Most firms base compensation decision on five factors. One of the factors is:

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BlackTom AI · Accepted Answer

When evaluating how firms determine compensation, it's useful to parse what each option implies about the factors involved.
Option 1: What competing companies are paying. This aligns with the common practice of market pricing or external equity, where organizations benchmark pay against competitors to attract and retain talent. It reflects the external market rate as a key factor in setting compensation.
Option 2: Employee's severance package. A severance package is typically a contingent, post-employment consideration rather than a regular compensation decision factor used to determine ongoing pay. It concerns potential obligations if employment ends, not the standard wage or salary decisions.
Option 3: The cost of on-site training. While training costs matter for budgeting and total rewards planning, they do not usually serve as one of the primary factors used to set base pay or incentive levels. They’re more about development expenditure than directly shaping compensation levels.
Option 4: Company's benefit package. Although benefits are a component of total compensation, the traditional five-factor framework often emphasizes cash compensation and market position rather than treating benefits as a separate core factor. Benefits are part of the overall package, but the question targets the primary factors used to set compensation levels, where market comparison (Option 1) is the distinguishing external factor.
In summary, among the listed choices, comparing pay to what competing companies are offering best captures the external benchmark principle typically emphasized in compensation decision processes.

MGM101H5 F LEC0101 Quiz #5

Most firms base compensation decision on five factors. One of the factors is:

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