SHRM Total Rewards & Compensation 4 — Questions and Answers
Question 1: Which pay structure approach pays employees based on the range and depth of skills they have mastered rather than the job they hold?
- Job-based pay
- Skill-based pay (Correct answer)
- Seniority-based pay
- Market-based pay
Correct answer: Skill-based pay
Skill-based pay compensates employees for the verified skills and competencies they acquire, not simply the position they occupy.
Question 2: An employer contributes a percentage of each eligible employee's annual salary to a retirement account, but the ultimate benefit depends on investment returns. This describes a:
- Defined benefit pension
- Cash balance plan
- Defined contribution plan (Correct answer)
- Deferred profit sharing
Correct answer: Defined contribution plan
Defined contribution plans specify what the employer contributes, with final retirement balances depending on investment performance.
Question 3: What is the compa-ratio interpretation when an employee's ratio is above 1.0?
- The employee is paid below the midpoint of their grade
- The employee is paid exactly at market
- The employee is paid above the midpoint of their grade (Correct answer)
- The employee qualifies for an immediate promotion
Correct answer: The employee is paid above the midpoint of their grade
A compa-ratio above 1.0 (or above 100%) indicates the employee's salary exceeds the midpoint of their pay grade.
Question 4: Which Equal Pay Act requirement allows pay differences between men and women performing equal work?
- Differences based on race or national origin
- Differences based on seniority, merit, quantity of production, or any factor other than sex (Correct answer)
- Differences at employer discretion
- Differences based on educational credentials only
Correct answer: Differences based on seniority, merit, quantity of production, or any factor other than sex
The Equal Pay Act permits pay differences for equal work when they are based on seniority, merit systems, production quantity, or a factor other than sex.
Question 5: A company offers employees $5,000 annually for tuition reimbursement. Under current IRS rules, how much of this benefit is generally tax-free to the employee?
- None; all tuition reimbursement is taxable
- Up to $5,250 per year (Correct answer)
- Up to $10,000 per year
- Unlimited, provided the degree is job-related
Correct answer: Up to $5,250 per year
IRS Section 127 allows employers to provide up to $5,250 in educational assistance tax-free to employees each year.
Question 6: Which health plan type requires employees to choose a primary care physician and obtain referrals to see specialists?
- Preferred Provider Organization (PPO)
- High Deductible Health Plan (HDHP)
- Health Maintenance Organization (HMO) (Correct answer)
- Exclusive Provider Organization (EPO)
Correct answer: Health Maintenance Organization (HMO)
HMOs require members to select a PCP who coordinates care and provides referrals for specialist visits within the network.
Question 7: What is 'red-circling' in compensation management?
- Identifying jobs underpaid relative to market
- Freezing or reducing pay when an employee's salary exceeds the maximum of their pay range (Correct answer)
- Calculating the ratio of variable to base pay
- Flagging jobs exempt from overtime under FLSA
Correct answer: Freezing or reducing pay when an employee's salary exceeds the maximum of their pay range
Red-circling occurs when an employee's pay is above the maximum of their pay range, and the employer freezes or reduces increases until the range catches up.
SHRM Total Rewards & Compensation 4
Which pay structure approach pays employees based on the range and depth of skills they have mastered rather than the job they hold?