When Is Pay Compression MOST Likely to Develop

question 44

Multiple Choice

When is pay compression MOST likely to develop?

• A) When employee skill levels increase faster than managerial skill levels
• B) When the market rate for starting salaries increases faster than organizations can give raises to existing employees
• C) When an organization's internal resources increase faster than it is able to hire new employees
• D) When the organization can provide monetary rewards more easily than intangible benefits
• E) When existing employees make more than new entrants in the organization

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Definitions:

Marginal Revenue

The revenue increase from the sale of an additional unit of a good or service.

Marginal Cost

The additional cost incurred by producing one more unit of a product.

Raise Price

An action taken by a seller to increase the selling price of a product or service, often in response to higher costs or in an attempt to increase profits.

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, representing the excess that remains after a firm has paid all costs.