
⊚ false
MULTIPLE CHOICE – Choose the one alternative that best completes the statement or
answers the question.
21) The first major decision in setting externally competitive pay and designing the
corresponding pay structures is to
A) specify the employer’s competitive pay policy.
B) conduct a job evaluation.
C) select relevant market competitors.
D) construct a pay policy line that reflects external pay policy.
22) The second major decision in setting externally competitive pay and designing the
corresponding pay structures is to
A) specify relevant markets.
B) define the purpose of the survey.
C) specify the pay-level policy.
D) design grades and ranges.
23) The final major decision in setting externally competitive pay and designing the
corresponding pay structures is to
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A) interpret survey results and construct the market line.
B) construct a pay policy line that reflects external pay policy.
C) design grades and ranges or bands.
D) select relevant market competitors.
24) Which of the following is true of the Employment Cost Index?
A) It is one of three types of salary surveys published regularly by the Department of
Commerce.
B) It measures the rate of change in prices for goods and services in the product market,
not wage changes in labor markets.
C) It measures monthly changes in employer costs for compensation.
D) It allows a firm to compare changes in its average costs to an all-industry or specific-
industry average.
25) Which of the following jobs would most likely fall into a fuzzy market?
A) The position of English professor that was filled by a Ph.D. holder in English
language and literature with five years of teaching experience
B) The position of sound engineer that was filled by a graduate with a degree in audio
engineering
C) The position of senior director of Future Vision Services that was filled by a software
engineer with e-commerce, marketing, and theater experience
D) The position of vice president of a marketing firm that was filled by a marketing
manager with 15 years of experience in the marketing field
26) In most organizations, the responsibility for managing a pay survey lies with
A) top management.
B) the facility or plant manager.
C) outside consultants.
D) the compensation manager.
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27) In the United States, the ________ is a major source of publicly available pay data, and it
also calculates the consumer price index.
A) Chamber of Commerce
B) Bureau of Labor Statistics
C) Compensation Association
D) Department of Economics
28) A company using a skill-based pay system prices the job of lead assembler between $10
and $22 per hour. Survey data showed that the job of assembler averaged $10 per hour and the
job of assembly supervisor averaged $22 per hour. The company is using the ________ method
of job matching.
A) benchmark job
B) low-high
C) survey leveling
D) benchmark conversion
29) For organizations using a skill-competency-based pay system or generic job descriptions,
the best approach for pricing jobs is
A) the benchmark job approach.
B) the low-high approach.
C) survey leveling.
D) benchmark conversion.
30) ________ measures reveal competitors’ use of performance-based cash payments.
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A) Base pay
B) Short-term incentive pay
C) Total cash
D) Long-term incentive pay
31) A common first step in interpreting compensation survey data is to
A) check for the accuracy of job matches.
B) seek out nonresponders.
C) check for anomalies.
D) remove the top- and bottom-paying companies.
32) The process of matching survey jobs by applying an employer’s plan to the external jobs
and then comparing the worth of the external job with its internal “match” is called
A) pay compression.
B) collective bargaining.
C) due diligence.
D) benchmark conversion.
33) Which of the following is true of weighted mean as a statistical measure to analyze
survey data?
A) It is frequently used to set pay ranges or zones.
B) It captures the size of supply and demand in a market.
C) It tells how similar or dissimilar market rates are from each other.
D) It minimizes distortion caused by outliers.
34) Which of the following is often used to set pay ranges?
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A) Median
B) Weighted mean
C) Quartiles and percentiles
D) Standard deviation
35) ________ minimizes the distortion of the central tendency caused by outliers.
A) Weighted mean
B) Mean
C) Mode
D) Median
36) Which of the following statistical measures shows how similar or dissimilar the market
rates are from each other?
A) Weighted mean
B) Mean
C) Standard deviation
D) Median
37) Because employers are raising employee pay at various times during the year, survey data
must be updated using a process called
A) aging.
B) leading.
C) matching.
D) gaining.
38) Which of the following is a difference between ranges and bands?
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A) Ranges give managers “freedom to manage” pay, whereas bands give managers
“freedom with guidelines.”
B) Ranges offer recognition via titles or career progression, whereas bands offer cross-
functional experience and lateral progression.
C) Ranges are used by companies with global operations, whereas bands are used by
companies with domestic operations.
D) Ranges eliminate layers of managerial job, whereas bands emphasize the importance
of several layers of managerial jobs.
39) Gramhold, Inc., a pharmaceutical company, reduces its ten salary grades to just three
broad bands. Which of the following statements is most likely to be true in this case?
A) Gramhold will face difficulty in defining job responsibilities broadly with the new
structure.
B) Gramhold will find that the new structure hinders cross-functional growth.
C) Gramhold will experience more career moves within bands than career moves
between bands.
D) Gramhold will offer recognition via titles rather than through cross-functional
experience and lateral progression.
40) Which of the following is an example of a company that uses broad banding?
A) A company in which there are more lateral movements with no pay adjustment than
promotions
B) A company that has pay guidelines and controls designed right into the pay system
C) A company that has an unlimited total salary budget
D) A company that pays all its employees the same salary
41) A market pay line
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A) reflects an organization’s pay scale based on the ratings given by its employees.
B) links a company’s benchmark jobs with market rates paid by competitors.
C) provides an accurate prediction of an organization’s entry level pay rates.
D) compares an organization’s minimum and maximum pay rates for each skill level.
42) In the regression equation y = a + bx, job evaluation points are denoted by
A) a.
B) b.
C) x.
D) y.
43) Aging market data to a point halfway through a plan year is called
A) leveling.
B) updating.
C) lead/lag.
D) matching.
44) Asai uses a skill-based plan that establishes single flat rates for each skill level. Mark
performs better than Steve even though Steve has more seniority. Which of the following
statements is most likely to be true in this scenario?
A) Mark will be paid more than Steve as his performance is better.
B) Steve will be paid more than Mark as he has more seniority.
C) Both Mark and Steve will be paid the same amount.
D) Steve will be given more incentives than Mark.
45) Which of the following statements is true of pay ranges?
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A) They are flexible enough to deal with differences in quality but not with the
productivity or value of these quality variations.
B) They usually lead to an increase in employee turnover.
C) They reflect the differences in performance or experience that an employer wishes to
recognize with pay.
D) They cause employees to believe that their compensation cannot increase in the same
job.
46) Pay ranges for office and production work commonly range between
A) 5 and 15 percent.
B) 15 and 30 percent.
C) 30 and 40 percent.
D) 40 and 60 percent.
47) The size of pay differentials between grades should
A) be based upon differentials in market surveys.
B) be approximately 20 percent.
C) support career movement through the pay structure.
D) be between 10 and 25 percent.
48) Which of the following statements is true regarding broad bands?
A) They remove limits on total salary budgets.
B) They support recognition via titles or career progression.
C) They foster cross-functional growth.
D) They increase the hierarchical nature of organizations.
49) The ________ pay strategy emphasizes external competitiveness and deemphasizes
internal alignment.
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A) job structure
B) broad banding
C) reference rate
D) market pricing
50) Which of the following statements is true of market pricers?
A) They align pay structures with the business strategy.
B) Their pay structures are unique and difficult to imitate.
C) They assume that little value is added through internal alignment.
D) They emphasize pay structures based on unique technology or the way work is
organized.
SHORT ANSWER. Write the word or phrase that best completes each statement or
answers the question.
51) What is a survey? What purpose does it serve in terms of compensation?
52) Who should be involved in designing a compensation survey?
53) Explain the low-high approach in selecting jobs for inclusion in a compensation survey.
54) Explain the difference between standard deviation and quartiles and percentiles.
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55) What is a market line?
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Answer Key
Test name: chapter 8
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