Compensation System Design

Question 1

What are the activities in Compensation System Design?

Answer 1

Job Analysis > Job Documentation > Job Evaluation > Pay Structure

Question 2

Used to group jobs that have approximately the same relative worth in an organization.

Answer 2

Pay Grades

Question 3

Sets the upper and lower limits of compensation for employees whose job fits within that particular grade.

Answer 3

Pay Range

Question 4

An indicator as to how actual wages match, lead, or lag the target market.

Answer 4

Compa-ratios

Question 5

Combines two or more salary grades to create larger ranges and give people wide latitude to move within their job without outgrowing the pay scale.

Answer 5

Broadbanding

Question 6

Each incumbent of a job has the same rate of pay, regardless of performance or seniority.

Answer 6

Single-rate pay or flat-rate pay

Question 7

The employee’s rate is based on longevity in the job. Pay increases occur on a pre-determined schedule.

Answer 7

Time-based step-rate pay

Question 8

The individual employee’s performance on the job is the basis for the amount and timing of pay increases.

Answer 8

Performance-based pay

Question 9

A performance-based pay system is commonly called _____.

Answer 9

Merit pay or pay for performance (P4P of PfP)

Question 10

Pay is determined by the employee’s output.

Answer 10

Productivity-based pay

Question 11

Employee characteristics, rather than how the job is performed, determine pay. In such systems, two employees perform similar tasks, but the person with superior knowledge or skill mastery receives more pay.

Answer 11

Person-based pay

Question 12

Pay is based on the level of knowledge the employee has in a field. This approach is dominant for compensating learned professions such as scientists or teachers, although staff professionals may also be paid this way.

Answer 12

Knowledge-based system

Question 13

Base pay on the number of different skills an employee is qualified to perform. Employees increase their pay by acquiring new skills, even if they do not use the skills in their current assignment. This type of system is most commonly used in a production environment.

Answer 13

Skill-based system

Question 14

Set pay at a level which an employee can operate in defined competencies (e.g., directing or training others). This type of system is commonly found when rewarding professional groups of employees.

Answer 14

Competency-based systems

Question 15

Pay adjustment given to all eligible employees without regard to organizational profitability, employee productivity, or other performance factors.

Answer 15

Cost-of-living adjustment (COLA)

Question 16

Given to all employees (or sometimes a class of employees such as office or production workers) based on local competitive market requirements.

Answer 16

General Pay Increase

Question 17

One-time payment of all or part of a yearly pay increase.

Answer 17

Lump-sum increase (LSI) or performance bonus

Question 18

Used to motivate employees to perform at a higher level by paying for performance that exceeds base-pay exceptions.

Answer 18

Incentive pay

Question 19

Incentive used to improve individual performance.

Answer 19

Individual incentive

Question 20

Used when measuring individuals performance is difficult or when performance requires cooperation of the group.

Answer 20

Group incentive

Question 21

Incentive used to reward overall results.

Answer 21

Organization-wide incentive

Question 22

Employee pay rates above the range maximum.

Answer 22

Red-circle rates

Question 23

The opposite of red-circle rates-an employee’s pay is below the minimum of the range.

Answer 23

Green-circle rates

Question 24

Describes situations where there is only a small difference in pay between employees regardless of their experience, skills, level, or seniority.

Answer 24

Pay compression or salary compression

Question 25

Relationship of current salaries to the midpoints of the salary ranges. Employee’s pay rate divided by pay range midpoint.

Answer 25

Compensation Ratio

Question 26

All costs associated with employment, including salaries, overtime, benefits, and bonuses. Salaries + Overtime + Benefits + Bonuses divided by Total Operating Costs

Answer 26

Total Organization Compensation Expense

Question 27

Number of people on the organization’s payroll at a particular time.

Answer 27

Head Count

Question 28

Subdivides employees into various categories (e.g., executives, manages, staff, trainees, contractors).

Answer 28

Groups and subgroups

Question 29

Basic statistics and characteristics of certain employee groups.

Answer 29

Demographics

Question 30

The traditional measure of recruiting costs, determined by taking the total costs of all hires and dividing that figure by the number of new hires.

Answer 30

Cost of Hire

Question 31

A measure of the effort exerted (defined in financial terms) to staff an open position in an organization.

Answer 31

Cost per hire

Question 32

Systematic study of jobs to determine what activities (tasks) and responsibilities they include, the personal qualifications necessary for performance of the jobs, and the conditions under which the work is performed.

Answer 32

Job analysis

Question 33

The three key elements in job analysis are commonly abbreviated as KSAs and stand for?

Answer 33

Knowledge, Skills, Abilities

Question 34

Direct observation of employees performing the tasks of a job, recording observations, and translating them into the necessary knowledge, skill and abilities.

Answer 34

Observation

Question 35

Face-to-face interview in which the interviewer obtains the necessary information from the employee, peers, supervisors, and team/unit members about knowledge, skills, and abilities needed to perform the job.

Answer 35

Interview

Question 36

Questionnaires to job incumbents, and sometimes to their managers, asking about the knowledge, skills, and abilities necessary to perform the job. The answers are combined, and a composite statement of job requirements is published.

Answer 36

Open-ended questionnaire

Question 37

Questionnaires structured in a manner that allows only specific responses, aimed at determining the frequency with which specific tasks are performed, their relative importance, and the skills required.

Answer 37

Highly structured questionnaire

Question 38

Diary or anecdotal record maintained by the employee. Job information, including the frequency and timing of tasks, is recorded in the diary. Logs are usually kept over an extended period of time. They are analyzed, and patterns are identified and translated into duties and responsibilities.

Answer 38

Work diary or log

Question 39

Written description of a job and its essential functions and requirements, including tasks, knowledge, skills, abilities, responsibilities, and reporting structure.

Answer 39

Job description

Question 40

Written statement of the minimum qualifications necessary to perform a job.

Answer 40

Job specifications

Question 41

Clusters of highly interrelated attributes, including knowledge, skills, and abilities (KSAs), that give rise to the behaviors needed to perform a given job effectively. These competencies should be part of a competency model.

Answer 41

Job competencies

Question 42

Determines the value and price of a job in order to place and compare it within an organization as well as attract and retain employees in a competitive environment.

Answer 42

Job evaluation

Question 43

The relative worth and the pay structure of different jobs on an assessment of their content (e.g., responsibilities and requirements) and their relationship to other jobs within the organization.

Answer 43

Job-content-based job evaluation

Question 44

Involves establishing a hierarchy of job from lowest to highest based on each job’s overall value to the organization.

Answer 44

Job ranking

Question 45

May be used in which each job is compared with every other job being evaluated.

Answer 45

Paired-comparison method

Question 46

Writes descriptions for each class of jobs. Individual jobs are then put into the grade that best matches their class description, based on the judgment of the evaluator.

Answer 46

Job classification

Question 47

Evaluate specific factors on a scale and provide a score that indicates how valuable one job is compared to another.

Answer 47

Quantitative job evaluation method

Question 48

A form of quantitative evaluation. It is the most commonly used method of job evaluation. The compensable factors chosen for the evaluation must reflect the nature of the job being evaluated.

Answer 48

Point-factor system

Question 49

The relative worth and the pay structure of different jobs are based on their market value or the going rate in the marketplace.

Answer 49

market-based job evaluation

Question 50

Collect information on prevailing market compensation and benefit practices, including starting wage rates, base pay, pay ranges, other statutory and market cash payments (e.g., overtime pay and shirt differentials), variable compensation (e.g., short- and long-term incentive plans), and time off (vacation and holiday practices).

Answer 50

Remuneration surveys

Question 51

Organizations that have available resources and expertise may choose to develop their own internal survey to allow for more control over the survey technique and data analysis.

Answer 51

Internal surveys

Question 52

Organizations have different options available if they choose an external pay survey.

Answer 52

External surveys`

Question 53

When salary data is _____, movement in market rates is used to adjust outdated data.

Answer 53

aged

Question 54

If a job in a survey is similar but not identical to one in the organization, the data can be weighted or _____ for a better match.

Answer 54

leveled

Question 55

Since wage rates typically will vary by location, an organization should ____ ____ ____ any national survey data for the local or regional recruiting area to approximate local wage rates.

Answer 55

factor for geography