Strategic Compensation, 7e (Martocchio)

Chapter 8 Building Pay Structures that Recognize Individual Contributions

1) This federal Act requires contractors with federal contracts worth over $2,000 to pay wages at
least equal to those prevailing in the area where the work is being done.
A) Fair Labor Standards Act
B) Davis-Bacon Act
C) Equal Pay Act
D) Civil Rights Act of 1964
Answer: B

2) What represents the relationship between a company's valuation of jobs based on job
evaluation and the valuation of jobs within the external market, as assessed by compensation
surveys?
A) market-competitive pay structure
B) pay grade
C) pay range
D) market pay line
Answer: D

3) This term refers to the groupings of jobs based on compensable factors, for the purpose of
applying pay policies.
A) market lines
B) market-competitive pay structures
C) pay grades
D) pay ranges
Answer: C

4) When these are used to develop pay grade widths, the grades are based on a set number of job
evaluation points for each grade that increases as an employee moves up the pay structure.
A) pay rate spreads
B) percentage-based job evaluation point spreads
C) pay range spreads
D) absolute job evaluation points spreads
Answer: D
Difficulty: Moderate
Type: Concept
Learning Obj: 1

5) These represent the horizontal dimension of pay structures.

A) pay ranges
B) pay grades
C) job evaluation points
D) pay spreads
Answer: B

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6) Midpoint, minimum, and maximum are values used to define which of the following?
A) pay grades
B) pay ranges
C) pay structures
D) pay levels
Answer: B

7) In establishing pay grades, which pay rate is established first?

A) minimum pay rate
B) midpoint
C) third quartile
D) maximum pay rate
Answer: B

8) If the company adopts a market lead policy, how will that company's pay range midpoint
compare to the market average?
A) The midpoint will be the same as the market average.
B) not enough information to determine
C) The midpoint will be higher than the market average.
D) The midpoint will be lower than the market average.
Answer: C

9) If the company adopts a market lag policy, how will that company's pay range midpoint
compare to the market average?
A) The midpoint will be the same as the market average.
B) not enough information to determine
C) The midpoint will be higher than the market average.
D) The midpoint will be lower than the market average.
Answer: D

10) Which term is used to describe the situation where the pay spread between newly hired
employees and more qualified job incumbents is small?
A) pay structures
B) pay compression
C) red circle pay rates
D) green circle pay rates
Answer: B

11) John is just hired by a software company as a programmer. He is also a part-time student at
the local college and needs just a few credits to graduate from this college. A college degree is
required in order to work as a programmer in this software company. Therefore, John receives
below-minimum pay rate until he graduates from college. What type of pay rate does John
receive?
A) green circle rates
B) red circle rate
C) midpoint pay rate
D) two-tier pay rate
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Answer: A

12) This type of pay rate applies to an employee who is demoted but is paid more than the
maximum rate for the pay grade he is now in.
A) graduated pay
B) green circle
C) red circle
D) multi-tier pay
Answer: C

13) How are compa-ratios calculated?

A) dividing the green circle rates midpoint by the normal pay range
B) dividing the employee's pay rate by the market line rate
C) dividing an employee's pay rate by the pay range midpoint
D) dividing the red circle rates by the normal pay range
Answer: C

14) Richard's job has a compa-ratio of 0.85. What does this ratio tell about Richard's pay rate?
A) Richard's pay is highly competitive with the market.
B) Richard's pay is not competitive with the market.
C) There is no way to judge the competitiveness of Richard's pay.
D) You need more information to be able to judge Richard's pay.
Answer: B

15) This theory suggests that an employee must regard his own ratio of merit increase pay to
performance as similar to the ratio for other comparably performing people in the company.
A) comparable ratio theory
B) comparable pay theory
C) equality theory
D) equity theory
Answer: D

16) With which sales compensation plan does the level of pay not vary when sales volume does?
A) commission-only plan
B) salary-only (base pay) plan
C) salary (base pay)-plus-bonus plan
D) salary (base pay)-plus-commission plan
Answer: B

17) Which scenario would be appropriate for using a salary-only plan?

A) the salesperson is selling high-priced products with long lead times
B) the salesperson has substantial influence over sales
C) the company is looking to save money due to budget constraints
D) the company is looking to create competition among its sales staff
Answer: A

18) This type of sales incentive compensation plan offers the sales person a salary and further
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compensation if they meet a specific, exceptional sales goal.
A) salary-plus-bonus
B) salary-plus-commission
C) salary-plus-draw
D) salary-plus-graduated commission
Answer: A

19) Jasmine Black believes that the company should share part of the risk for her sales position.
Which sales compensation plan should she pursue?
A) salary-plus-bonus plan
B) salary-plus-commission plan
C) commission-plus-draw plan
D) commission-only plan
Answer: B

20) A recently opened car dealer uses an incentive compensation plan for its sales people. The
dealer provides money to its salespeople to cover basic living expenses and then shares a fixed
percentage of the selling price of each car that a salesperson sells. However, the salesperson
should repay the subsistence pay component within a year; otherwise he/she cannot continue in
the employment of this dealer. What type of sales compensation plan does this dealer adopt?
A) salary-plus-bonus
B) salary-plus-commission
C) commission-plus-draw
D) commission only
Answer: C

21) This is a loan from the company to the employee that is carried forward indefinitely until the
employee sells enough to repay it.
A) commission-plus-draw plan
B) a recoverable draw
C) a non-recoverable draw
D) an interest-free loan
Answer: B

22) This type of commission draw acts as a salary because employees are not obligated to repay
the loans if they do not sell enough to cover the amount.
A) nonrecurring draw
B) safe draw
C) nonrecoverable draw
D) graduated draw
Answer: C

23) With which type of sales commission plan does an employee earn a higher rate of
commission for all sales made in a given period if the sales level exceeds a predetermined level?
A) commission-plus-draw plan
B) straight commission
C) multiple-tiered commission
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D) graduated commission
Answer: C

24) In which situation is a commission-only plan best suited?

A) The salesperson has little influence over the sales.
B) The company is following a lowest-cost strategy.
C) Extensive training or expertise is required.
D) The sales cycle is long.
Answer: B
Difficulty: Difficult
Type: Concept
Learning Obj: 3

25) A company adopting a commissions-oriented sales compensation plan would most likely be
pursing which type of competitive strategy?
A) highest quality
B) lowest-cost
C) differentiation
D) fairest-price
Answer: B

26) This term describes a set of skills necessary to perform a specific job or a group of similar
jobs.
A) skill range
B) skill grade
C) skill block
D) skill structure
Answer: C

27) The HR manager of a company thinks that they have too many narrow pay grades within the
organization. By getting the support from upper management, they decided to consolidate
existing pay grades and ranges into fewer pay grades and broader pay ranges in order to create a
flatter organization in terms of compensation. This is an example of which pay structure
variation?
A) broadbanding
B) two-tier pay system
C) pay compression
D) multiple-tier pay system
Answer: A

28) Which of the following would NOT be considered as an advantage of broadbanding?

A) elimination of narrow bands broadens employees' job duties and responsibilities
B) reduced organizational hierarchies that support job promotions
C) reduced management layers that promotes quicker decision making cycles
D) greater responsibility for supervisors for administering each employee's compensation within
the confines of the broadbands
Answer: B
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29) Alejandro Martinez is responsible for setting up the pay structure for his company. He
believes that newly hired employees should not be paid as much as established employees.
Accordingly, what type of pay structure should Mr. Martinez use?
A) broadbanding
B) sales incentives
C) two-tiered
D) merit pay
Answer: C

30) What types of companies are most likely to utilize two-tier wage systems?
A) unionized firms
B) sales firms
C) public sector companies
D) private sector companies
Answer: A

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