This document contains Chapters 1 to 2 CHAPTER 1 Strategic Compensation: A Component of Human Resource Systems Learning Objectives 1. Describe what compensation is and give at least three examples of core compensation practices and at least three examples of employee benefits practices. 2. Summarize at least two historical events in the evolution of compensation practice leading to the current strategic compensation era. 3. Discuss at least two differences between strategic and tactical compensation. 4. Name and summarize the goals of compensation professionals. 5. Identify the stakeholders of the compensation and summarize their stake in the work compensation professionals perform. Outline I. Overview II. Exploring and Defining the Compensation Context A. What Is Compensation? B. Core Compensation C. Employee Benefits III. A Historical Perspective on Compensation Causes of Changes in Human Resources Practices Initial Emphasis on Personnel Administration From Personnel Administration to Human Resources D. Compensation Practices That Contribute to Competitive Advantage IV. Strategic versus Tactical Decisions Strategic Management Defined Competitive Strategy Choices C. Tactical Decisions That Support the Firm’s Competitive Strategy V. Compensation Professionals’ Goals A. How HR Professionals Fit into the Corporate Hierarchy B. How the Compensation Function Fits into the HR Department C. Compensation Department’s Main Goals VI. Stakeholders of the Compensation System A. Employees B. Line Managers C. Executives D. Unions E. U.S. Government VII. Discussion Questions and Suggested Answers VIII. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses IX. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses. Lecture Outline I. Overview A. Manpower Planning 1. Focus was on effective deployment of employees 2. Goal was to achieve maximum productivity per employee B. Personnel Management 1. Evolved due to government regulations concerning: a. Payroll taxes b. Minimum wage laws c. Antidiscrimination laws 2. New responsibilities include: a. Administration b. Support c. Consultation d. Quality human resources system design C. HR Professionals 1. Their role has evolved from compliance to consultation and system design 2. They help companies use compensation to attract and retain quality employees 3. They switch the role of compensation practices from controlling managers to facilitating their success 4. They use skills and creativity to apply fundamentals to build management tools that fit within the context of their business 5. They teach managers how to use those tools to maximize their employees’ potential 6. They become facilitators 7. Their transformation from compensation consultant to master compensation carpenter requires that: a. A solid foundation in a company’s business environment, strategy, and organizational structure, processes, and culture should exist b. A manager’s toolbox should contain the tools required to run the business c. Managers should be taught how to use each tool II. Exploring and Defining the Compensation Context A. What Is Compensation? 1. Intrinsic and extrinsic rewards employees receive for performing their jobs a. Intrinsic compensation: reflects employees’ psychological mindsets that result from performing their jobs b. Extrinsic compensation: includes both monetary and nonmonetary rewards for: i. Obtaining certain job performance levels ii. Acquiring new skills and knowledge 2. Monetary compensation represents core compensation 3. Nonmonetary rewards (also known as employee benefits) include: a. Protection programs (e.g., medical insurance) b. Paid time off (e.g., vacations) c. Services (e.g., daycare assistance) B. Core Compensation 1. Six types: a. Base pay b. Cost-of-living adjustments c. Seniority pay d. Merit pay e. Incentive pay f. Pay-for-knowledge and/or skill-based pay 2. Base pay (more in Chapter 7) a. Includes: i. Hourly pay wage ii. Salary c. Is recurring d. Is governed by Fair Labor Standards Act of 1938 (more in Chapter 2) e. In 2012, the average weekly rate for workers was $818. On an annual basis, this figure translates to $42,537 (based on a 40-hour work week over 52 calendar weeks) f. Is influenced by four compensable factors: i. An employee’s skill level ii. An employee’s effort iii. An employee’s level of responsibility iv. The severity of the working conditions (more in Chapters 2 and 6) g. Because of the Equal Pay Act of 1963, compensable factors are used to: i. Determine internal consistency (more in chapter 6) ii. Determine market competitiveness (more in chapter 7) iii. Recognize individual contributions (more in chapter 8) h. Is adjusted periodically for: i. Cost-of-living increases ii. Differences in an employee’s job performance iii. Increases in an employee’s skill level or job knowledge 3. Includes cost-of-living adjustments (COLAs) which are: a. Base pay adjustments tied to the consumer price index (CPI) and inflation, which is used to set new hires’ pay b. The typical COLA has been 2-3% annually in recent years b. Designed to enable employees to maintain their purchasing power and standard of living c. Most common where unions represent workers 4. Seniority pay is: a. Based on an employee’s length of service and increased value to the employer (more in Chapter 3) b. Designed according to the human capital theory: employees will become more productive as they refine existing skills and acquire new skills and knowledge through length of service 5. Merit pay is: a. Permanent base pay increases granted because of job performance b. Designed to reward exemplary performance, to motivate future performance, and to retain valued employees 6. Incentive pay is: a. Also known as variable pay b. Used for attaining predetermined work objectives c. Fluctuated according to: i. A pre-established formula ii. Individual or group goals iii. Company earnings 7. Pay-for-knowledge and skill-based pay a. Pay-for-knowledge plans reward managerial, service, or professional workers for successfully learning specific curricula (more in Chapter 5) b. Skill-based pay is used mostly for employees who perform physical work and increases as workers master new skills (more in Chapter 5) c. Reward employees for the range, depth, and types of knowledge and skills they are capable of applying productively to their jobs d. Reward employees for their potential for making meaningful contributions on the job C. Employee Benefits 1. Represent nonmonetary rewards a. Pay for time-not-worked b. Employee services c. Protection programs 2. Categorized a. Legally required benefits (more in Chapter 11) b. Discretionary benefits (more in Chapters 9 and 10) 3. Discretionary benefits a. Three broad categories i. Protection program ii. Pay for time-not-worked iii. Services (more in Chapter 10) b. Protection programs i. Provide family benefits ii. Promote health iii. Guard against income loss caused by unemployment, disability, and serious illness c. Pay for time-not-worked: provide employees time off with pay like i. Vacation ii. Medical leave d. Services: provide enhancements to employees and their families like: i. Tuition reimbursement ii. Daycare assistance 4. As of September 2012, employers spent an average of $30.84 per employee per hour worked, with only $21.35 of that going to actual wages 5. Legally-required benefits a. Are protection programs that attempt to: i. Promote worker safety and health ii. Maintain family income streams b. Assist families in crisis c. Provide assistance when employee is: i. Disabled ii. Unemployed d. Main, relevant laws include (more in Chapter 11): i. Social Security Act of 1935 ii. Family and Medical Leave Act of 1993 III. A Historical Perspective on Compensation: The Road toward Strategic Compensation A. Causes of Changes in Human Resources Practices 1. Industrial Revolution in the early 1900s 2. Positions in agrarian and small craft businesses giving way to large-scale manufacturing jobs a. Each employee is now just one of many for one business b. Less self-employed and family-owned work opportunities 3. Gave rise to divisions in labor 4. Necessitated activities referred to as personnel administration: a. Hiring/terminating b. Training c. Setting compensation benefits d. Handling grievances B. Initial Emphasis on Personnel Administration 1. Responsibilities a. Controlling labor costs b. Management control over labor 2. Base management control over labor on scientific management practices that: a. Gave rise to individual incentive pay b. Promoted labor cost control by replacing inefficient production methods with more efficient methods, using: i. Time-and-motion studies ii. Job analysis c. Use time and motion studies to analyze the time it takes employees to complete their assigned work d. Use job analysis for gathering, documenting, and analyzing information to describe jobs e. Gave rise to factory-related piecework plans where: i. Employee compensation is determined by units produced per time span ii. An individual’s hourly production is compared to an objective output standard iii. Incentives for exceeding standards is rewarded 3. Welfare practices were originated to: a. Provide comfort and improvement, intellectual or social, to employees, over and above wages paid, which is not a necessity of the industry nor required by law b. Discourage unionization c. Promote effective management d. Enhance worker productivity 4. Under welfare practices, the number and types of compensation benefits offered varied per business, may have included: a. Use of libraries and recreational facilities b. Educational assistance c. Medical insurance 5. Government influences include: a. Implementing legislation to fair treatment by making employment-related decisions according to job performance b. Requiring extensive documentation C. From Personnel Administration to Human Resources 1. Began in the 1980s 2. Went from mainly an administrative function to designing and implementing compensation programs that contribute to a company’s competitive advantage 3. Competitive advantage: refers to a company’s ability to maintain market share and profitability over a sustained period of several years 4. Employees now seen as a key resource instead of just an expense 5. Major factors include: a. Rapid technological changes i. Automation ii. Employee’s expanded range of required tasks, knowledge, and responsibilities b. Overseas competition i. Requires employers to hire and retain employees with leading-edge skills ii. Requires employees with broader, more in-depth work related knowledge iii. Research suggests that foreign workers are more productive than U.S. workers D. Compensation Practices That Contribute to Competitive Advantage 1. Titles a. Merit pay programs b. Incentive pay practices c. Pay-for-knowledge and skill-based pay programs d. Executive compensation (more in Chapter 12) 2. Merit pay programs reinforce excellent performance by awarding pay raises commensurably with performance attainments 3. Incentive pay practices award one-time pay increases once work objectives have been attained 4. Pay-for-knowledge and skill-based pay programs allow employees to acquire the knowledge and skills to remain productive 5. Employees use discretionary benefits to increase worker productivity Quick Note: Just as prior economic shifts and governmental regulations have caused alterations in the field of compensation administration, the recessions in the first part of the 21st century might well lead to future dramatic shifts to which compensation managers will need to adapt. IV. Strategic versus Tactical Decisions A. Strategic Compensation Defined 1. Strategic decisions guide the activities of a company in the market 2. Tactical decisions support the fulfillment of strategic decisions 3. Strategic compensation consists of two categories a. Strategic management b. Strategic planning 4. Strategic management a. Entails making a series of judgments, under uncertainty, which companies direct toward achieving specific goals b. Strategy formulation based on environmental scanning activities c. Environmental scanning is used to discern between threats and opportunities 5. Strategic planning a. Supports business objectives b. Executives communicate business objectives through competitive strategy statements c. Competitive strategy: planned use of company resources—technology, capital, and human in order to promote and sustain competitive advantage d. Has a time span that generally exceeds two years 6. Human resource strategies: use of multiple HR practices a. Compensation and benefits executives work with the lead HR executives and the company’s chief budget officer to prepare total compensation strategies b. Total compensation strategies describe the use of compensation and benefits practices that support both HR strategies and competitive strategies Example: Competitive Strategy • Eli Lilly • Leading, innovation-driven corporation is developing a growing portfolio of pharmaceutical products by applying the latest research • Creates value for all stakeholders by accelerating the flow of innovative medicines • Provides answers through medicines and information for the world’s most urgent medical needs • Total compensation strategies describe the use of compensation and benefits practices that support both human resources strategies and competitive strategies • Example: Strategic Decisions Mercedes-Benz—has established a reputation as being a high-end luxury car maker Prices generally $50,000 or more per automobile Target market are those 40 years and older Mercedes-Benz introduced a new car, outside their established reputation $25,000 to $30,000 price range Target market is 20 to 30 year old age range Seeking opportunity to establish brand loyalty Mercedes-Benz was unsuccessful in attracting this younger market segment, and ultimately decided to discontinue this new model after only a few short years. B. Competitive Strategy Choices 1. Kinds a. Lowest cost strategy b. Differentiation strategy 2. Lowest cost (cost leadership) strategy a. Focuses on gaining competitive advantage by: i. Being the lowest cost producer within the marketplace ii. Selling goods or services at a price advantage relative to the industry average b. Requires aggressive construction of efficient-scale facilities, and vigorous pursuit of cost minimization in areas like: i. Operations ii. Marketing iii. HR • Example: Ryanair Pursues lowest cost by reducing operating costs Aircraft training and maintenance costs minimized because they use only one aircraft: Boeing 737s Seating cost and labor costs minimized because seats do not recline and seat-back pockets stowed under the seat Includes one toilet to make room for additional seats Baggage handling costs are reduced because passengers are required to carry their luggage 3. Differentiation strategy is: a. A competitive strategy where companies develop products or services that are unique from those of its competition b. Used by companies to make themselves unique in many ways, such as: i. Design or brand image ii. Use of technology iii. Providing additional features iv. Providing better customer service v. Offering their product or service at a better price, and so on • Example: Differentiation Strategies: Brand Image and Price Premiums P&G Corporation (manufactures, markets, and distributes consumer goods products including dog food) Two product lines: Iams: Offers nutritionally well-balanced food for dogs that is made from quality ingredients. Iams is considered a super-premium product line Eukanuba: An ultra-premium line that contains more chicken and vital nutrients that promotes shiny and healthy coats. P&G charges premium prices for this line which allows it to invest more in research and product development C. Tactical Decisions That Support the Firm’s Competitive Strategy 1. Include HR tactics and practices in other functional areas that include: a. Manufacturing b. Engineering c. Research and development d. Management information systems e. Human resources f. Marketing 2. HR practices support competitive advantage through energizing employees to perform the jobs for which they are hired 3. Tactics in other functional areas: might help determine which functional capabilities are most crucial to maintaining a competitive advantage 4. Employee roles associated with competitive strategy: HR professionals must decide which employee roles are instrumental to the attainment of competitive strategies 5. In a company that uses the lowest cost strategy a. Might include reducing the output cost per employee b. It is generally used for jobs that: i. Include repetitive and predictable behaviors ii. Have a relatively short-term focus iii. Require autonomous or individual activity iv. Involve a high concern for quantity of output 6. For companies using differentiation strategies a. The main emphasis is generally not on increasing employee productivity b. Employees usually have jobs that require: i. Highly creative behaviors ii. A relatively long-term focus iii. Cooperation and independence iv. A greater degree of risk-taking V. Compensation Professionals’ Goals A. How HR Professionals Fit into the Corporate Hierarchy 1. Corporations categorize employees in two main functional areas a. Line employees b. Staff employees 2. Line employees a. Are workers who are directly involved in producing a company’s goods or services b. Might include: i. Assemblers ii. Salespeople iii. Production workers 3. Staff employees a. Are workers whose job it is to support the line functions b. Might include: i. Human resources professionals ii. Accountants c. Promote the effective use of all employees 4. HR’s role: • Example: HR’s Role A quotation from Jay Hannah of BancFirst Corporation. (PowerPoint 1-14) “The HR department is the source and keeper of critical information, which is key in today’s workplace. With the information they provide, we in turn can build and design strategies to hire and retain the best workforce possible. And this may sound cliché, but it’s very true—the real competitive advantage is our company’s human resources.” 5. In addition to compensation, HR practices include: a. Recruitment b. Selection c. Performance appraisal d. Training e. Career development f. Labor-management relations g. Employment termination h. Managing HR within the context of legislation 6. Traditionally HR was considered an administrative or staff function because HR’s financial and market value was not yet easily quantifiable B. How the Compensation Function Fits into HR Departments 1. Compensation, recruitment, and selection a. Ways companies attract job candidates i. Career opportunities ii. Training opportunities iii. Reputation iv. Location v. Compensation b. Compensation benefits are used to sign qualified candidates by (more in Chapter 7): i. Communicating positive features of compensation programs: Core and fringe ii. Offering signing bonuses 2. Compensation and performance appraisal a. Is key to effective merit pay programs b. Compensation rewards must be tied to attainment of: i. Performance goals ii. Quality standards c. Be realistic d. Employees must perceive a strong relationship between attaining performance standards and pay increases e. Successful administration of merit pay programs depends on: i. Sound performance appraisal practices ii. The HR professional’s skills in designing and implementing the program 3. Compensation and training a. Successful pay-for-knowledge plans depend upon a company’s ability to develop and implement systematic training programs that: i. Should allow employees to learn the skills needed to increase their pay ii. Should be designed to allow employees to develop the skills necessary to teach and coach other employees at lower skill levels b. Companies implementing pay-for-knowledge plans typically: i. Increase the amount of classroom and on-the-job training ii. Make training necessary, rather than optional iii. Allow all employees equal access to the training for acquiring higher-level skills 4. Compensation and career development a. Two ways i. Lateral movement ii. Upward (vertical) movement b. Lateral i. Employee moves across a company’s hierarchy ii. Example: the supervisor of payroll clerks moving to the supervisor of inventory clerks c. Upward (Vertical) i. An employee maintains focus in one functional area ii. Takes on greater responsibility in that area iii. Example: payroll clerk, promoted to supervisor, promoted to payroll administrator 5. Compensation and labor-management relations (with unions) 1. Companies grant COLAs (more in Chapter 2) 2. Companies establish base pay on seniority pay (more in Chapter 4) 6. Compensation and employment termination a. Two types i. Involuntary ii. Voluntary b. Involuntary i. Terminations ii. Layoffs c. Terminations i. Company severs employment agreement for poor job performance, insubordination, and violation of work rules ii. Some companies offer severance pay iii. Some companies offer to continue medical insurance • Example: Severance Pay at Delta Airlines Closed Boston reservation center Offered employees only six weeks severance pay, regardless of seniority d. Layoffs i. Occur when a company severs an employment agreement because of reduced business activity, plant closings, or relocations ii. Companies generally provide outplacement counseling e. Voluntary terminations i. Are initiated by employees ii. Usually occur when employees choose to work elsewhere or retire f. Might include early retirement, which might include incentives like: i. Increased retirement income ii. Continued medical insurance coverage g. Retirement income programs i. Are company-sponsored pensions ii. Might include early retirement programs to reduce workforce size and trim compensation expenditures iii. Might include early retirement programs that contain incentives to encourage highly paid employees with substantial seniority to retire 7. Compensation and legislation a. Laws were enacted to: i. Establish acceptable employment practices ii. Protect employees’ rights b. Are generally based on four main themes i. Income continuity, safety, and work hours ii. Pay discrimination iii. Accommodation of disabilities and family needs iv. Prevailing wage laws c. Relevant laws include: i. Fair Labor Standards Act of 1938 ii. Equal Pay Act of 1963 iii. Civil Rights Act of 1964 iv. Pregnancy Discrimination Act of 1978 v. Americans with Disabilities Act of 1990 (amended in 2008) vi. Family and Medical Leave Act of 1993 vii. Davis–Bacon Act of 1931 C. Compensation Department’s Main Goals 1. Goals include: a. Internal consistency b. Market competitiveness c. Recognizing individual contributions 2. Internal consistency a. Refers to compensation systems that clearly define the relative value of each job among all the jobs within a company b. Job structures (hierarchy) formally recognize differences in job characteristics c. Is based on the principle that employees working at jobs that require greater qualifications, more responsibilities, and/or more complex job duties should be paid more d. Is achieved using: i. Job analysis ii. Job evaluation e. Job analysis i. Is a systematic process for gathering, documenting, and analyzing information in order to describe jobs ii. Describes the content or job duties, worker requirements, and sometimes the job context or working conditions f. Job evaluation i. Is used to systematically recognize differences in the relative worth among a set of jobs ii. Is used to establish pay differentials iii. Partly reflects the values and priorities that management places on various positions g. The results of a job analysis and a job evaluation are used to establish pay differentials for virtually all positions within the company 3. Market competitiveness a. Market-competitive pay systems i. Represent companies’ compensation policies that fit with their business objectives ii. Play a significant role in attracting and retaining the most qualified employees iii. Are based on market surveys and compensation surveys b. Strategic analyses i. Entail an examination of a company’s external market context and internal factors ii. External market context factors include: Industry profile Information about competitors Long-term growth prospects iii. Internal market factors include: A company’s financial condition A company’s functional capabilities 4. Recognizing Individual Contributions a. Three main methods i. Pay structures ii. Pay grades iii. Pay ranges b Pay structures i. Represent pay rate differences for jobs of unequal worth ii. Are the framework for recognizing differences in employee contributions, such as credentials, job knowledge, and job performance iii. Should define the boundaries for recognizing employee contributions iv. Should promote the retention of valued employees c. Pay Grades i. Are a structural feature of pay structures ii. Group jobs for pay policy application iii. Are based on similar compensable factors and value iv. Cannot use a single formula to determine what is sufficiently similar in terms of content and value to warrant grouping for all jobs d. Pay ranges i. Are a structural feature of pay structures ii. Include midpoint, minimum, and maximum pay rates iii. Build upon pay grades. VI. Stakeholders of the Compensation System A. Definition 1. Are individuals or entities that are directly affected by a company’s compensation practices 2. The success of HR departments depends on how they will serve various stakeholders which have: a. Their own set of expectations regarding the personnel departments’ activities b. Their own standards for effective performance c. Their own methods for assessing the extent to which the department’s activities meets their own expectations 3. Multiple stakeholders often compete for the attention and a priority status from the HR department B. Stakeholders include: 1. Employees 2. Line managers 3. Executives 4. Unions 5. U.S. government C. Employees rely on compensation professionals to: 1. Develop and implement systematic training programs 2. Be kept informed of: a. Available training b. Connections between the training and their pay c. Changes in compensation practices d. Advancement opportunities 3. Offer discretionary benefits that provide: a. Income protection b. Paid time off c. Services D. Line managers rely on compensation professionals to: 1. Use their knowledge of relevant laws to help them make sound compensation judgments 2. Advise them on establishing pay differentials 3. Train them how to properly evaluate jobs E. Executives rely on compensation professionals to: 1. Develop and manage sound compensation systems 2. Insure the company’s practices are: a. Legal b. Sufficiently attractive to recruit and retain c. Cost effective F. Unions rely on compensation professionals to: 1. Abide by their collective bargaining agreements 2. Insure they get their COLA adjustments and seniority pay G. U.S. government requires compensation professionals to: 1. Keep updated and comply with all employment legislation 2. Demonstrate that alleged discriminatory pay practices are a business necessity (more in Chapter 2) 3. Demonstrate that alleged discriminatory pay practices are not discriminatory CHAPTER 2 Contextual Influences on Compensation Practice Learning Objectives 1. List four groups of federal laws that apply to compensation tactics. 2. Identify and describe at least one law in each of the four groups of federal laws that apply to compensation practice. 3. Define at least two federal laws that shape discretionary benefits practices and identify the relevant employee benefits practices to which they apply. 4. Summarize at least three laws that apply exclusively to federal employers’ compensation practices. 5. Explain how labor unions influence compensation practices. Outline I. Employment Laws That Influence Compensation Practices A. Legislative Actions B. Four Amendments to the U.S. Constitution C. Government Makeup D. Four Key Legislative Themes E. Income Continuity, Safety, and Work Hours Laws F. FLSA of 1938 G. Pay Discrimination Legislation H. Equal Pay Act of 1963 I. Title VII of Civil Rights Act of 1964 J. Bennett Amendment K. Executive Order 11246 L. ADEA of 1967 M. OWBPA N. Executive Order 11141 O. Civil Rights Act of 1991 P. Accommodating Disabilities and Family Needs Q. PDA of 1978 R. ADA of 1990 S. FMLA of 1993 T. Prevailing Wage Laws U. Davis–Bacon Act of 1931 V. Walsh–Healey Contracts Act of 1936 II. Laws That Guide Discretionary Employee Benefits A. Internal Revenue Code (IRC) B. Employee Retirement Income Security Act of 1974 (ERISA) C. Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) D. Health Insurance Portability and Accountability Act of 1996 (HIPAA) E. Pension Protection Act of 2006 F. Patient Protection and Affordable Care Act of 2010 III. Contextual Influences on the Federal Government as an Employer IV. Labor Unions as Contextual Influences A. Labor Unions Overview B. National Labor Relations Act of 1935 C. Compensation Issues in Collective Bargaining V. Market Influences A. Inter-Industry Wage/Compensation Differentials B. Companies in Product Markets with Little Competition C. Capital Intensity D. Outsourcing VI. Discussion Questions and Suggested Answers VII. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses VIII. Additional Cases from the MyManagementLab Website; Instructor Notes, and Questions and Suggested Student Responses. Lecture Outline I. Employment Laws That Influence Compensation Tactics A. Legislative Actions 1. Four Amendments to the U.S. Constitution i. Article I, Section 8 ii. First Amendment iii. Fifth Amendment iv. Fourteenth Amendment, Section 1 2. Income continuity, safety, and work hours 3. Fair Labor Standards Act of 1938 4. Work Hours and Safety Standards Act of 1962 5. McNamara–O’Hara Service Contract Act of 1965 6. Pay Discrimination Legislation 7. Equal Pay Act of 1963 8. Title VII of the Civil Rights Act of 1964 9. Bennett Amendment to Title VII 10. Executive Order 11246 11. Age Discrimination in Employment Act of 1967 (ADEA) 12. Older Workers Benefit Protection Act (OWBPA) 13. Executive Order 11141 14. Civil Rights Act of 1991 15. Lilly Ledbetter Fair Pay Act of 2009 16. The Paycheck Fairness Act 17. Americans with Disabilities Amendments Act of 2008 18. The American Recovery and Reinvestment Act of 2009 (ARRA) B. Four Amendments to the U.S. Constitution 1. Article 1, Section 8 (“The Congress shall have the power…to regulate Commerce with foreign nations, and among the several States, and with the Indian Tribes…”) 2. First Amendment (“Congress shall make no laws respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”) 3. Fifth Amendment (“No person shall...be deprived of life, liberty, or property without due process of law…”) 4. Fourteenth Amendment, Section 1 (“No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States, nor shall any State deprive any person of life, liberty, or property without due process of law; nor deny any person within its jurisdiction the equal protection of the law.”) C. Government Makeup 1. Three levels a. Federal b. State c. Local i. County ii. City 2. Most compensation laws are federal 3. State and local legislations may be concurrent or exist in absence of similar federal laws 4. Three branches a. Legislative—makes laws b. Executive—enforces laws c. Judicial—interprets laws D. Four Key Compensation-Related Legislative Themes 1. Income continuity, safety, and work hours 2. Pay discrimination 3. Accommodating disabilities and family needs 4. Prevailing wage laws E. Income Continuity, Safety, and Work Hours Laws 1. Three main factors a. Great Depression b. Family businesses to large factories c. Division of labor 2. The Great Depression of the 1930s led to: a. Large scale business failures b. Chronic unemployment c. Passage of the Social Security Act of 1935 (Title IX) d. Passage of workers’ compensation programs 3. The 20th century switch from an agrarian to industrial society led to: a. Families moving from small farms to urban areas for factory jobs b. Individuals losing control over their earnings and working conditions 4. Industrialization also led to: a. A division of labor characterized by differences in skills and responsibilities b. Companies sacrificing living wages and safe working conditions for short-term profits c. Passage of the Fair Labor Standards Act of 1938 F. Fair Labor Standards Act of 1938 (FLSA) 1. Addresses three main issues a. Minimum wage b. Overtime pay c. Child labor provisions 2. Enforced by the U.S. Department of Labor 3. Minimum wage a. Designed to ensure wages for a minimally acceptable standard of living b. Originally set at $0.25 per hour c. In 1996, was set at $5.15 d. In 2009, Congress passed an increase in federal minimum wage from $5.15 in increments to $7.25 e. 21 states specify higher minimum wage rates than federal level since 2009 f. Workers can legally earn less than minimum wage if they are: i. Students employed in retail or service businesses, on farms, or in institutions of higher education ii. Trainees iii. Mentally or physically disabled • Example: FLSA Definition of Trainees The training, even though it includes actual operation of the employer’s facilities, is similar to that which would be provided in a vocational school The training is for the benefit of the trainee The trainee does not displace regular employees but works under closer supervision The employer providing the training gains no immediate advantage from the trainees’ activities; on occasion, the employer’s operation may in fact be hindered The trainee is not guaranteed a job at the completion of the training The employer and the trainee understand that the employer is not obligated to pay wages during the training period 4. Overtime pay provisions a. Defined in FLSA b. Most employers must pay time and one-half for over 40 hours work in a period of 7 consecutive days c. FLSA Exempt Positions i. Executive ii. Administrative iii. Learned professional iv. Creative professional v. Computer system analyst, programmer, software engineer, or similarly skilled workers vi. Outside sales d. Classifying jobs as either exempt or nonexempt is not always clear-cut Example: Supreme Court Case: Exempt or Nonexempt Position • Aaron v. City of Wichita, Kansas ruling on whether fire chiefs were exempt 5. Exempt positions a. Redefined by U.S. Department of Labor’s Fair Pay Rules in 2004 i. Employees were considered exempt if they earned more than minimum wage and exercised independent judgment when working ii. Now, employees earning less than $23,660 per year, or $455 per week are guaranteed overtime protection iii. More information available at http//www.dol.gov 6. Scope of FLSA broadened twice since 1938 a. Portal-to-Portal Act of 1947 i. Defined the term “hours worked” ii. For example, time spent by state correctional officers caring for police dogs at home is compensable (Andres v. DuBois) b. Equal Pay Act of 1963, which prohibits sex discrimination in pay for employees performing equal work 7. Compensable work activities a. Waiting time b. On-Call time c. Rest and meal periods d. Sleeping time and certain other activities e. Lectures, meetings, and training programs f. Travel time i. Home to work travel ii. Home to work on a special one day assignment, including employer-mandated training, in another city iii. Travel that is all in a day’s work iv. Travel away from home community 8. Child labor provisions a. Intended to protect children from: i. Being overworked ii. Working in a hazardous setting iii. Having their education jeopardized due to excessive work hours b. Children younger than age 14 usually cannot be employed c. Children ages 14 and 15 may work in safe occupations outside school hours, as long as their work does not exceed: i. 3 hours on a school day ii. 18 hours per week while school is in session iii. 40 hours when school is not in session d. Children ages 16 and 17 i. Do not have hourly restrictions ii. Cannot work in hazardous jobs (e.g., running heavy industrial equipment, working around harmful substances) G. Pay Discrimination Legislation 1. Came out of the Civil Rights Movement of the 1960s 2. Was designed to protect designated classes of employees, and to uphold their rights individually against discriminatory employment decisions 3. Equal Pay Act of 1963 4. Civil Rights Act of 1964 H. Equal Pay Act of 1963 1. Enforced by the Equal Employment Opportunity Commission (EEOC) 2. Applies to jobs of equal worth according to the Department of Labor’s definition of compensable factors, such as: a. Levels of skill b. Effort c. Responsibility d. Working conditions Example: Equal jobs? • EEOC v. Madison Community Unit School District #12 court ruling • Female coaches of female sports teams were paid less than male coaches of male sports teams 3. Jobs must have “similar”, not necessarily the “same” working conditions 4. Pay differentials are not always illegal; are legal where such payments are made pursuant to: a. A seniority system b. A merit system c. A system which measures earnings by the quantity or quality of production d. A differential based on any factor other than gender I. Title VII of the Civil Rights Act of 1964 1. Legislators designed Title VII of this Act to promote equal employment opportunities for underrepresented minorities 2. Title VII distinguishes two types of discrimination a. Disparate treatment b. Disparate impact 3. Disparate treatment a. Represents intentional discrimination, occurring whenever employers intentionally treat some workers less favorably than others because of: i. Race ii. Color iii. Religion iv. Sex v. National origin b. Example: awarding pay increases to blacks based on seniority whereas basing increases on performance for whites 4. Disparate impact a. Represents unintentional discrimination that occurs whenever an employer applies employment practices to all employees b. The practice leads to unequal treatment of protected employee groups 5. Title VII applies to: a. Companies with 15 or more employees b. Employment agencies c. Labor unions d. Labor management committees controlling apprenticeship and training • Example: Title VII mandates “It shall be an unlawful employment practice for employers to: Fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to that individual’s compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin Limit, segregate, or classify a company’s employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect that individual’s status as an employee, because of such individual’s race, color, religion, sex, or national origin” • In 2009, Congress passed two major Acts to help further close the pay gap between men and women: The Lilly Ledbetter Pay Act restored prior law—providing that a pay discrimination charge must simply be filed within 180 days of a discriminatory paycheck. This helped to reverse the Supreme Court Ledbetter decision, which made it harder for women and other workers to pursue pay discrimination claims The Paycheck Fairness Act helps to strengthen the Equal Pay Act of 1963 by strengthening the remedies available to put sex-based pay discrimination on par with race-based pay discrimination. That is, employers are now required to justify unequal pay by showing that the pay disparity is not sex based, but, rather, job related. This Act also prohibits employers from retaliating against employees who share salary information with their coworkers J. Bennett Amendment (to Title VII) 1. Allows female employees to charge employers with Title VII violations regarding pay only when the employer has violated the Equal Pay Act of 1963 2. Added to Title VII because legislators could not agree on: a. Whether or not Title VII incorporates both the Equal Pay Act of 1963’s equal pay standard and the four defenses for unequal work i. Seniority system ii. Merit system iii. Earnings based on quality or quantity of production iv. Pay differential not based on gender b. Whether or not Title VII includes only the aforementioned four Equal Pay Act of 1963 exceptions K. Executive Order 11246 1. Extends Title VII standards to companies holding federal government contracts worth more than $10,000 per year 2. Requires companies with federal contracts worth more than $50,000 per year and 50 or more employees to develop a written affirmative action plan that will specify how the companies will avoid or reduce Title VII discrimination violations over time L. Age Discrimination in Employment Act of 1967 (ADEA) 1. Amended in a. 1978 b. 1986 c. 1990 2. Designed to protect workers age 40 and older (“baby boomers”) from age discrimination a. “Baby boomers” are those born between 1942 and 1964 i. Represent the largest generation of the U.S. population ii. Will probably work past age 67 b. United States Census Bureau predicts that i. By 2001, those older than 65 will number about 25 million (12.4 percent of the population) ii. By 2050, that number will reach about 77 million (20.3 percent of the population) • Example: ADEA specifies that it is unlawful for an employer to: Fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of age Limit, segregate, or classify a company’s employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect that individual’s status as an employee, because of age Reduce the wage rate of any employee in order to comply with ADEA (29 USC 623; Section 4) ADEA applies to benefit practices as well: Any employer must provide that any employee aged 65 or older, and any employee’s spouse aged 65 or older, shall be entitled to coverage under any group health plan offered to such employees under the same conditions as any employee, under age 65 (29 USC 623, Section 4, paragraph (g)(1)) 3. Sets limits on the development and implementation of employers’ early retirement practices a. Offered to employees age 55 or older b. Employee participation must be voluntary (EEOC v. Chrysler) M. Older Workers Benefit Protection Act (OWBPA) 1. 1990 amendment to ADEA 2. Places additional restrictions on employers’ benefits practices a. Employers may require older employees to pay more for health insurance or life insurance coverage if the cost is significantly greater than the cost for younger workers because these costs generally rise with age b. Equal benefit or equal cost principle which specifies that employers do not have to provide equal benefits to older workers if it costs them more to do so • Example: OWBPA Company has 3,000 employees 750 employees (25 percent) are age 40 or older, 2,250 (75 percent) are under age 39 Annual contribution of all employees is $120,000 Workers age 40 and older paid $84,000 (70 percent) of contributions, workers age 39 and younger contributed $36,000 (30 percent) Older workers paid disproportionately more (25 percent of the workforce paid 70 percent of the total contributions) c. An older employee may not be required to pay more for the benefit as a condition of employment d. An older employee may be offered the option of paying—or paying more—for the benefit in order to avoid otherwise justified reductions in coverage e. An older employee who chooses to participate in a voluntary plan can be required to pay more for the benefit, but only if the employee does not pay a greater percentage of his or her premium cost than younger employees do f. Enacts the equal benefits or equal costs principle i. Employers must offer benefits to older workers equal to or more than the benefits given younger workers if the costs to do so are greater than it is for the younger workers g. Employers may make across-the-board cuts in benefits to save costs h. Covers: i. Private employers with 20 or more employees ii. Labor unions with 25 or more members iii. Employment agencies 3. Enforced by EEOC N. Executive Order 11141 which extends ADEA to federal contractors O. Civil Rights Act of 1991 1. Designed to overturn several Supreme Court rulings a. Atonio v. Ward Cove Packing Company i. Ruling required employees to prove which employment practice created the disparate impact ii. Shifted the burden of proof from the employee to the employer b. Lorance v. AT&T Technologies i. Ruling allowed employees to challenge the use of seniority systems within 180 days from the system’s implementation date ii. Allows employees to file a discrimination claim when the system is implemented or whenever the system negatively affects them c. Boureslan v. Aramco i. Ruling stated that federal job discrimination laws did not apply to U.S. citizens working for U.S. companies in foreign countries (expatriates) ii. Allows expatriates to file discrimination lawsuits 2. Provides coverage to the same groups protected under the Civil Rights Act of 1964 3. This Act extends coverage to U.S. Senate employees and political appointees of the federal government’s Executive Branch 4. EEOC i. Enforces law i. Assists employers avoid discrimination practices through the Technical Assistance Training Institute P. Accommodating Disabilities and Family Needs 1. Pregnancy Discrimination Act of 1978 (PDA) 2. Americans with Disabilities Act of 1990 (ADA) 3. Family and Medical Leave Act of 1993 (FMLA) Q. Pregnancy Discrimination Act of 1978 (PDA) 1. An amendment to Title VII of the Civil Rights Act of 1964 2. Prohibits disparate impact discrimination against pregnant women for all employment practices 3. Employers must not treat pregnancy less favorably than other medical conditions covered under employee benefits plans 4. Employers must treat pregnancy and childbirth the same way they treat other causes of disability 5. PDA protects women’s rights who take leave for pregnancy-related reasons a. Credit for previous service b. Accrued retirement benefits c. Accumulated seniority R. Americans with Disabilities Act of 1990 (ADA) 1. Prohibits discrimination against individuals with mental or physical disabilities within and outside employment settings including: a. Public services b. Transportation c. Public accommodations d. Employment 2. Applies to employers with 15 or more employees 3. EEOC is the enforcement agency Example: ADA and employment • The ruling states the ADA: • “…prohibits covered employers from discriminating against a ‘qualified individual with a disability’ in regard to job applications, hiring, advancement, discharge, compensation, training, or other terms, conditions, or privileges of employment. Employers are required to make ‘reasonable accommodations’ to the known physical or mental limitations of an otherwise qualified individual with a disability unless to do so would impose and ‘undue hardship’” 4. “Reasonable accommodations” may include such efforts as: a. Making existing facilities readily accessible b. Job restructuring c. Modifying work schedules 5. A “qualified individual with a disability” must be able to perform the “essential functions” of a job, which are those job duties that are critical to the job Example: ADA and reasonable accommodations • Producing printed memoranda is a key duty of a clerical worker’s job • Most clerical workers manually key the information into the computer • An employee comes down with crippling arthritis • Employer acquires voice recognition software for this employee to input information In September 2008, President George W. Bush signed into law the Americans with Disabilities Act of 2008. The main effect of this legislation is that it is now easier for an individual seeking protection under the ADA to establish that he or she has a disability within the meaning of the ADA. S. Family and Medical Leave Act of 1993 (FMLA) (more in chapter 12) 1. FMLA was designed to provide employees with job protection in cases of family or medical emergency 2. Guarantees unpaid leave and the right to return to either the same position or a similar position with the same pay, conditions, and benefits T. Prevailing Wage Laws 1. Davis–Bacon Act of 1931 2. Walsh–Healey Contracts Act of 1936 U. Davis–Bacon Act of 1931 1. Established employment standards for construction contractors holding federal government contracts valued at more than $2,000, including: a. Highway building b. Dredging c. Demolition d. Cleaning, painting, and/or decorating public buildings 2. Applies to laborers and mechanics who are employed on-site 3. Requires contractors to pay the prevailing wage in the local area 4. U.S. Secretary of Labor a. Determines prevailing wage rates b. Based on compensation surveys 5. Prevailing wage is the typical hourly wage paid to more than 50 percent of all laborers and mechanics employed in the local area 6. Requires contractors to offer fringe benefits equal in scope and value to those offered in the local area V. Walsh–Healey Contracts Act of 1936 1. Applies to contractors and manufacturers who sell supplies, material, and equipment to the federal government with contracts worth at least $10,000 2. Covers both construction and non-construction activities 3. Covers all contractor employees except: a. Office workers b. Supervisors c. Custodial workers d. Maintenance workers 4. Requires contractors to meet guidelines relating to: a. Wages b. Work hours c. Child labor d. Convict labor e. Hazardous working conditions 5. Contractors must observe the minimum wage and overtime provisions of FLSA 6. Prohibits employment of individuals a. Younger than 16 years old b. Convicted criminals 7. Prohibits contractors from exposing workers to conditions that violate the Occupational Safety and Health Act of 1970 8. Passed to assure safe and healthful working conditions for workers by authorizing enforcement of the standards II. Laws That Guide Discretionary Employee Benefits Internal Revenue Code (IRC) 1. Regulations pertaining to taxation in the United States 2. Main source of revenue for funding federal, state, and local government programs 3. Internal Revenue Services a. Implements the IRC b. Levies penalties against companies and individuals who violate the IRC 4. Since 1916, the federal government has encouraged employers to provide retirement benefits to employees with tax breaks or deductions, thus reducing the amount of a company’s required tax payment 5. The IRC contains multiple regulations for legally required and discretionary benefits a. Federal Insurance Contributions Act (FICA) b. Federal Unemployment Tax Act (FUTA) c. FICA taxes employees and employers to finance the Social Security Old-Age, Survivor, and Disability Insurance Program (OASDI) d. Unemployment insurance benefits are financed by federal and state taxes levied on employers e. Federal taxes are levied on employers under FUTA 6. Incentives for employers and employees a. An employee may deduct the cost of benefits from annual income, thereby reducing tax liability b. Employers may also deduct the cost of benefits from their annual income as a business or trade expense when the cost is an ordinary and necessary expense of the company’s trade or business c. Payroll costs and benefits costs also qualify as ordinary and necessary business expenses d. Companies can deduct these costs only during the current tax period. benefits costs incurred during 2008 may be deducted only for the 2008 tax year e. Benefits qualify for tax deductibility when they meet nondiscrimination rules set forth by the Employee Retirement Income Security Act of 1974 7. Nondiscrimination rules a. Prohibit employers from giving preferential treatment to key employees and highly compensated employees b. A key employee is one who at any time during a given year is: i. A five percent owner of the employer ii. A one percent owner of the employer having an annual compensation from the employer of more than $160,000 iii. An officer of the employer having an annual compensation greater than $165,000 in 2013 (indexed for inflation in increments of $5,000 beginning in 2003) c. The IRS defines a highly compensated employee as one of the following during the current or preceding year i. A five percent owner at any time during the year or the preceding year ii. For the preceding year had compensation from employer in excess of $ 115,000 in 2013 iii. If the employer elects the application of this clause for a plan year, was in the top-paid group of employees for the preceding year U.S. Treasure Regulations define the term officer as follows: Generally, the term officer means an administrative executive who is in regular and continued service. The term officer implies continuity of service and excludes those employed for a special and single transaction. An employee who merely has the title of an officer but not the authority of an officer is not considered an officer for purposes of the key employee test. Similarly, an employee who does not have the title of an officer but has the authority of an officer is an officer for purposes of the key employee test. In the case of one or more employers treated as a single employer under sections 414(b), (c), or (m), whether or not an individual is an officer shall be determined based upon his responsibilities with respect to the employer or employers for which he is directly employed, and not with respect to the controlled group of corporations, employers under common control, or affiliated service group. B. Employee Retirement Income Security Act of 1974 (ERISA) 1. Established to regulate the implementation of various employee benefits programs, including: a. Medical b. Life c. Disability d. Pension 2. ERISA addresses: a. Employers’ reporting and disclosure duties b. Funding of benefits c. Fiduciary responsibilities of programs d. Vesting rights 3. Companies must: a. Provide their employees with straightforward descriptions of their employee benefit plans b. Provide updates when substantive changes to the plan are implemented c. Provide annual synopses on the financing and operation of the plans d. Provide advance notification if the company intends to terminate the benefits plan e. Meet strict guidelines to ensure having sufficient funds when employees reach retirement f. Not engage in transactions with parties having interests adverse to those of the recipients of the plan and not deal with the income or assets of the employee benefits plan in the company’s own interests 4. Vesting refers to an employee’s acquisition of non-forfeitable rights to an employer’s contributions to fund pension benefits a. Employees often must be 100 percent vested within three to six years of service, depending on the vesting schedule b. One hundred percent vested means that an employee cannot lose the pension benefits even if the employee leaves the job before retirement c. Two minimum criteria for eligibility under ERISA: i. Employees must be allowed to participate in a pension plan after they reach age 21 ii. Employees must have completed 1 year of service based on at least 1,000 hours of work d. Since the passage of ERISA, there have been a number of amendments: i. Tax Equity and Fiscal Responsibility Act of 1982 ii. Deficit Reduction Act of 1984 iii. Tax Reform Act of 1986 iv. Economic Growth and Tax Relief Reconciliation Act of 2001 C. Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) 1. Enacted to provide employees with the opportunity to continue receiving their employer-sponsored medical care insurance temporarily under their employer’s plan if their coverage otherwise ceases due to: a. Termination b. Layoff c. Other change in employment status 2. Employers exempt from COBRA a. Companies with fewer than 20 workers b. Church plans c. U.S. government plans 3. Coverage a. Individuals may continue their coverage, as well as coverage for their spouses and dependents, for up to 18 months b. Coverage may extend for up to 36 months for spouses and dependents facing a loss of employer-provided coverage because of an employee’s: i. Death ii. Divorce iii. Legal separation iv. Other qualifying events (termination, retirement, layoff) c. Companies are permitted to charge COBRA beneficiaries a premium for continuation coverage of up to 102 percent of the cost of the coverage to the plan 4. COBRA violations a. Employers that violate COBRA requirements are subject to an excise tax per affected employee for each day that the violation continues b. Plan administrators who fail to provide required COBRA notices to employees may be personally liable for a civil penalty for each day the notice is not provided 5. COBRA was signed into law on April 7, 1986 6. COBRA went into effect for members and their dependents on July 1, 1986 a. The employer must provide covered members and their dependents that would lose coverage under the plan the option to continue coverage b. The mandate is restricted to certain conditions under which coverage is lost, and the election to continue must be made within a specified election period D. Health Insurance Portability and Accountability Act of 1996 (HIPAA) 1. Four main provisions a. The first provision is intended to guarantee that employees and their dependents that leave their employer’s group health plan will have ready access to coverage under a subsequent employer’s health plan, regardless of their health or claims experience b. The second provision sets limits on the length of time that health plans and health insurance issuers may impose preexisting conditions, and identify conditions to which no preexisting condition may apply c. The third provision counts periods of continuous coverage under another form of comprehensive health coverage toward a preexisting condition limit d. The fourth provision protects the transfer, disclosure, and use of health care information E. Pension Protection Act of 2006 1. Designed to strengthen protections for employees’ company-sponsored retirement plans in at least two ways a. The first consideration refers to defined benefit plans (guarantee monthly income for the duration of a retiree’s life) i. Law should strengthen the financial condition of the PBGC by requiring that private sector companies that underfund their defined benefit plans pay substantially higher premiums (that is, cost to provide insurance protection) to insure retirement benefits ii. The increase in underfunded plans poses a greater risk to the financial solvency of the PBGC iii. Aims to shore up the PBGC’s financial condition by making it more difficult for companies to skip making premium payments iv. Raises the amount that employers can contribute to pension funding with tax advantages, creating an additional incentive to adequately fund pension plans b. The second refers to defined contribution plans (savings plans that employees may contribute to for use during their retirement) i. Makes it easier for employees to participate in such employer-sponsored defined contribution plans as 401(k) plans ii. Millions of workers who are eligible to participate in their employers’ defined contribution plans do not contribute to them because they feel they do not have sufficient knowledge about how to choose investment options (e.g., a high-risk mutual fund versus a fixed rate annuity) that will help them earn sufficient money for retirement iv. Pension Protection Act enables companies to enroll their employees automatically in defined contribution plans and provides greater access to professional advice about investing for retirement v. Requires that companies give multiple investment options to allow employees to select how much risk they are willing to bear F. Patient Protection and Affordable Care Act of 2010 1. PPACA was signed into law by President Barack Obama on March 23, 2010 2. The act was amended by the passage of the Health Care and Education Reconciliation Act of 2010 3. These laws provide the basis for health care reform in the United States 4. PPACA is expected to extend coverage to more people by: a. Providing incentives to businesses to offer health insurance or by imposing penalties on companies that do not provide coverage b. Requiring individuals without insurance to purchase reasonably priced policies through health insurance exchanges 5. PPACA distinguishes between health plans that existed prior to March 23, 2012 (grandfathered plans) and ones that come into existence afterwards (non-grandfathered plans) a. Grandfathered plans are exempt from many of the requirements set forth by PPACA while non-grandfathered plans do not have exemption status b. Significant modifications to the provisions of grandfathered plans could result in the loss of grandfathered status III. Contextual Influences on the Federal Government as an Employer A. Federal Government Employees are not Protected by: 1. Title VII of the Civil Rights Act 2. ADEA 3. Equal Pay Act of 1963 B. Federal Workers Include: 1. Civilian military service employees 2. Executive agency employees 3. U.S. Postal Service employees 4. Library of Congress employees 5. Federal Judicial and Legislative Branch employees C. Executive Orders and Laws that Cover Federal Employees Include (refer to Table 2-5): 1. Executive Order 11478, which prohibits employment discrimination on the basis of race, color, religion, sex, national origin, handicap, and age (401 FEP Manual 4061) 2. Executive Order 11935, which prohibits employment of nonresidents in U.S. civil service jobs (401 FEP Manual 4121) 3. Rehabilitation Act, which mandates that federal government agencies take affirmative action in providing jobs for individuals with disabilities (401 FEP Manual 325) 4. Vietnam Era Veterans Readjustment Assistance Act, applies the principles of the Rehabilitation Act to veterans with disabilities and veterans of the Vietnam War (401 FEP Manual 379) 5. Government Employee Rights Act of 1991, which protects U.S. Senate employees from employment discrimination on the basis of race, color, age, and disability (401 FEP Manual 851) 6. Family and Medical Leave Act of 1993, which grants civil service employees, U.S. Senate employees, and U.S. House of Representatives employees a maximum 12-week unpaid leave in any 12-month period to care for a newborn or a seriously ill family member (401 FEP Manual 891) IV. Labor Unions as Contextual Influences A. Labor Unions Overview 1. Workers join unions to influence employment-related decisions, especially when they are dissatisfied with: a. Job security b. Wages c. Benefits d. Supervisory practices 2. From 1954 when union representation was at its highest, the percentage of civilian workers in both the public and private sectors represented by unions has steadily declined a. In 1954, union representation of civilian workforce was 28.3 percent b. In 1983, union representation of civilian workforce was 20.1 percent c. In 2012, union representation of civilian workforce was 11.3 percent B. National Labor Relations Act of 1935 (NLRA) 1. Designed to remove barriers to free commerce and to restore equality of bargaining power between employees and employers a. Employers were denying workers collective bargaining rights on: i. Wages ii. Hours iii. Working conditions b. Employees experienced: i. Poor working conditions ii. Substandard wage rates iii Excessive work hours 2. Section I, NLRA states that “…by encouraging the practice and procedure of collective bargaining and by protecting the exercise of full freedom of association, self-organization, and designation of representatives of their own choosing for the purpose of negotiating the terms and conditions of employment…” 3. Section 8(a)(5), NLRA provides that it is unfair labor practice for an employer “…to refuse to bargain collectively with the representatives of the company’s employees subject to the provisions of Section 9(a)” 4. Section 8(d), NRLA defines the phrase “to bargain collectively” as the “performance of the mutual obligation of the employer and the representative of the employees to meet at reasonable times and confer in good faith with respect to wages, hours, and other terms and conditions of employment…” 5. Section 9(a), NRLA declares that “representatives designated or selected for the purposes of collective bargaining by the majority of employees in a unit appropriate for such purposes, shall be the exclusive representatives of all the employees in such unit for the purposes of collective bargaining in respect to rates of pay, wages, hours of employment, or other conditions of employment…” 6. The President appoints members to the National Labor Relations Board (NLRB) a. To oversee enforcement of NLRA b. For a five year term C. Compensation Issues in Collective Bargaining 1. Union influence a. They negotiate with management for general pay increases and cost-of-living adjustments to maintain memberships’ loyalty and support b. Through the early 1980s, union members earned as much as 30 percent more than nonunion workers c. Negotiated for sound retirement income programs 2. Cost-of-living-adjustments (COLAs) a. Automatic pay increases based on changes in prices, as indexed by the consumer price index (CPI) b. Enables workers to maintain their standards of living by adjusting wages for inflation 3. Union influence has declined because: a. Union companies demonstrated consistently lower profits than nonunion companies b. Major employment cuts in highly unionized companies, like: i. Automobile industry ii. Steel industry c. Foreign automobile manufacturers produced high quality vehicles 4. Spillover effect, the benefit packages that are similar to local union benefits that nonunion employers give employees in the hopes of keeping their employees from unionizing 5. Union switch to concessionary bargaining where the bargaining focuses more heavily on promoting job security than on securing large pay increases Effects of the Recession on Ford Motor Company Companies with labor unions often try to avoid instituting mass layoffs whenever possible because of recall features in the collective bargaining agreement. In other words, management is expected to rehire most of its laid off workers when business conditions rebound. However, with the deep recessionary period that began in December 2007 and ended in June 2009, companies still are trying to make permanent cuts to their workforces for substantial labor force savings. In early 2009, in response to this dire situation, Ford Motor Company announced to local union leaders that it would make buyout or early retirement offers to all of its 42,000 U.S. hourly workers. These cuts were part of a series of contract concessions in a tentative agreement reached between the United Auto Workers union and Ford Motor Company’s management. In addition, the union agreed to a suspension of cost-of-living pay raises and lump-sum performance bonuses in the remaining three years of the recently negotiated collective bargaining agreement. Example: General Motors Corporation In 2011, the management of General Motors Corporation argued the need to adopt pay-for-performance programs for its union workforce. Pay-for-performance systems apply to nonunion salaried workers; thus, the union workforce is not being singled out within the company. If the United Auto Workers were to agree to the use of a pay-for-performance program, this change would represent yet another noteworthy concession. Example: Teamsters’ Pension Plan Even more recently, the Teamsters’ union pension plan has become critically underfunded. Critical underfunding raises concerns that the plan will not be able to meet all of its future obligations to pay retirees the pension benefits they have earned. As a result, many of the 1,900 companies that employ Teamsters’ workers are considering whether to withdraw participation in the plan. Withdrawing from participation in the plan means that lower contributions will be made to fund the plan, which increases the risk of failure. This example adds to many recent instances in which unions’ ability to represent the interests of its members is being diminished. Pension plans represent one of the attractive features of joining a labor union, particularly because the prevalence of pension plans (compared to defined contribution plans such as less generous 401(k) savings plans) is much lower in nonunion settings than union settings. As a result, it may be more difficult for the Teamsters union to increase its membership because it has less to offer. V. Market Influences A. Inter-Industry Wage/Compensation Differentials 1. The differences in wages and benefits across industries 2. Attributed to: a. The industry’s product market b. The degree of capital intensity c. The profitability of the industry d. Unionization e. Gender mix of the workforce Industry 2005 2007 2011 2013 Mining $800 $946 $1276 $1276 Construction 750 794 988 1010 Manufacturing 673 707 969 976 Retail trade 377 380 506 516 B. Companies in Product Markets with Little Competition 1. Generally pay higher wages 2. Exhibit substantial profits 3. Exhibit limited new competition because of: a. Higher barriers to entry b. Insignificant influence of foreign competition 4. Government regulations and extremely expensive equipment represent entry barriers 5. Examples a. U.S. defense industry b. Public utilities C. Capital Intensity 1. Defined as the extent to which companies’ operations are based on the use of large-scale equipment 2. The amount of average pay varies with the degree of capital intensity a. Generally manufacturing jobs are capital intensive, service jobs are not b. Generally, the more profitable the industry, the higher the compensation D. Outsourcing 1. Jobs to people from other companies have had a significant impact on compensation in the United States 2. Done because of lower labor costs, and fewer government regulations 3. Factory jobs go to places like Mexico and Southeast Asian countries 4. Professional and white collar jobs go to places like India where the labor costs are one-fifth as high as in the United States
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