# Market Pricing - Module 5

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This test is for module 5 of the Market Pricing exam for the Certified Compensation Professional Exam (CCP).

• 1.

### After collecting survey data (module 4), the next step is to analyze the data.

• A.

True

• B.

False

A. True
Explanation
This section will help you use and analyze the data you collected in modlule 3.

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• 2.

### Utilizing survey data is an exacting science.

• A.

True

• B.

False

B. False
Explanation
Survey analysis is an art. not a science.

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• 3.

### The key to interperting data in your survey and blending it into your organization's compensation philosophy  is understanding how the statistics are computed in the survey.

• A.

True

• B.

False

A. True
Explanation
Understanding how the statistics are computed in the survey is crucial for interpreting data and incorporating it into the organization's compensation philosophy. This implies that without a clear understanding of how the statistics are derived, it would be difficult to accurately analyze and use the survey data for making informed decisions about compensation. Therefore, the statement "The key to interpreting data in your survey and blending it into your organization's compensation philosophy is understanding how the statistics are computed in the survey" is true.

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• 4.

### Aging data is defined as:

• A.

Bringing taking data that was from multiple sources to one common point in time.

• B.

Increasing the market survey data by a percentage assumed t be representative of wage movement to bring data to a consistent point in time.

• C.

All of the above

• D.

None of the above.

C. All of the above
Explanation
The correct answer is "All of the above." This means that both statements provided in the question are correct explanations of what aging data is. Aging data can involve bringing data from multiple sources to one common point in time, as well as increasing market survey data by a representative percentage to ensure consistency in the data.

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• 5.

### Considerations in selecting an annual aging factor and the date we age the data to includes:

• A.

Aging factor - Sources i.e. survey providers, published budget project surveys, assumes actual pay increases by the budgeted amount)

• B.

Salary increase movements - Tends to be accurate, historical and not projected

• C.

Corporate culture - impacts what levels of compensation are expected by employees

A. Aging factor - Sources i.e. survey providers, published budget project surveys, assumes actual pay increases by the budgeted amount)
B. Salary increase movements - Tends to be accurate, historical and not projected
Explanation
The correct answer is that the salary increase movements tend to be accurate, historical, and not projected. This means that when selecting an annual aging factor and the date to age the data to, it is important to consider the actual salary increases that have occurred in the past rather than projected increases. This helps to ensure that the aging factor is based on reliable and realistic data, which is crucial for making accurate compensation decisions.

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• 6.

### Considerations in selecting an annual aging factor and the date we age the data to includes:

• A.

Aging over two calendar years - age one year first (and then age the second year compounding the increases), Do not combine into one factor

• B.

• C.

They type of survey used - the methodology used in the study will influence the aging process in a myriad of ways.

A. Aging over two calendar years - age one year first (and then age the second year compounding the increases), Do not combine into one factor
Explanation
The correct answer suggests that when selecting an annual aging factor and the date to age the data, it is important to age one year first and then age the second year, compounding the increases. It also advises against combining the two years into one factor. Additionally, the answer mentions that the compensation philosophy, such as lag, lead, or lead-lag, should be considered. The type of survey used in the study will also influence the aging process in various ways.

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• 7.

### Considerations in selecting an annual aging factor and the date we age the data to includes:

• A.

Differential rates - Compensation levels increase at different rates for different groups (e.g. salaried employees tend to increase more than hourly)

• B.

Market research (i.e. job level[hourly, salary, executive], industry type, geographic locatioon, type of compensation [base pay, compensation])

• C.

Organizational structure - Can impact aging based on job structures and types

A. Differential rates - Compensation levels increase at different rates for different groups (e.g. salaried employees tend to increase more than hourly)
B. Market research (i.e. job level[hourly, salary, executive], industry type, geographic locatioon, type of compensation [base pay, compensation])
Explanation
The selection of an annual aging factor and the date to age the data to includes considerations such as the differential rates of compensation increase for different groups. Salaried employees tend to have higher increases in compensation compared to hourly employees. Market research is also important in determining the aging factor and date, including factors such as job level, industry type, geographic location, and type of compensation (base pay or total compensation). Additionally, the organizational structure can impact the aging process based on job structures and types within the organization.

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• 8.

### To apply an annual aging factor, you would use the following formula: Survey aging factor  =  (Number of months to age/12 months) * Annual Aging Factor

• A.

True

• B.

False

A. True
Explanation
The given statement is true because to apply an annual aging factor, you need to calculate the number of months to age divided by 12 months and then multiply it by the annual aging factor. This formula helps in adjusting the data or values based on the time that has passed since the data was collected.

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• 9.

### Blending can be defined as the process of using the market rate for two or more jobs to establish the market rate for a hybrid job.

• A.

True

• B.

False

A. True
Explanation
Blending refers to the practice of combining the market rates of multiple jobs to determine the market rate for a hybrid job. This means that when a new job is created that combines elements of two or more existing jobs, the market rate for the hybrid job is established by taking into account the market rates of the individual jobs it is based on. Therefore, the statement "Blending can be defined as the process of using the market rate for two or more jobs to establish the market rate for a hybrid job" is true.

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• 10.

### Weighting hybrid jobs

• A.

Is the process of allocating additional emphasis (i.e. weight) to a particular job when blending survey data for two or more jobs.

• B.

When weighting survey data, the total percent of weighting cannot go above 100%.

• C.

When weighting survey data, the total percent of weighting can sometimes go above 100%.

• D.

Can place emphasis on time spent in (i.e. performing) a job

A. Is the process of allocating additional emphasis (i.e. weight) to a particular job when blending survey data for two or more jobs.
B. When weighting survey data, the total percent of weighting cannot go above 100%.
D. Can place emphasis on time spent in (i.e. performing) a job
Explanation
Weighting hybrid jobs is the process of giving more importance or weight to a specific job when combining survey data for multiple jobs. It allows for a more accurate representation of job responsibilities and compensation. When weighting survey data, it is important to note that the total percentage of weighting cannot exceed 100%, as this would result in an incorrect distribution of weights. Additionally, weighting can also be used to emphasize the time spent performing a particular job, highlighting its significance in the overall analysis.

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• 11.

### Weighting multiple sources for the same job is the process of allocating additional emphasis (i.e. weight) on a particular survey when using multiple survey sources for the same job.

• A.

True

• B.

False

A. True
Explanation
Weighting multiple sources for the same job is a valid process in which additional importance is given to a specific survey when multiple survey sources are used for the same job. This means that not all surveys are considered equal and some may carry more weight or significance in the final decision-making process.

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• 12.

### The process of blending and weighting creates a market rate composite.

• A.

True

• B.

False

A. True
Explanation
The statement is true because blending and weighting are two important steps in creating a market rate composite. Blending refers to combining different rates or prices from various sources, while weighting involves assigning different levels of importance or significance to each rate. By blending and weighting these rates, a market rate composite is formed, which provides a comprehensive and representative view of the market's overall rate.

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• 13.

### What factors might influence weighting market data?

• A.

Compensation strategy - industry related surveys would be more heavily weighted if you've defined your competitive labor

• B.

Quality of surveys

• C.

Quality of job match - some job matches will be more strong in certain surveys

• D.

Quality of talent pool in your geograpic region

A. Compensation strategy - industry related surveys would be more heavily weighted if you've defined your competitive labor
B. Quality of surveys
C. Quality of job match - some job matches will be more strong in certain surveys
Explanation
The factors that might influence weighting market data include compensation strategy, quality of surveys, quality of job match, and quality of talent pool in a specific geographic region. Compensation strategy plays a significant role as industry-related surveys would be given more weightage if a competitive labor market has been defined. The quality of surveys is crucial as it determines the accuracy and reliability of the data. Additionally, the strength of job matches in certain surveys can also impact the weighting of the data. Lastly, the quality of the talent pool in a specific geographic region can influence the weighting of market data as it reflects the availability and suitability of skilled workers in that area.

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• 14.

### What is a regression model?

• A.

A representation of a part of reality (i.e. datasets)

• B.

Used to solve problems

• C.

Used to understand relationships between two or more sets of data

• D.

Is computationally complex and can only reliably be plotted by computers.

A. A representation of a part of reality (i.e. datasets)
B. Used to solve problems
C. Used to understand relationships between two or more sets of data
Explanation
A regression model is a statistical tool used to represent a part of reality, specifically datasets, in order to solve problems and understand the relationships between two or more sets of data. It is computationally complex and typically requires the use of computers for accurate plotting and analysis.

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• 15.

### How is regression modeling generally used when discussing market pricing?

• A.

As a Statistical technique - fits a straight line onto an x,y graph. Linear regression assumes that the basic relationship between the two variables is linear in nature.

• B.

Midpoints - Typically used to develop midpoints of a salary grade.

• C.

Valuable tool for determining market rate - helps determine the market rate for positions within a salary grade

• D.

Asymmetries - brings to light asymmetries in external market pay rates.

A. As a Statistical technique - fits a straight line onto an x,y graph. Linear regression assumes that the basic relationship between the two variables is linear in nature.
B. Midpoints - Typically used to develop midpoints of a salary grade.
C. Valuable tool for determining market rate - helps determine the market rate for positions within a salary grade
Explanation
Regression modeling is generally used in market pricing to analyze the relationship between two variables and determine market rates. It is a statistical technique that fits a straight line onto an x,y graph, assuming a linear relationship between the variables. It is also used to develop midpoints of a salary grade, which helps determine the market rate for positions within that grade. Overall, regression modeling is a valuable tool for analyzing and understanding market pricing and identifying any asymmetries in external pay rates.

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• 16.

### The process of Regression analysis for maket pay includes:

• A.

Pay line of market rates - Develops a pay line of market rates

• B.

Pay line policy - because it is developed using your organization's compensation philosophy, this regression line can be referred to as you "pay policy line".

• C.

Pay structure midpoints - Using this style of analysis, pay structure midpoints will fall on the pay line.

• D.

Pay structure min / max - Using this structure, your minimum and maximum pay rates will fall along the pay line.

A. Pay line of market rates - Develops a pay line of market rates
B. Pay line policy - because it is developed using your organization's compensation philosophy, this regression line can be referred to as you "pay policy line".
C. Pay structure midpoints - Using this style of analysis, pay structure midpoints will fall on the pay line.
Explanation
Regression analysis for market pay involves developing a pay line of market rates, which serves as the organization's pay policy line based on its compensation philosophy. This analysis also ensures that pay structure midpoints align with the pay line, indicating a fair and consistent approach to compensation. Additionally, the minimum and maximum pay rates are set in accordance with the pay line, further reinforcing the organization's pay structure.

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• 17.

### When dealing with outliers in regression analysis you:

• A.

Should know that an outlier is a data point in a data set that are anomalies when compared to the rest of the data.

• B.

Verify the data (including data in the survey sources)

• C.

It might be appropriate to consider eliminating the outliers from the data and running the analysis again.

• D.

Vary your approach when you collect the data

• E.

Should be aware that a single outlier, if extreme, can alter the line of best fit (i.e. the pay policy line).

A. Should know that an outlier is a data point in a data set that are anomalies when compared to the rest of the data.
B. Verify the data (including data in the survey sources)
C. It might be appropriate to consider eliminating the outliers from the data and running the analysis again.
E. Should be aware that a single outlier, if extreme, can alter the line of best fit (i.e. the pay policy line).
Explanation
When dealing with outliers in regression analysis, it is important to understand that an outlier is a data point that deviates significantly from the rest of the data. This understanding helps in identifying and handling outliers effectively. Verifying the data, including the sources of the survey, is crucial to ensure data accuracy and reliability. In some cases, it may be appropriate to remove outliers from the dataset and rerun the analysis to obtain more accurate results. Additionally, it is important to be aware that a single extreme outlier can have a significant impact on the line of best fit, potentially altering the overall analysis and conclusions.

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• 18.

### When dealing with outliers in regression analysis you can try to improve the design of your pay structure which can:

• A.

More clearly identify problems that perhaps can't be resolved within the context of the pay structure.

• B.

Alert you that unusual benchmark jobs may need to be handled by a special pay policy.

• C.

Eliminate outliers which might better align the midpoints to achieve competitive goals.

• D.

Vary your approach when you collect the data

A. More clearly identify problems that perhaps can't be resolved within the context of the pay structure.
B. Alert you that unusual benchmark jobs may need to be handled by a special pay policy.
C. Eliminate outliers which might better align the midpoints to achieve competitive goals.
Explanation
When dealing with outliers in regression analysis, improving the design of the pay structure can have several benefits. Firstly, it can more clearly identify problems that cannot be resolved within the existing pay structure. This means that issues that are not easily addressed can be identified and potentially addressed in other ways. Secondly, it can alert you to the fact that unusual benchmark jobs may require a special pay policy. This ensures that outliers are not treated in the same way as other data points, as they may require unique handling. Lastly, eliminating outliers can help align the midpoints of the pay structure to achieve competitive goals, as outliers can skew the overall analysis.

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• 19.

### What properties define internal equity?

• A.

Each job's relative value to one another

• B.

Equal pay for jobs of equal worth (as perceived by the organization)

• C.

Equal worth is a perception issue - Employers and employees might have different perceptions of equal worth.

• D.

Can almost never be widely attained due to the differences in perceptions between employer and employee.

A. Each job's relative value to one another
B. Equal pay for jobs of equal worth (as perceived by the organization)
C. Equal worth is a perception issue - Employers and employees might have different perceptions of equal worth.
Explanation
Internal equity is defined by the relative value of each job compared to one another within an organization. It involves ensuring that jobs of equal worth, as perceived by the organization, are compensated equally. However, equal worth is subjective and can be influenced by different perceptions between employers and employees. Therefore, achieving complete internal equity is challenging due to the differences in perception between the two parties involved.

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• 20.

### What properties define external equity?

• A.

Pay levels are compared to competitors

• B.

Prevailing external rates - fairness is defined by external market rates.

• C.

Equity is achieved when employees believe their compensation is equal to what they would receive if they worked at a similar job for another company in the same industry.

• D.

Tends to lead organizations to over pay their employees.

A. Pay levels are compared to competitors
B. Prevailing external rates - fairness is defined by external market rates.
C. Equity is achieved when employees believe their compensation is equal to what they would receive if they worked at a similar job for another company in the same industry.
Explanation
External equity is defined by comparing pay levels to competitors and aligning them with prevailing external rates. This ensures fairness by benchmarking against the market rates. Equity is achieved when employees perceive their compensation to be equal to what they would receive in a similar job at another company in the same industry. This approach may lead organizations to overpay their employees in order to maintain external equity.

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• 21.

### Utilizing external equity to determine market pay, should an accountant in the Mexico expect to be paid the same as an accountant in the U.K.?

• A.

True

• B.

False

B. False
Explanation
An accountant in Mexico should not expect to be paid the same as an accountant in the U.K. because external equity, which determines market pay, takes into account factors such as cost of living, economic conditions, and supply and demand of skills in each country. The pay for accountants in different countries can vary significantly due to these factors, so it is unlikely that they would be paid the same.

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• 22.

### When weighting internal equity vs. external equity, organizations should genearlly consider two strategies:

• A.

Blend and balance - balancing internal vs. external equity

• B.

Job value - the organization needs to determine which jobs are of higher value to the organization.

• C.

Current pay structure - organizations shouldn't modify their current pay structures too radically or they might throw internal equity out of balance.

A. Blend and balance - balancing internal vs. external equity
B. Job value - the organization needs to determine which jobs are of higher value to the organization.
Explanation
The correct answer suggests that organizations should consider two strategies when weighting internal equity vs. external equity. The first strategy is to blend and balance, meaning that they should find a balance between the internal and external equity considerations. The second strategy is to determine the job value, where the organization needs to identify which jobs hold higher value to the organization. Additionally, it is important for organizations not to make radical changes to their current pay structures as it may disrupt the internal equity balance.

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