Asked by Maxine Wiebenga on Jun 16, 2024
Verified
When evaluating a new compensation system,you notice that the compensation cost ratio increased,while total compensation or average earnings remained static.What is a likely explanation?
A) All employees have received some kind of raise.
B) Total costs and/or revenues have decreased.
C) Benefits have been removed from total compensation.
D) There is an error in the data; this situation is not possible.
Compensation Cost Ratio
A measure used to assess the proportion of an organization’s total costs that are dedicated to employee compensation, including wages, salaries, and benefits.
Average Earnings
The mean income calculated by dividing the total income of a group by the number of individuals in that group.
Total Compensation
The complete package of benefits, including salary, bonuses, health insurance, and other perks, that an employee receives from an employer.
- Analyze the effects of compensation cost changes on the organization.
Verified Answer
MS
Mohammad SaramJun 17, 2024
Final Answer :
B
Explanation :
When the compensation cost ratio increases while total compensation or average earnings remain static, it likely means that total costs and/or revenues have decreased. This ratio reflects the proportion of costs or revenues dedicated to compensation, so a rise in the ratio without an increase in compensation suggests a reduction in the overall financial base (costs or revenues) against which the ratio is calculated.
Learning Objectives
- Analyze the effects of compensation cost changes on the organization.