Compensation and Benefits
What to know
Total rewards includes base pay, variable pay (bonuses, incentives, commissions), benefits, and non-monetary elements (recognition, flexibility, development). Understand internal equity (fairness across roles) and external competitiveness (market positioning), and the tools that support them: job evaluation, salary surveys, pay grades and ranges, and compa-ratios. Know the components of a pay range (minimum, midpoint, maximum) and that the midpoint typically represents the market rate for a fully competent performer. Understand statutory vs. voluntary benefits, and the concept of benefits as a significant portion of total compensation cost.
Traps
Questions often confuse job evaluation (internal, ranks roles by relative worth) with market pricing (external, benchmarks pay to the market); strong programs use both. Watch for compa-ratio questions: compa-ratio = salary ÷ range midpoint. A ratio below 1.0 means pay is below midpoint-not necessarily "unfair." Another trap is treating a bonus as guaranteed; variable pay should be tied to defined criteria.
Worked example
A pay range has a midpoint of $50,000. An employee earns $45,000. Compa-ratio = 45,000 ÷ 50,000 = 0.90, meaning the employee is paid at 90% of midpoint. If the question asks what this signals, the correct answer is "below market midpoint for a fully competent performer," not "underpaid illegally."
Rule of thumb
Internal equity is built with job evaluation; external competitiveness is built with market data-do not substitute one for the other.