Compensation and Rewards

1
Compensation and Rewards

• Business 158
• Spring Semester 2007
• Tim Brown

Session 3b
2
Agenda

• Union influences (chapter 17)
• Break
• Legal considerations (chapter 15)

3
Learning Objectives (Chapter 15)

• Identify impacts on wage determination in
  unionized organizations
• Discuss the union impact on general wage levels
  and the structure of wage packages
• Explain the role unions play in pay
  administration
• Discuss the union perspective on the use of
  alternative reward systems.

4
Impact of Unions in Wage Determination

• Impact on general wage and benefit levels
• Impact on structure of wages
• Impact on non-union firms,spillover effect
• Impact on wage and salary policiesand practices
  in unionized firms

5
Unions Impact General Wage Levels

• Unions do make a difference in wages
• Union workers earn between 8.9 and12.4 more
  than nonunion workers
• Size of gap varies from year to year
• Larger gap during periods of higher unemployment
• Smaller gap during strong economies
• Larger union-nonunion wage differentials in
  public sector
• Union employees earn about 16 19 more

6
Structure of Wage Packages

• Unions have greater percentage of total wage
  costs allocated to employee benefits
• Higher costs due to Higher pension expenditures,
  and higher insurance benefits
• Different relationship between worker wages and
  pay of managers in union environment
• gap between workers and managers is 23 less

7
Wage Structure Two-Tier Pay Plans

• Two-tier pay structures are a union phenomenon
  differentiating pay based upon hire date
• Employees hired after a target date will receive
  lower wages than their higher-seniority peers in
  similar jobs

8
Two Tier Pay Plan Perspectives

• From mgmts view, wage tiers offer cost controls
• Lower wage costs allow expansion or investment
• Cost-cutting device to allow economic survival
• From union perspective, wage tiers are better
  than
• Wage freezes
• Staff cuts among existing employees
• However, tradeoff bargained away equivalent wage
  treatment for future employees

9
Union Impact The Spillover Effect

• Employers seeking to avoid unionization may offer
  workers wages, benefits, and working conditions
  like those won in rival unionized firms
• Outcomes
• Nonunion mgmt enjoys freedom from union
  impact/rules/limitations
• Non-union workers receive spillover rewards
  obtained by unionized workers

10
Role of Unions in Wage andSalary Policies and
Practices

• Pay admin is outlined in contract
• Basis of pay
• Regular pay
• Overtime pay
• Pay for nonstandard shifts
• Incentive pay
• Occupation-wage differentials
• Experience/merit differentials
• Automatic progression based on seniority
• Merit
• Combination of automatic and merit progression

11
Role of Unions in Wage andSalary Policies and
Practices (cont.)

• Other differentials
• Pay to unionized employees employed by firm in
  different geographic areas
• Part-time and temporary employees
• Vacations and holidays
• Wage adjustment provisions
• Deferred wage increases
• Re-opener clauses
• Cost-of-living adjustments (COLAs) or escalators

12
Unions and Alternative Rewards

• Unions are receptive to pay to performance
  systems when employers face extreme competitive
  pressures
• Typical union stipulations
• Equity issue involves use of group-based measures
  with equal payouts
• Measure performance objectively, often with
  measures such as past performance
• 20 percent of all U.S. collective bargaining
  agreements permit some alternative reward system

13
Types of Alternative Reward Systems

• Lump-sum awards
• Given in lieu of merit increases
• Employee stock ownership plans (ESOPs)
• Give employees part ownership in company
• Pay-for-knowledge plans
• Pay employees more for learning different jobs or
  skills
• Gain-sharing plans
• Align workers and management in efforts to
  streamline operations and cut costs
• Profit sharing plans
• Allows union members to share wealth

14
Summary

• Unions provide a necessary safeguard to society
• Union influences do impact non-union firms
• Union organization often seen as a required
  response to employer policies/practices

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Break

• 15 minute break

16
Learning Objectives (Chapter 17)

• Discuss the governments role in the employment
  relationship and its interests in compensation
  decisions
• Identify the major provisions of the Fair Labor
  Standards Act and describe how this Act affects
  the regulation of pay
• Identify the key components of the Equal Pay Act
  of 1963 and explain how they affect wage
  discrimination
• Discuss how the two theories of discrimination
  under Title VII of the Civil Rights Act of 1964
  (as amended) affect pay issues
• Explain the difficulties and issues in
  determining pay discrimination for dissimilar jobs

17
Overview of Federal Regulations
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Government and the Employment Relationship

• Government is a key stakeholder in compensation
  decision making
• Government interests in worker protection
• Procedures for determining pay are fair
• pay discrimination
• Safety nets for the unemployed and disadvantaged
• Minimum wage, Unemployment insurance
• Employees are protected from exploitation
• Overtime pay, child labor

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Fair Labor Standards Act (1938)
Three Major Provisions

• Minimum wage
• Hours of work
• Overtime pay
• Employee status
• Exempt
• Nonexempt
• Child labor

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Minimum Wage

• Legislation intended to provide an income floor
  for workers in societys least productive jobs
• Federal minimum wage is 5.15 an hour
  (current debates would raise rate to 7.25)
• Many states have their own higher minimum wage
  requirements
• If state and federallegislation cover samejob,
  the higher rate prevails

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Effects of Minimum Wage RateIncreases on Wage
Structure

• Direct and indirect effects
• Direct effect Refers to increase in wages for
  jobs at bottom of wage curve that have been below
  minimum wage
• Indirect effect Refers to changes in remainder
  of the wage curve to maintain appropriate
  differentials for jobs that deserve higher pay
• Wage increase arguments focus on job loss and
  cost
• Companies spend more money on increasing pay of
  high-level jobs than they spend on raising pay of
  low-level jobs to new minimum

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Employee Status Under FLSA

• Withhold federal/state/local income taxes
• Match Social Security/Medicare withholding
• Include person in company benefit programs
• Pay for unemployment insurance and workers
  compensation
• Allow up to 12 weeks of unpaid leave for family
  emergencies
• Provide any other state or federally mandated
  benefits

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Contractor Status Under FLSA

• Have ability to set own hours and determine
  sequence of work
• Work off-site
• Work by the project rather than have a continuous
  relationship with the employer
• Be paid by the job
• Have an opportunity for profit and loss
• Furnish own tools and training
• Be self-employed or work with a leasing company

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Exempt and Non-Exempt Status Under FLSA

• Non-exempt employees are included in regulations
  and have full protection of law
• Exempt employees are excluded from FLSA minimum
  wage and overtime provisions
• Four classifications of exempt employees
• Executives
• Professionals
• Administrative employees
• Outside salespeople

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FLSA Basic Overtime Provisions

• Non-exempt workers must be paid 1.5 times their
  regular rate of pay for hours worked in excess of
  40 in any workweek
• Regular rate of pay includes base pay plus
• Non-discretionary bonuses
• Shift premiums
• Production bonuses
• Commissions

• Overtime is paid on time worked, not time
  compensated
• A workweek is any fixed, recurring period of 168
  consecutive hours

2007
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Compensatory Time Under FLSA

• Compensatory time off may sometimes be offered
  instead of cash overtime
• Rate is the same as for cash
• Public employees can accumulate compensatory time
• In private sector, practice of allowing
  compensatory time must be part of an established
  plan

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Child Labor Provisions

• FLSA restricts hours and conditions of employment
  for minors
• Persons under 18 cannot work in hazardous jobs
• Persons under 16 cannot beemployed in jobs
  involvinginterstate commerce

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FLSA Compliance Enforcement

• Wage and Hour Division of U.S. Department of
  Labor enforces FLSA minimum wage and overtime
  provisions
• Equal Employment Opportunity Commission (EEOC)
  enforces equal pay provisions

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When State Laws Differ

• Pay frequency, minimum wage, severance or
  vacation pay, or unclaimed wages may be governed
  by individual states
• Rule of thumb - Whenever state and federal laws
  differ, follow regulation that most benefits
  employees

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Pay Discrimination What Is It?

• Law recognizes two types of discrimination
• Access discrimination denies particular jobs,
  promotions, or training opportunities to
  qualified women or minorities
• Valuation discrimination looks at pay women and
  men receive for the jobs they perform
• It is discriminatory to pay minorities or women
  less than males when performing equal work -
  working side-by-side, in the same plant, doing
  the same work, producing the same results

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Types of Antidiscrimination Acts

• Equal Pay Act (1963)
• Civil Rights Act (1964)
• Age Discrimination in Employment Act (1967)
• Wage Garnishment Act (1968)
• Americans with Disabilities Act (1990)

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Discriminatory Compensation Practices

• Types of compensation practices which may be
  discriminatory
• Extra pay plans
• Leave policies
• Maternity leave
• Pension policies

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Equal Pay Act (1963)

• Prohibits wage discrimination on the basis of
  gender when
• Employees perform work inthe same establishment,
  or
• Employees perform jobsrequiring equal skill,
  effort,and responsibility undersimilar working
  conditions

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What Is Discrimination Under EPA?
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Provisions of Equal Pay Act

• Equal work is defined in terms of
• Skill, effort, responsibility, and working
  conditions all performed at the same location
• Differences in pay are legal if differences are
  based on any one of four criteria
• Seniority, merit or quality of performance,
  quality or quantity of production, or some factor
  other than sex
• Not permitted are defenses such as
• Union rules or the wage is prevailing pay for
  market
• Time of day does not constitute dissimilar
  working conditions
• If paid, a differential for working at night must
  be separated from base wage for job

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Title VII of the Civil Rights Act (1964)

• Prohibits discrimination in all terms and
  conditions of employment on the basis of race,
  religion, ethnic group, sex, or national origin.
• Defines two theories ofdiscrimination behavior
• Disparate treatment
• Disparate impact
• Civil Rights Act of 1991 reinforcedthese two
  standards of discrimination

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Theories of Discrimination

• Disparate treatment
• Occurs when an employee who is a member of a
  protected group is intentionally paid less
• Disparate impact
• Occurs when an apparentlyneutral compensation
  practiceresults in unintentional
  wagediscrimination for a protected group

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Possible Determinants of Pay Differences
Exhibit 17.6
Where do you see the effect of performance?
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What Is Comparable Worth?
If jobs require comparable skill, effort, and
responsibility, the pay must be comparable, no
matter how dissimilar the job content may be.
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Age Discrimination in Employment Act (1967)

• Prohibits discrimination on basis of age for
  workers at least 40 years of age in all
  conditions of employment
• Coverage - Act applies to all private employers
  with 20 or more employees for 20 or more weeks
  per year
• Exceptions - Seniority systems or use of factors
  other than age are permissible
• Beware of career stage bias assuming a decline in
  productivity with older workers

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Americans with Disabilities Act (1990)

• Prohibits discrimination in employment against
  individuals who can perform essential job
  functions with reasonable proficiency
• To be protected by the ADA, an employee must have
  an impairment which substantially limits one or
  more major life functions
• Reasonable accommodation must be taken by
  employers to accommodate employees with
  disabilities
• Undue hardship - Employers are exempt from taking
  action if accommodation involves significant
  expense or difficulty

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Take a Proactive View to Compliance