A survey conducted in January,2007 found the median pay effective January 1,2007,for a clerk was $20,000 and the forecast rate of wage increases in the market for 2007 was 5% and another 5% for 2008.An employer choosing to follow a lead/lag policy for the 2008 plan year will need to _____.
A) add $2000 to base pay
B) multiply the salary by 105 %
C) multiply the salary by 105 % and then by another 5 %
D) multiply the salary by 110%

Question

Quizplus · Accepted Answer

A lead/lag policy means that the employer will adjust salaries based on the forecasted wage increases for the following year. Since the forecasted wage increase for 2008 is 5%, the employer will need to multiply the current salary by 105% (or 1.05) to adjust for that increase. Then, since there is another forecasted increase of 5% for 2009, the employer will need to multiply the adjusted salary by another 105% (or 1.05) to account for that increase. Therefore, the correct answer is to multiply the salary by 105% and then by another 5%, which is choice C.

A Survey Conducted in January,2007 Found the Median Pay Effective