Human Resources Exam 3| Questions and Answers
Why are compensation decisions important? **** 1. Primary way of motivating and
retaining employees
2. Bad pay can hinder the effectiveness of a good HR program
3. One quarter of a company's revenue goes towards pay, thus it is important to
manage it wisely.
What is the goal for compensation? **** To attract, motivate, and retain employees
while keeping labor costs under control
What are the two types of compensation decisions? **** 1. Pay structure - involves the
average pay of the firm and the relative pay of jobs within the firm (varying job
positions?)
2. Individual pay
Why should we worry about pay structure? **** 1. Firms can be too big to give pay just
based on individual merit
2. Employees that do the same job should make the same amount of money
Employees doing the same job being paid the same influences... **** distributive
justice, the perceived fairness of decision outcomes
Equity Theory **** a theory that states that people will be motivated when they perceive
that they are being treated fairly
-distributive justice will be considered "high" when an employees outcomes/inputs
matches others
-thus, employee motivation is also based on the fact that others are treated fairly
Under-reward inequity **** an individual perceives that rewards received are less than
what is fair for work inputs
Over-reward inequity **** (positive inequity) an individual perceives that rewards are
more than what is fair
How can equity be restored in the under-reward and over-reward conditions? **** 1.
Decrease inputs or increase outcomes (theft) = underreward condition.
2. Increase motivation or distort input = overreward condition.
In order to change equity perceptions, one must... **** change the comparison other.
-internal vs external
Internal comparison others **** coworkers, supervisors, subordinates, CEO
, External comparison others **** friends/neighbors
Pay level is the primary factor when considering... **** external comparisons
Job structure is the primary factor when considering.. **** internal comparisons
What to consider when choosing a pay level: **** 1. Product Market Competition
2. Labor Market Competition
3. Market Pay Surveys
Product Market Competition **** sell goods and services at a quantity and price that will
bring a return on investment
-if we pay more, the greater our costs, the higher our price, and the less competitive we
are
-if you pay more than the "ceiling" then we will not be able to sell the product
Labor Market Competition **** amount an organization must pay to compete against
other organizations that hire similar employees
-sets the "floor" for pay level
- the less we pay, the less we get good results, and the less competitive we are
- if you pay less than this, you will not be able to fill positions.
Market Pay Surveys **** Observing how much competitors pay their employees and
evaluating whether there is any reason why the pay should be different
Choosing a job structure involves.. **** job evaluation, a method for matching a salary
with a job
-performs a job analysis
-identifies "compensable factors" then it ranks jobs in terms of these factors
What are compensable factors? **** Job characteristics (derived from job analysis) that
the firm will pay good money for
Creating a pay structure involves.. **** combining pay level and job structure
information
-creating pay grades
Creating pay grades involves.. **** 1. Grouping jobs into categories.
-each job within a category has the same pay midpoint
-minimum and maximum levels are set, placing limit on individual pay differences.
If there are more pay grades **** there are more job differences that relate to pay
differences
-job evaluations for this end up being time-consuming, costly, and create artificial
distinctions.
Why are compensation decisions important? **** 1. Primary way of motivating and
retaining employees
2. Bad pay can hinder the effectiveness of a good HR program
3. One quarter of a company's revenue goes towards pay, thus it is important to
manage it wisely.
What is the goal for compensation? **** To attract, motivate, and retain employees
while keeping labor costs under control
What are the two types of compensation decisions? **** 1. Pay structure - involves the
average pay of the firm and the relative pay of jobs within the firm (varying job
positions?)
2. Individual pay
Why should we worry about pay structure? **** 1. Firms can be too big to give pay just
based on individual merit
2. Employees that do the same job should make the same amount of money
Employees doing the same job being paid the same influences... **** distributive
justice, the perceived fairness of decision outcomes
Equity Theory **** a theory that states that people will be motivated when they perceive
that they are being treated fairly
-distributive justice will be considered "high" when an employees outcomes/inputs
matches others
-thus, employee motivation is also based on the fact that others are treated fairly
Under-reward inequity **** an individual perceives that rewards received are less than
what is fair for work inputs
Over-reward inequity **** (positive inequity) an individual perceives that rewards are
more than what is fair
How can equity be restored in the under-reward and over-reward conditions? **** 1.
Decrease inputs or increase outcomes (theft) = underreward condition.
2. Increase motivation or distort input = overreward condition.
In order to change equity perceptions, one must... **** change the comparison other.
-internal vs external
Internal comparison others **** coworkers, supervisors, subordinates, CEO
, External comparison others **** friends/neighbors
Pay level is the primary factor when considering... **** external comparisons
Job structure is the primary factor when considering.. **** internal comparisons
What to consider when choosing a pay level: **** 1. Product Market Competition
2. Labor Market Competition
3. Market Pay Surveys
Product Market Competition **** sell goods and services at a quantity and price that will
bring a return on investment
-if we pay more, the greater our costs, the higher our price, and the less competitive we
are
-if you pay more than the "ceiling" then we will not be able to sell the product
Labor Market Competition **** amount an organization must pay to compete against
other organizations that hire similar employees
-sets the "floor" for pay level
- the less we pay, the less we get good results, and the less competitive we are
- if you pay less than this, you will not be able to fill positions.
Market Pay Surveys **** Observing how much competitors pay their employees and
evaluating whether there is any reason why the pay should be different
Choosing a job structure involves.. **** job evaluation, a method for matching a salary
with a job
-performs a job analysis
-identifies "compensable factors" then it ranks jobs in terms of these factors
What are compensable factors? **** Job characteristics (derived from job analysis) that
the firm will pay good money for
Creating a pay structure involves.. **** combining pay level and job structure
information
-creating pay grades
Creating pay grades involves.. **** 1. Grouping jobs into categories.
-each job within a category has the same pay midpoint
-minimum and maximum levels are set, placing limit on individual pay differences.
If there are more pay grades **** there are more job differences that relate to pay
differences
-job evaluations for this end up being time-consuming, costly, and create artificial
distinctions.
