SPHR Total Rewards 3 — Questions and Answers
Question 1: An SPHR is evaluating the compa-ratio for a job family. A compa-ratio of 85% indicates that:
- The employee is paid 85% above the market midpoint
- The employee's pay is 15% below the midpoint of the pay range (Correct answer)
- The pay range spread is 85% wide
- The employee has reached 85% of their maximum pay grade
Correct answer: The employee's pay is 15% below the midpoint of the pay range
A compa-ratio below 100% means the employee earns less than the midpoint; 85% means pay is 15% below the range midpoint.
Question 2: Which federal law requires employers to provide continuation of group health coverage to employees and dependents following qualifying events such as job loss?
- ERISA
- HIPAA
- COBRA (Correct answer)
- ACA
Correct answer: COBRA
COBRA (Consolidated Omnibus Budget Reconciliation Act) mandates that employers offer continued health coverage to eligible individuals after qualifying events.
Question 3: A company uses job ranking as its job evaluation method. What is the biggest limitation of this approach?
- It is too time-consuming for small organizations
- It does not explain the relative degree of difference between jobs (Correct answer)
- It requires a point-factor scoring system to function properly
- It can only be applied to managerial and executive positions
Correct answer: It does not explain the relative degree of difference between jobs
Job ranking orders positions from highest to lowest but provides no quantitative measure of how much one job differs in value from another.
Question 4: Under Section 409A of the Internal Revenue Code, which nonqualified deferred compensation arrangement triggers significant tax penalties?
- An arrangement that allows employees to defer salary into a qualified 401(k) plan
- A plan that permits acceleration of deferred amounts outside of permissible exceptions (Correct answer)
- A cafeteria plan offering pre-tax health and dependent care benefits
- A stock option plan where the exercise price equals fair market value on grant date
Correct answer: A plan that permits acceleration of deferred amounts outside of permissible exceptions
Section 409A penalizes plans that allow early acceleration of deferred compensation outside IRS-approved exceptions with immediate taxation and a 20% excise tax.
Question 5: A company notices its voluntary turnover is highest among employees with compa-ratios below 90%. This data most directly suggests:
- The performance management system is ineffective
- Employees paid significantly below midpoint may be seeking better pay elsewhere (Correct answer)
- The benefits package is insufficiently competitive
- The organization should eliminate pay ranges entirely
Correct answer: Employees paid significantly below midpoint may be seeking better pay elsewhere
Low compa-ratios indicate pay below the market midpoint, which is strongly linked to employees leaving for higher compensation at other organizations.
Question 6: Which of the following is an example of a non-monetary total rewards element?
- Annual bonus tied to performance metrics
- Employer contributions to a health savings account
- Flexible work arrangements and schedule autonomy (Correct answer)
- Paid time off accruals
Correct answer: Flexible work arrangements and schedule autonomy
Flexible work arrangements are a non-monetary reward that enhances work-life integration and employee satisfaction without a direct financial cost per se.
Question 7: An organization wants to reward long-tenured employees while controlling fixed payroll costs. Which pay program best achieves this balance?
- Traditional step-increase systems tied solely to years of service
- Lump-sum merit awards that do not increase base salary (Correct answer)
- Across-the-board percentage increases applied to all employees equally
- Eliminating merit pay in favor of flat annual bonuses
Correct answer: Lump-sum merit awards that do not increase base salary
Lump-sum awards recognize employee contributions without permanently compounding base pay, helping control fixed labor costs over time.
SPHR Total Rewards 3
An SPHR is evaluating the compa-ratio for a job family.
A compa-ratio of 85% indicates that: