Module 2 Compensation

Question 1

What are the two primary elements of compensation?

Answer 1

Fixed and variable pay

Question 2

To ensure compliance, what is the safest course on which to base pay decisions?

Answer 2

Job-related factors

Question 3

Which job evaluation method involves collecting competitors’ data to identify the prevailing rate for a job?

Answer 3

Market pricing

Question 4

Which statement is most accurate regarding pay grades?

A. Pay grades rarely overlap.
B. Pay grades should not allow for career progression.
C. Pay grades distinguish between skill or responsibility.

Answer 4

C. Pay grades distinguish between skill or responsibility.

Question 5

Payment that is typically based on an individual employee’s rate of production is referred to as which type of base pay?

Answer 5

Piece rate

Question 6

Which of the following best describes a primary category of variable pay?

A. Salary
B. Commissions
C. Competency-based pay
D. Pay for performance

Answer 6

B. Commissions

Question 7

Most common types of compensation

Answer 7

Hourly wages
Salaries
Bonuses

Question 8

What is comp that is contingent on discretion, performance, or results achieved (aka pay at risk)

Answer 8

Variable pay

Question 9

Factors influencing compensation (5)

Answer 9

1. Compensation philosophy & strategy
2. HR strategy
3. Competitive environment
4. Financial resources
5. Regulatory & other reqs

Question 10

Types of pay-related laws (3)

Answer 10

1. Minimum wage & overtime
2. Pay equity
3. Anti-competitive price fixing

Question 11

Facets of base pay

Answer 11

Definition can vary by country
Monthly equivalent salaries vary by country
Bottom-line fixed pay practices need to be based on market practice & competitive strategy for each country

Question 12

Frequency of review, allowances, & government mandates are factors that affect ________

Answer 12

Base pay

Question 13

Types of base pay (3)

Answer 13

1. Salary
2. Hourly wages
3. Piece rate

Question 14

Base pay structure design (4)

Answer 14

Job analysis > job documentation > job evaluation > job hierarchy > base pay structure

Question 15

What is the systematic, formal study of duties & responsibilities that comprise job content & provides key information about nature & level of work performed. Must occur before jobs can be documented.

Answer 15

Job analysis

Question 16

What is written information about job content, functions of the job, and KSAs.

Answer 16

Job documentation, its common form is the job description.

Question 17

What is the structured process to determine the value of an org’s jobs relative to each other

Answer 17

Job evaluation

Question 18

What is the grouping or categorization of jobs relative to other jobs (e.g. pay grades or job ladders)

Answer 18

Job worth hierarchy, sometimes referred to as job architecture

Question 19

Created using established hierarchy and utilized as a framework for pay decisions

Answer 19

Base pay structure

Question 20

Purpose of job analysis (4)

Answer 20

1. Create job documentation
2. Determine where job fits in ladder or family
3. Support recruitment, training, performance mgmt, & other HR processes
4. Provide a basis for legal & regulatory compliance

Question 21

Three types of job documentation

Answer 21

1. Job profiles
2. Job descriptions (most common)
3. Job ladders

Question 22

Types of content-based job evaluation approaches

Answer 22

1. Nonquantitative (ranking, classification)

2. Quantitative methods (point factor, job component)

Question 23

Aka whole-job method, views job globally in terms of its importance to the company. Simplest form is ranking. Classification method also compares jobs on whole-job methods, sometimes called “job slotting” (ex: Professional 1, 2, 3, or Manager 1 & 2).

Answer 23

Nonquantitative content-based job evaluation

Question 24

Aka factor methods, examines the importance of jobs in terms of compensable factors using statistical analysis. Corresponding points for that level are then awarded to the job & combined to derive a total score. Very uncommon & rarely used.

Answer 24

Quantitative content-based job evaluation

Question 25

A standard job used to make pay comparisons, easily defined & found in other orgs

Answer 25

Benchmark job

Question 26

Why collect market data

Answer 26

Analyze pay competitiveness, identify pay trends, identify competitive pay practices

Question 27

Market-based job evaluation approach

Answer 27

Market pricing technique - collection & interpretation of external market data & identification of the prevailing rate for a job

Question 28

Helps to establish relationship between jobs by grouping similar jobs as established in the job evaluation process. Used to determine & ensure internal &/or external equity among positions or groups of positions. Job grades/pay structures are then based on that internal &/or external equity.

Answer 28

Job hierarchy

Question 29

Job hierarchy approaches

Answer 29

Job content approach (internal) | Market-based approach (external)

Question 30

Base pay structure

Answer 30

Management tool that reflects the collection & organization or internal & external comp data to support job values. Consists of a series of pay ranges that represent jobs of similar internal &/or external worth.

Question 31

Components of base pay structure

Answer 31

Number of pay grades/bands Pay range Midpoint-to-midpoint differential

Question 32

Number of pay structures/bands may be affected by (3)

Answer 32

``` Diversity of jobs in the org Functional area (nursing, engineering, marketing) Job level (admin, professional, technical, executive, etc.) ```

Question 33

Midpoint-to-midpoint differential

Answer 33

Difference in rates paid at midpoint of two adjacent grades. 10-15% differentials are common.

Question 34

Most common base pay adjustments (6)

Answer 34

1. Merit increase 2. COLA 3. Equity adjustments 4. General increase 5. Skill-based 6. Lump-sum payment

Question 35

Types of differential pay

Answer 35

Shift differential Weekend or holiday differential Geographic differential

Question 36

Variable pay

Answer 36

Rewards accomplishments & results for org, group, or individual results Not guaranteed

Question 37

Most common types of short-term variable pay plans (3)

Answer 37

Bonuses Incentives Commissions Short-term = 1 year or less

Question 38

Bonus plans

Answer 38

More discretionary than incentives Typically not based on specific metrics or formulas May be individual, team, or org performance-based

Question 39

Other common types of bonus plans

Answer 39

Hiring Referral Retention (stay bonus)

Question 40

Incentive plans

Answer 40

STI plan in which criteria determined in advance, based on performance measures, weighted between individual/team/org performance, payouts typically % of targeted award w/ targets based on job or level

Question 41

Commission plans

Answer 41

STI plan for sales employees. Cash payments, % of sales, typically large portion of total pay, & are considered part of sales compensation, a specialized area of comp design

Question 42

Long-term incentive plans (definition & types of plans)

Answer 42

LTI plans = greater than 1 year, typically 3-5 Equity-based - company stock, value is based on stock performance, actual awards may be in the form of stock or cash Cash-based - not based on stock or equity

Question 43

Types of equity incentives

Answer 43

Stock options Restricted stock Performance units

Question 44

Short description/1-2 paragraph summary of job, often found in salary survey descriptions

Answer 44

Job profile

Question 45

Provides info on multiple levels within the same job family. May include general summary of the family & then specific level descriptors within the family, e.g. entry, intermediate, senior.

Answer 45

Job ladder

Question 46

Describes job itself & includes duties & responsibilities, level of work to be performed, working conditions, where job fits in hierarchy, job specifications - EE characteristics required for competent performance

Answer 46

Job description

Question 47

When building a base pay structure, what % of jobs should be benchmarked

Answer 47

At least 50%

Question 48

Data may be used for benchmarking purposes if what % of the job content is similar

Answer 48

70%