Chapter 9: Managing Compensation

Question 1

What are the 3 components of compensation?

Answer 1

Direct compensation, indirect compensation, nonfinancial compensation

Question 2

What does direct compensation include?

Answer 2

Employee wages and salaries, incentives, bonuses, and commissions

Question 3

What does indirect compensation include?

Answer 3

Benefits supplied by employers (e.g. Health benefits, childcare, etc)

Question 4

What does nonfinancial compensation include?

Answer 4

Employee recognition programs, rewarding jobs, organizational support, work environment, flexible work hours

Question 5

What is strategic compensation?

Answer 5

The compensation of employees in ways that enhance motivation and growth while aligning their efforts with the objectives, philosophies, and culture of the organization

Question 6

How is compensation linked to organizational objectives?

Answer 6

Firms need to be able to attract talented candidates to achieve their goals. A major attractor is the compensation provided

Question 7

What does expectancy theory say about compensation?

Answer 7

Employees will exert greater work effort if they have reason to believe it will result in a valued reward

Question 8

What does equity theory say about compensation?

Answer 8

Says that reward received for contributions must be equitable in terms of those contributions. People will compare their inputs and results to others in similar jobs which has them perceive their pay as equitable or inequitable

Question 9

What are some bases for compensation?

Answer 9

Hourly work, piecework, commission, salary, overtime

Question 10

What are some internal factors that determine compensation?

Answer 10

The compensation strategy, the worth of a job, the employee’s relative worth, and the employer’s ability to pay

Question 11

What are some external factors that determine compensation?

Answer 11

Labour market conditions, area wage rates, the cost of living, collective bargaining

Question 12

What is an escalator clause?

Answer 12

A clause in a collective agreement that provides for quarterly cost-of-living adjustments in wages, basing the adjustments on changes in the consumer price index

Question 13

What is job evaluation?

Answer 13

A systematic process of determining the relative worth of jobs to establish which should be paid more than others within an organization

Question 14

What is a job ranking system?

Answer 14

The simplest and oldest system of job evaluation where jobs are arrayed on the basis of their relative worth. This does not provide a precise measure of each job’s worth

Question 15

What is a job classification system?

Answer 15

A system of job evaluation where jobs are classified and grouped according to a series of predetermined wage grades

Question 16

What is the point system for job evaluation?

Answer 16

A quantitative job evaluation procedure that determines the relative value of a job by the total points assigned to it

Question 17

How are points determined in the point system of job evaluation?

Answer 17

Points are decided by checking the point manual which has a description of compensable factors, the degree to which those factors exist within jobs, and the number of points allocated to each factor

Question 18

What is the Hay profile method?

Answer 18

A method of job evaluation for management positions. Uses knowledge, mental activity, and accountability to evaluate each position

Question 19

What is a wage and salary survey?

Answer 19

A survey of the wages paid to employees of other employers in the surveying organization’s relevant labour market

Question 20

What is the labour market?

Answer 20

The area from which employers obtain certain types of workers

Question 21

What is a wage curve?

Answer 21

A curve in a scatterplot that represents the relationship between the relative worth of jobs and wage rates

Question 22

What is a pay grade?

Answer 22

A group of jobs within a particular class that are paid the same rate

Question 23

What is a red circle rate?

Answer 23

A payment rate above the maximum of the pay range which may be done if an employee has high seniority or promotional opportunities are scarce

Question 24

What is broadbanding?

Answer 24

Collapsing many traditional salary grades into a few wide salary bands

Question 25

What is competency-based pay?

Answer 25

Pay based on an employee’s skill level, variety of skills possessed, or increased job knowledge. Firms grant an increase in pay after a skill has been mastered and can be demonstrated to a certain standard

Question 26

What does the Canada Labour Code establish?

Answer 26

Minimum labour standards for all employees and employers under federal jurisdiction

Question 27

What is pay equity?

Answer 27

Equal pay for work of equal value

Question 28

What is wage-rate compression?

Answer 28

Compression of differentials between job classes, particularly the differential between hourly workers and their managers

Question 29

What is pay transparency?

Answer 29

Making employees aware of what other employees in their workplace are earning