Chapter 9 Evaluating the Market PDF

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Chapter 9 - Evaluating the Market True / False 1. In broad terms, wages paid for a particular “labourer” depend on the relationship between supply and demand for labour, and a specific company’s ability to pay. a. True b. Fals e ANSWER: True 2. Existing companies tend to lower wages when demand for labour exceeds supply. a. True b. Fals e ANSWER: Fals e 3. For public sector organizations, the key factor determining wages is the employees’ ability to generate revenue. a. True b. Fals e ANSWER: Fals e 4. It is easier to use third-party surveys and data than to design and conduct an in-house survey. a. True b. Fals e ANSWER: True 5. Informal surveys have poor reliability and validity. a. True b. Fals e ANSWER: True 6. In order to calibrate a compensation system, a sample of 25 to 45 percent of sample of jobs should be a minimum. a. True b. Fals e ANSWER: Fals e 7. In conducting a compensation survey, the first step should be to identify the jobs to be surveyed. a. True b. Fals Copyright Cengage Learning. Powered by Cognero.

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Chapter 9 - Evaluating the Market e ANSWER: True 8. The compa-ratio is calculated by taking the average pay of all employees holding a particular job title and then dividing this by the midpoint of the pay range for that job. a. True b. Fals e ANSWER: True 9. A very large interquartile quotient tends to indicate that all jobs in the sample are equivalent. a. True b. Fals e ANSWER: Fals e 10. Compensation surveys reflect the value placed on jobs by the labour market, but this does not always mean that the market values jobs fairly. a. True b. Fals e ANSWER: True Multiple Choice 11. Which of the following best explains why current employers do not seem to reduce wages for existing employees in the short term when the supply for a particular set of skills far outstrips the demand? a. because of the wage compression phenomenon b. because of the negative impact on performance and increased turnover c. because labour budgets tend to be determined on an annual basis d. because fewer potential employees tend to put upwards pressure on wages ANSWER: b 12. Which of the following is NOT considered a general pattern in compensation levels? a. Union employees receive more compensation than comparable non-union employees. b. Male employees earn more than female employees on average. c. Resource sector employees earn more than those in the service sector. d. The wage gap between public-sector organizations and private-sector firms is narrow for top-level employees. ANSWER: d 13. Which of the following is generally NOT a determinant of employees’ pay in the public sector? a. collective bargaining Copyright Cengage Learning. Powered by Cognero.

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Chapter 9 - Evaluating the Market b. employees’ ability to generate revenues c. employers’ ability to pay d. budget available for pay increases ANSWER: b 14. Which condition tends to explain why jobs in the higher hierarchy positions of the public sector tend to be paid less than similar positions in the private sector? a. a strong union b. publicly visible salaries c. the levels of indirect pay provided to senior public sector positions d. a poor industry reputation ANSWER: b 15. Which of the following identifies two crucial dimensions of the labour market? a. occupational grouping and geographic scope b. unemployment rate and turnover in the area c. availability of labour and types of legislation d. education levels and experience ratings ANSWER: a 16. As a human resource specialist, you recommend an international scope when defining the relevant labour market for a nuclear physicist to be responsible for the safety of a Canadian nuclear reactor. Which variable is likely to be informing your decision? a. the level of job specialization b. the international nature of the industry c. the highly visible nature of the role d. the high profile nature of the role ANSWER: a 17. Which characteristic is NOT typically considered in the selection of market comparator firms? a. the type of product or service the firm provides b. whether the firm has achieved pay equity c. whether the firm is union or non-union d. the geographic area over which it operates ANSWER: b 18. What is a potential drawback associated with using compensation consultants to gather labour market information? a. The data is usually not presented in a “user-friendly manner”; hence, it is difficult to use. b. The data is usually old and not relevant. Copyright Cengage Learning. Powered by Cognero.

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Chapter 9 - Evaluating the Market c. The data may be restricted to client firms; hence, it does not necessarily comprise an appropriate sample. d. The data tends to be more expensive compared to designing and administering your own survey. ANSWER: c 19. What are three of the main “third-party” sources of compensation data? a. Statistics Canada, trade journals, and government agencies b. private agencies, trade journals, and government agencies c. government agencies, industry groups, and consulting firms d. consulting firms, boards of trade, and publishers ANSWER: c 20. What is a key concern related to using data from free compensation data websites? a. complexity of the data b. cost of the data c. proprietary issues d. validity of the data ANSWER: d 21. Which survey source raises concerns among HR professionals about the validity of their data? a. industry groups b. formal inhouse c. free websites d. consultants ANSWER: c 22. Which topic would typically NOT be included in survey questions asked by most consultants in the process of populating their compensation databases? a. number of employees b. criteria associated with movements within the pay range c. base pay, performance pay, and indirect pay d. turnover rates ANSWER: d 23. Which of the following provides the best-quality compensation data? a. personal interviews b. questionnaires c. telephone interviews d. mail surveys Copyright Cengage Learning. Powered by Cognero.

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Chapter 9 - Evaluating the Market ANSWER: a 24. An employer is contemplating conducting their own in-house compensation surveys. What would you caution them about? a. There is a lack of control over process. b. There is no need to involve outside consultants. c. Skills and abilities associated with survey methodology are needed. d. They are likely to sample the wrong jobs and/or industry. ANSWER: c 25. What is NOT a main step in conducting a proper compensation survey? a. identifying jobs to be surveyed b. identifying employees to be surveyed c. determining the information needed d. determining how you will collect the data ANSWER: b 26. The textbook identifies two in-house methods that may be used to collect compensation data. Which of the following is classified as an “in-house” source? a. formal surveys b. government agencies c. consultants d. industry groups ANSWER: a 27. In analyzing compensation data that include extreme values, what would be an advisable measure of central tendency to use? a. compa-ratio b. mean c. median d. inter-quartile range ANSWER: c 28. Although very costly to use on a significant scale, which method of data collection provides the best quality of information? a. internet surveys b. personal interviews c. telephone interviews d. questionnaires ANSWER: b 29. Which method is used to measure dispersion of salary data across employers? Copyright Cengage Learning. Powered by Cognero.

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Chapter 9 - Evaluating the Market a. percentiles b. weighted mean c. simple mean d. median ANSWER: a 30. Which of the following is NOT a procedure used to analyze and interpret survey data? a. central tendency b. dispersion c. compa-ratio d. data aging ANSWER: d 31. Which of the following is generally NOT collected in compensation surveys? a. base pay b. performance appraisal methods c. performance pay d. benefits ANSWER: b 32. You have determined that the lowest-paying employer pays it secretaries a mean total compensation of $30,000, and the highest-paying employer pays its secretaries a mean total compensation of $42,000. What is the dispersion in secretarial compensation across firms? a. 12 percent b. 25 percent c. 40 percent d. 50 percent ANSWER: c 33. Which measure can be used to assess the central tendency of pay? a. dispersion b. standard deviation c. quartiles and deciles d. mean ANSWER: d 34. You determined that $65,000.00 in salary represents the 85th percentile of total compensation paid by employers for the heavy-duty mechanic job in British Columbia. Which statement is most accurate, given the aforementioned statement? a. 15% of employers compensate above $65,000. Copyright Cengage Learning. Powered by Cognero.

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Chapter 9 - Evaluating the Market b. $65,000.00 represents the median. c. 15% of employers compensate below $65,000. d. 85% of employers compensate above $55,250. ANSWER: a 35. Which statement best describes the compa-ratio? a. It is calculated by averaging the pay ranges in the quartiles. b. It is a measure of pay dispersion across employers. c. It is derived by dividing mean base pay by the midpoint of the pay range. d. It is a calculation based on average base pay for each job. ANSWER: c 36. What does a compa-ratio of greater than 1 mean? a. Employees, on average, are being paid above the midpoint in the pay range. b. The majority of employees are in the first pay quartile. c. The firm is paying their employees in the bottom half of the pay range. d. The firm has only a minority of their employees in the top pay bracket. ANSWER: a 37. What term describes the process of adjusting survey results to account for the dated nature of compensation surveys, while at the same time, taking into consideration potential market increases in the following year? a. benchmarking the data b. aging the data c. data alignment d. pay trending ANSWER: b 38. Which compa-ratio suggests that, on average, employees are being paid above the mid-point of the range? a. 0.01 b. 0.92 c. 1.00 d. 1.03 ANSWER: d 39. What critical assumption underpins labour market compensation surveys that may serve to illustrate the need for pay equity legislation? a. Usage of compensation surveys assumes that the market values jobs in a fair manner. b. The market demand and supply of labour tends to operate at an equilibrium in the short term. c. Calibration of the pay system will insure a near-perfect labour price. d. Targeting a compa-ratio of 1 eliminates the need for pay equity legislation. Copyright Cengage Learning. Powered by Cognero.

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Chapter 9 - Evaluating the Market ANSWER: a 40. Which of the following is NOT a possible limitation of compensation surveys? a. Free labour market data is not readily available. b. We cannot surmise anything about compensation strategies practised by other firms. c. They may misrepresent actual pay trends. d. Markets may not value jobs fairly. ANSWER: a Subjective Short Answer 41. Briefly discuss the factors to be considered in defining the relevant labour market for a given firm. ANSWER Two kinds of competitors are important to consider: competitors in the labour market : and competitors in the product/service market. Two other dimensions are crucial: the occupational grouping under consideration and the geographic scope of the market. Besides these, relevant aspects include whether the firm is unionized or non-unionized, and the size of the firm. All of these factors must be balanced when defining a market sample. 42. Identify and briefly describe the four main steps in conducting a compensation survey. ANSWER The first step is to identify the jobs to be surveyed. The rule of thumb is that surveying : about 10 to 15 percent of jobs should be sufficient to calibrate the system. Key job matching is a common method used to match an organization’s jobs to those being surveyed. The second is to determine what information to collect. Collected information should include base pay, performance pay, indirect pay, weekly hours of work, and where most employees actually are in the pay range. The third step is to determine who to survey. Employers are selected based on industry type, geographic location, and size. The fourth step is to determine how to collect the data. Consider using the following methods: personal interviews, questionnaires, telephone interviews, and the Internet. 43. Discuss some of the advantages and disadvantages of in-house surveys. ANSWER Advantages of in-house surveys include: allowing the organization to select the key : jobs, the firm does its own job matching, and the firm has the option of selecting and determining survey participants. Disadvantages include: (a) the fact that firms do not necessarily have qualified researchers, (b) the organization may run up against a lack of cooperation from certain participants because of the large number of surveys they face or the confidential nature of some of the information requested, (c) the time consumption of doing a survey, and (d) employees concerned may challenge the credibility of the survey results because the organization is both referee and player. Many of these disadvantages are eliminated when the organization turns to a consulting firm. 44. Briefly describe the process for analyzing and interpreting survey data. ANSWER In analyzing survey data, the first steps are to assess the central tendency of pay and the : variation across employers. Such statistics as the mean, weighted mean, median, quartiles or deciles, interquartile range, and compa-ratios are used. Inspection is often used to interpret the data, and inferences are drawn from patterns of compensation. Copyright Cengage Learning. Powered by Cognero.

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Chapter 9 - Evaluating the Market 45. Briefly discuss some of the limitations of compensation surveys. ANSWER Compensation surveys are essential tools for compensation planning within the : organization. However, they are subject to numerous limitations. First, they may vary dramatically in quality of job matches and methodology. Second, they may omit important information. Third, unless survey data are available for individual employers, we cannot surmise anything about the compensation strategies practised by other firms. Fourth, compensation data may not fit all of the jobs an organization may have. Fifth, surveys cannot capture the entire range of rewards—both extrinsic and intrinsic—offered by organizations. Sixth, there could be bias in the sample of firms selected. Seventh, markets may not value jobs fairly.

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