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This document contains Chapters 10 to 12 CHAPTER 10 – CHAPTER EXERCISES Chapter Exercise 10.1 Problems in the Pay System James R. Harris and Lee P. Stepina Objectives. The purpose of Exercise 10.1 is to have students consider the critical variables related to the development of a fair pay system that will enable an organization to attract, retain, and motivate a qualified workforce. The problems with reconciling data related to internal and external equity are emphasized. Description. In order to use Exercise 10.1 effectively, several different issues need to be examined. Instructors may change locale, industry type, or any other aspects of this case to fit the particular needs of the various student groups. Table 10.1 Answers to Form 10.1 1. Are the CCUA department’s current pay practices concerning data processor IIs and computer analyst Is externally equitable (i.e., competitive)? Explain your answer. In order to determine the fairness of the current pay system of CCUA certain assumptions need to be made. The case indicates that the Data Processor II position most closely matches the survey’s Data Processor position, while the Computer Analyst I job is most comparable with the survey’s Jr. Analyst and Programmer position, it is important to allow the students some freedom in using the Decision Sciences data for comparison. The authors used the following for this example. It is suggested that instructors change the parameters periodically. A. Finding CCUA comparators in the Decision Sciences Survey. Relevant information: Industrial Manufacturing Large Company: Company revenues > $20,000,000 B. External equity comparisons. Given these assumptions the following comparisons can be made: Ind. Man. Large Company CCUA DP II's 29,000 29,000 24,960 CA I's 40,714 36,667 31,500 Given the nature of these comparisons, it can be concluded that DP II's and CA I's at CCUA are underpaid on the basis of comparison available from the Decision Sciences database. 2. What specific action, if any, do you recommend be taken now? Be specific and justify your recommendations as fully as possible. Students should note that regional differences are not available with this database. Since the organization is located in the rural Southeast, it is very possible that regional practices may be somewhat lower than the national practices reflected on the Decision Sciences survey. Three additional steps are recommended: A. Contact Decision Sciences to see if they can provide typical locations of companies included here. Can they provide a “special list” of data reflecting practices in more rural locations? B. If not, is there a local survey - even if it doesn’t cover Data Processors or Computer Analysts - that could be compared to Decision Sciences national data in order to derive some local adaptation factor? C. Does the survey of CCUA former employees who left to accept employment elsewhere include any details concerning the types of salaries they accepted elsewhere? Each of these steps should help better identify a competitive wage for CCUA. Given the problems in using the Decision Sciences database about the external equity of CCUA's pay system, the next step is to make some sense of the satisfaction survey. Is there a problem with satisfaction at CCUA? Relevant Information: Survey results show responses from all employees, not just DP II's or CA I's. Size restriction for both samples makes inferences difficult. Regardless of the above restrictions it can safely be concluded, based on a narrow standard deviation and a high mean, that pay and benefits dissatisfaction are present for all employees. Also of note, here will be recruitment costs. Any noteworthy pay improvement should influence - hopefully decrease - the need to recruit employees. Students should recommend a pay adjustment of some sort but most probably will be unable to bring salaries completely up to Decision Sciences levels. Here is an example of the costing of a 10% pay increase for DPIIs. Assuming Average wage for new hires and Turnover reduced to 10% Current Budget 255,490 10% Pay Increase 280,039 Turnover Costs 2,250 Turnover Costs 450 (10 X .50 X 250) (10 X .10 X 450) Total Costs 257,740 280,489 Thus, a 10% increase in base pay nets out to an actual increase in costs of 8.7% provided that turnover really decreases to the projected level (i.e., 10% instead of 50%). Once the critical nature of this pay system has been identified many suggestions at increasing pay will be offered by student groups. While this will generate classroom participation, it will not serve this exercise appropriately. In order to enhance understanding of pay problems, the instructor may offer several different scenarios such as: No Budget increases, 10% pay increases allowed or $15,000 total budget increase, etc. The instructor may also provide some other external market source. 3. What specific strategy(ies) do you recommend for the future so that these types of problems can be anticipated and (it is hoped) avoided. The instructor should focus discussion on developing a system that will address the pay problems of the future. Below is just a short list of potential specific recommendations. Exit Interviews Periodic pay reviews Additional satisfaction surveys Better scanning of local and regional external pay referents Decision Sciences may not be the best and most relevant survey Better communication between Ms. Nance and Ms. Lindquist on personnel matters Larger Budgets for job categories where needed. 4. As is often the case in business, we typically find that we must make decisions, or recommendations, on the basis of incomplete, imperfect information. What additional information in this situation would have enabled you to improve the quality of your recommendations? More specific local market data would be most important. In a rural area, it is difficult to know what pay is appropriate given only national salary data. In addition, any good compensation survey should include descriptions of each position surveyed and information concerning benefits practices (so that firms can compare total compensation strategy to market). Finally, since the DPIIs are hired without DP experience, there may be cost savings opportunities possible by pricing the skills CCUA seeks in the marketplace when hiring DPs and providing rapid salary growth to a competitive DP rate as stages of training occur. 5. Conduct a Web search (O*NET?) to determine how accurate the data are in Exhibit 10.1.3. Summarize your findings below, citing the relevant web site(s) and the methods of the pay survey. What are the outsourcing options for the data processing and computer analyst jobs? Locate pay data for outsourcing options. For the purpose of this illustration, two sources were used: O*Net and the Department of Labor’s Bureau of Labor Statistics (National Occupational Employment and Wage Estimates). Computer and Mathematical Occupations was used for the Computer Analyst I position, specifically 15-1041 Computer Support Specialist. O*Net identifies the median wage for this position in 2007 as $20.13 per hour or $42,400 per year, and indicates “faster than average growth” in this occupation at least through the year 2012. (; accessed 5/15/09). Office and Administrative Support Occupations was used for the Data Processor II position, specifically 43-9011 Computer Operators. O*Net identifies the median wage in 2007 as $16.64 per hour or $34,610 per year, and indicates “much slower than average” growth in this occupation at least through the year 2012 (; accessed 5/18/09). Outsourcing options vary according to the extent of the outsourcing and location. Pay would most likely not change for outsourced individuals unless it occurred overseas, where pay can be as low as 10% of U.S. salaries. Chapter Exercise 10.2 Should the State Adopt a Pay Equity Policy? Objectives. The purpose of Exercise 10.2 is to have students consider the implications of pay equity or comparable worth. Some of the most important issues related to pay equity must be considered in the process of taking a position on the policy. Description. This is a provocative exercise on a controversial issue (review pp. 334-335). The students are asked to take positions on various recommendations made by a consulting firm. This case was based on real data compiled in the state of Florida and a report submitted to the Florida legislature for possible legislative action. In order help the students in this exercise; instructors should clarify some of the information that is presented in the consultant's report. An excellent reference for this exercise is a special issue of Human Resource Management Review from 1991 that features seven articles on the subject of job evaluation. Good on-line references are:; and See also the references below. Critical Issues: 1. Budget allocation Relevant Information: -Policy Capturing methodology -- do the results of a statistical procedure, regression in this case, demonstrate discrimination or is it describing a statistical association between job content factors (e.g., level of education, number of people supervised, experience) and pay outcomes with the inference that gender/minority bias may affect the relationship? Are their alternative explanations for the results other than illegal discrimination? -Level of funding and its relationship to potential pay raises for all state employees. -Does this acknowledgment of pay bias open up the state to civil action on past pay discrimination? Not under Title VII. 2. Point Factor Adoption Students must be informed on what a point factor system is and the implementation options available. See the text discussion (p. 335). Point out that the pay equity approach calls for comparisons between job families and very different jobs. Critical terms: Under-valuation: wages paid to women and men engaged in historically female jobs or minorities whose job category is artificially depressed relative to what those wages would be if those jobs were being performed by white males. Comparable worth pay policies have been instituted in seven states for public employees: Oregon, Washington, Minnesota, Wisconsin, Illinois, Iowa, and New York, and a number of municipalities. A total of 20 states have some form of pay equity policy for segments of the state workforce. AT&T, Bank America, Chase Manhattan, IBM, and Motorola are among the many companies that have also instituted forms of comparable worth pay policies. Every pay equity study ever conducted has concluded that female dominated jobs are undervalued relative to male dominated jobs. Some argue that this under-valuation is a form of discrimination. Comparable worth studies like the one described in the exercise were instituted to determine the amount of under-valuation by comparing the complexity and responsibility of female, and male, dominated jobs. The conclusions of the study often lead to recommendations that the pay increases should be implemented in order to eliminate the identified discrimination. Thus, the results of the study and the manner in which the results were obtained are not unusual or inherently distorted. Like this study, pay equity studies are typically conducted using point-factor job evaluations but with comparisons across job families. This form of job evaluation is typically conducted within a job family in order to establish internal equity.. Thus, the job hierarchy is established within each family. While definitions differ a little, a job family is essentially a group of jobs having the same basic nature of work (e.g., clerk, teacher, engineer) but requiring different levels of skill, effort, responsibility or working conditions (e.g., entry versus senior level). Families can be groupings of related jobs with common vocations or professions in that they have similar market characteristics, related key behaviors, and a continuum of knowledge, skills and abilities. A family can also be made up of jobs involving work of the same nature, but requiring different skill and responsibility levels. For example, Maintenance Worker and Senior Maintenance Worker are in the same job family. So the idea is to conduct point-factor job evaluation within a family so as to establish internal equity among the jobs within the family and then use benchmark jobs within that family to set rates according to the external market. Opponents of comparable worth often object that comparisons between disparate occupations such as nurses and engineers are impossibly subjective and arbitrary. Nevertheless, management consultants, such as Hay & Associates, have been making comparisons across job families for many years. They use systems of job evaluation to compare job factors such as know how, problem solving, and accountability. Each factor is scored and the total scores are compared with the aim to establish pay equity between female dominated jobs as compared with male dominated jobs. By 1986, comparable worth studies had been undertaken by 156 jurisdictions in the public sector, as well as twenty states. There is no legal mandate to implement comparable worth at the federal level and, as discussed in the text, the courts have yet to decide a case in favor of a comparable worth policy under Title VII. The Fair Pay Act is legislation, not law. Says Connecticut Congresswoman Rosa DeLauro, one of the co-authors of the Fair Pay Act, “No matter how hard women work or whatever they achieve in terms of advancement in their own profession and degree, they will not be compensated equitably.” One of the most memorable cases involved head nurses working for the city of Denver. A pay study determined that head nurses were paid less than tree trimmers despite the fact that the head nurse job had substantially more job evaluation points than the tree trimmer job. In finding for the City of Denver (and against the nurses), a federal judge said if you don’t like the lousy pay and stressful work of nursing, become a tree trimmer! If the city refuses to hire you as a tree trimmer because of your gender, now that’s a Title VII violation.. For details on this case, see Bernardin , H.J. (1982) Women in the Work Force New York: Praeger Press The “wage gap” (page 345 nd 346). According to the Bureau of Labor Statistics, despite over 40 years of the Equal Pay Act, women earn 78.5 cents for every dollar earned by a man. Says Connecticut Congresswoman Rosa DeLauro, one of the co-authors of the Fair Pay Act, “No matter how hard women work or whatever they achieve in terms of advancement in their own profession and degree, they will not be compensated equitably.” But a new book disputes the arguments attributing the wage gap to discrimination. Says Warren Farrell, author of “Why Men Earn More,” the wage gap exists primarily because of the type of work women choose and the number of hours worked. From page 346 of the 5th edition: “Farrell compared the starting salaries of men and women with Bachelor’s Degrees in 26 categories of employment, from investment bankers to dieticians. Women are paid equally in one category; in every other category, their starting salaries exceed men’s. A female investment banker’s starting salary is 116 percent of a man’s. A female dietician’s is 130 percent, that is, $23,160 compared to $17,680. Another argument he makes is that women often prefer jobs with shorter and more flexible hours in order to accommodate family responsibilities. For example, women generally favor jobs that involve good social skills and no travel. These jobs generally pay less. Another reason men earn more is that they work more hours per week. According to the Bureau of Labor Statistics, full-time men work about 45 hours a week versus 42 for women. Women choose to avoid particularly dangerous jobs that pay well. Over 92 percent of occupational deaths are men. Of course, women have a legal right to enter dangerous professions, the most dangerous of which are over 95 percent male.” According to Joanne Cleaver in a Chicago Tribune article, “While the "78 cents" figure is a handy summary of the situation, it obscures both gains and setbacks experienced by women of different ages, races and educational status. “ "The 78 cents is a complicated number," says Laime Vaitkus, editor of "The State of Gender-Based Pay Gaps 2003," a report produced by the Institute of Management & Administration, a New York City research and publishing company. "The number takes every working woman in the country and compares it to every working white man. In some fields, and some salary levels, the pay gap is explainable, or there isn't one." In many cases, she pointed out, women make deliberate decisions to go into fields that pay less than most jobs held by men or to wield their highly developed skills--such as accounting--on behalf of a non-profit or government employer, which tend to pay less than private industry. Women would seem to be at an advantage in their mid-20s, pointed out Vicki Lovell, study director for the Institute for Women's Policy Research, a non-profit based in Washington, D.C. After all women outnumber men in both undergraduate and graduate programs, according to the National Center for Education Statistics. Women fresh from college or graduate school get paid 84.5 percent of what their male peers earn, according to the BLS. The almost-parity party doesn't last long. By the time they have been on the job for five years, women's pay starts to fall seriously behind men's, Vaitkus said. "It's a subject of big debate how that gap starts or grows," she said. Starting a family and adding domestic responsibilities often motivates a woman to rotate into a less demanding job so she can balance home and work more easily. Doing so usually stalls her progress on the pay scale, as reduced responsibility is usually accompanied by smaller raises or even a pay cut. Just a few years of salary stall reverberates for decades. Table 10.2.1 Answers to Form 10.2.1 The state legislature should appropriate $75,552,000 to cover the costs of the pay equity adjustments indicated by this study. If you are unsure, what additional information do you require before you take a position? IF AGREE: Proponents of comparable worth state that there is a connection between gender and pay class. Gender inequalities are deeply embedded in social structures and processes and are sustained from year to year, spiraling a convergence of class and gender separation among low status groups, women, and minorities. Historically, employers often established different wage scales for women and men, even when they were doing quite similar or identical work. The top of the female scale was often almost even with the bottom of the male scale. Attempts to explain the wage gap as a function of human capital factors or family demands consistently fail to account for a large part of the difference. Proponents of comparable worth claim this difference is due to under valuation of female-dominated jobs. IF DISAGREE: The data do not support an argument that the wage differences are a function of sex discrimination. Thus, the remedial action is not only very expensive it's unjustified. Wages are determined by supply and demand. The market wage reflects a process that takes into account the scarcity of talents and the demands of resources. Women cannot be blocked from any occupation for which they are qualified (this is illegal under Title VII). They chose the occupations they are in, i.e., occupations that happen to pay less than certain male dominated jobs. If they want to earn more money based on the market, they should retrain themselves. As the text states, Title VII does not require any employer to implement the results of a pay equity study. The Washington study illustrates what happens when the market is not considered. In addition, the earnings gap is shrinking as more and more women are entering previously male dominated jobs, i.e., the market is taking care of the problem. This study is a summary of a real project commissioned by the Florida legislature. John Bernardin wrote a comment in opposition to legislative action based on the results reported here. His basic position was that there was no evidence that the state’s compensation system was “broken so why fix it?” He focused on the five characteristics of an effective compensation system discussed in Chapter 10. He found no evidence that the state was having difficulty accomplishing any of the following with regard to female or minority-dominated jobs. Enabling an organization to attract and retain qualified, competent workers Motivating employee performance, fosters a feeling of equity, and provides direction to their efforts supporting, communicating, and reinforcing an organization's culture, values, and competitive strategy Complying with government laws/ regulations FLSA, EPA, Title VII and numerous other laws/regs 5. Cost structure reflecting the organization's ability to pay The policy-capturing analysis established that there is a violation of the Equal Pay Act. FALSE. The Equal Pay Act requires that men and women be given equal pay for equal work in the same establishment. The jobs need not be identical, but they must be substantially equal. It is job content, not job titles, that determines whether jobs are substantially equal. Specifically, the EPA provides: Employers may not pay unequal wages to men and women who perform jobs that require substantially equal skill, effort and responsibility, and that are performed under similar working conditions within the same establishment. Each of these factors is summarized below: Skill - Measured by factors such as the experience, ability, education, and training required to perform the job. The key issue is what skills are required for the job, not what skills the individual employees may have. Effort - The amount of physical or mental exertion needed to perform the job. Responsibility - The degree of accountability required in performing the job. Working Conditions - This encompasses two factors: (1) physical surroundings like temperature, fumes, and ventilation; and (2) hazards. Establishment - The prohibition against compensation discrimination under the EPA applies only to jobs within an establishment. An establishment is a distinct physical place of business rather than an entire business or enterprise consisting of several places of business. Pay differentials are permitted when they are based on seniority, merit, quantity or quality of production, or a factor other than sex. These are known as "affirmative defenses" and it is the employer's burden to prove that they apply. The policy-capturing evidence does not indicate a violation of the EPA (or Title VII). 3. The results of the “policy capturing” study established that there is a violation of Title VII. Also FALSE. The policy-capturing evidence does not indicate a violation of Title VII. 4. If the state follows the recommendations, what impact will the policy have upon private sector compensation? This response is in large part contingent upon the state in question. Usually private sector wages surpass those in the public sector. However, in some circumstances where the state is the dominant employer, wages in the private sector will be affected by any adjustment in state workers' pay. 5. To create internal equity faster and more cheaply, the consultants could have recommended reducing the pay of "overpaid” jobs or workers. What are the implications of this action based on research? Could you do this if there was an Equal Pay Act violation? Although this is of course an option, a collective bargaining agreement may prohibit implementation and the repercussions of this program would have to be anticipated (e.g., high turnover in these positions to private sector which probably pays at a higher rate even before the pay reduction, work slowdown, union organization). A compromise is to "red flag" these jobs and freeze wages for entry level jobs. This would create a "two tiered" wage system where people doing the same work are paid at different rates. The EPA explicitly outlaws the practice of lowering pay to correct inequities. 6. Explain exactly how the pay equity study determined that female-dominated jobs were “underpaid” and that some male-dominated jobs were found to be “overpaid.” What does the term policy-capturing mean in terms of this pay equity study? Actual pay was regressed onto the ratings of the pay factors (e.g., knowledge, experience, supervision, writing, information gathering) for each of the 300 positions. The mathematical predictive weight was thus revealed for each factor and a regression equation was formed which best predicted actual pay for all 300 positions. This equation was then applied to the female-dominated and minority-dominated jobs to predict the salary. It was found that the female and minority dominated jobs were over-predicted; that is, the policy predicted that they should be paid more than they are paid. The same process was followed for the male-dominated jobs and the jobs were under-predicted; that is, the equation set their salary as lower than it was. See Evans, S. M., Nelson, B.J. (1989). Impact of Pay Equity on Public Employees: State of Minnesota Employees’ Attitudes toward Wage Policy Innovation in Michael, R.T., Hartmann, H.I. and O’Farrell, B. eds. Pay Equity: Empirical Inquiries. 200-221. National Academy Press. accessed August 13, 2002 7. Conduct research on the status of the “Paycheck Fairness Act.” If this legislation is or were to become law, do the findings reported in this study indicate illegal discrimination under this legislation? On January 29, 2009, President Obama signed the Lilly Ledbetter Fair Pay Act of 2009 ("Act"), which supersedes the Supreme Court's decision in Ledbetter v. Goodyear Tire & Rubber Co., Inc., 550 U.S. 618 (2007). Ledbetter had required a compensation discrimination charge to be filed within 180 days of a discriminatory pay-setting decision (or 300 days in jurisdictions that have a local or state law prohibiting the same form of compensation discrimination). The Act restores the pre-Ledbetter position of the EEOC that each paycheck that delivers discriminatory compensation is a wrong actionable under the federal EEO statutes, regardless of when the discrimination began. As noted in the Act, it recognizes the "reality of wage discrimination" and restores "bedrock principles of American law." Under the Act, an individual subjected to compensation discrimination under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, or the Americans with Disabilities Act of 1990 may file a charge within 180 (or 300) days of any of the following: when a discriminatory compensation decision or other discriminatory practice affecting compensation is adopted; when the individual becomes subject to a discriminatory compensation decision or other discriminatory practice affecting compensation; or when the individual's compensation is affected by the application of a discriminatory compensation decision or other discriminatory practice, including each time the individual receives compensation that is based in whole or part on such compensation decision or other practice. The Act has a retroactive effective date of May 28, 2007, and applies to all claims of discriminatory compensation pending on or after that date. As of March, 2009, no form of the Paycheck Fairness Act had become law. In 2008, The Fair Pay Act, was introduced in the Senate by Sen. Tom Harkin (D-IA) and in the House of Representatives by Del. Eleanor Holmes Norton (D-DC). The bill as written is designed “ to address the problem of lower wages in female-dominated fields by requiring equal pay between comparable jobs that are segregated on the basis of sex or race.” It is not clear whether the findings of the policy-capturing study would indicate illegal discrimination under this legislation? NOTE: A March 1, 2009 NEW YORK TIMES article by HANNAH FAIRFIELD entitled “Why Is Her Paycheck Smaller?” drew these conclusions based on the most recent Bureau of Labor Statistics data. Nearly every occupation has the gap — the seemingly unbridgeable chasm between the size of the paycheck brought home by a woman and the larger one earned by a man doing the same job. It doesn't matter where the job lies on the income spectrum: all but a handful fall below the bar of equal pay. The percentage gap is about the same for lower-wage workers, like medical assistants, as it is for higher-wage workers, like physical therapists. Economists believe that discrimination as well as personal choices within occupations are two major factors. They also attribute part of the gap to men having more experience and logging more hours. The polarization of the labor market, where women choose careers that already have high percentages of women while men choose careers dominated by men, is thought to account for a large part of the overall gap. More women work in the service sector, where wages are low. Higher percentages of men are in management and business. Even within some of the most lucrative occupations, like medicine and law, women have migrated to specialties that earn less than others. A female doctor, for example, may choose family practice over surgery. "Desire for a certain flexibility or a certain lifestyle drives career choices," said Stephanie Boraas, an economist at the Bureau of Labor Statistics. "Women often choose jobs that have more flexible hours, which can work well with child care."But why do men who are bus drivers or insurance agents, jobs with similar numbers of men and women, earn more money than their female counterparts? The article concluded that “To push employers to reduce discrimination, President Obama has signed a bill expanding a worker's right to sue for wage inequalities. The bill was named after Lilly Ledbetter, an Alabama woman who, at the end of a 19-year career as a supervisor in a tire factory, found that she had been paid less than her male colleagues. Ms. Ledbetter is now the face of wage inequality, but she is hardly alone: female managers of production workers earn nearly 30 percent less than male managers.” Exercise 10.3 Developing an Employee Benefits Program Christine Hagan Objectives . The purpose of Exercise 10.3 is to have students experience developing an employee benefits program within budgetary guidelines. Students are asked to evaluate the advantages and disadvantages of each of the benefits offered and ultimately defend the plan they have recommended. Description . This case involves the opening of a national service center near Las Vegas, Nevada. The organization has a goal to be a “preferred employer” for the new service center and wants a total benefit package to attract and retain valued employees, especially customer service representatives. There is no single right or wrong answer to this exercise. Students should be given considerable latitude and encouraged to think creatively. As they are doing this exercise, students should be encouraged to think about the choices they are making and the advantages and disadvantaged of each choice. For example, many students may immediately opt for a Cafeteria Plan, but they should be aware of the additional administrative costs and complexities these plans may generate. Students must also be certain to include government-mandated benefits (FICA, FUTA, Workers’ Compensation), and they should use the information provided in the case concerning area time off practices. Students should also be attentive to the different metrics that are present in Exhibit 10.3.3 (most are annual costs, some are payroll percentages and a few are daily rates). Table 10.3.1 Answers to Form 10.3.1 1. Structure a benefits program that you think would be most effective for the customer service associates to be hired by USA Credit. Assume an average wage of $10.50 per hour and a workweek of 40 hours. A benefits budget of 38 percent of salary has been approved. If needed, assume that 70 percent of the customer service associates will require family coverage. Before costing alternative plans, students must first calculate the benefits budget using an average wage of $10.50 per hour, and a benefits budget of 38% of salary. Convert the $10.50 hourly rate to an annual full time equivalent (fte) as follows: $10.50 X 40 hrs per week X 52 weeks per year = $21,840 fte salary Now calculate the benefits budget: $21,840 (fte) X .38 (authorized benefits costs) = $8300 per employee may be spent on benefits Astute or advanced students may question, if Wolfson can fill jobs for an average of $10 per hour (i.e., the lower figure in consultant Birch’s salary recommendation), whether he can spend the base salary savings on benefits. Although Wolfson should obtain approval for this, students who detect this should be permitted to use a higher benefits budget: $21,840 + $8,300 = $30,140 total compensation expenditure authorized $30,140 (total compensation authorized) – $20,800 (base salary costs at $10 per hour X 40 hrs per week X 52 wks) = $9,340 benefits budget per fte Students who use this approach must make certain that they carry this $10 per hour salary assumption (fte = $20,800) through to the calculation of salary-based benefits. In calculating various benefit configurations, the possibilities are virtually limitless. For illustrative purposes, the following represents the costs of a basic benefits program consisting of government-mandated programs, health care for employee and their families (medium level), life insurance for employees (2 years’ salary) and their dependents, a defined contribution pension plan, an EAP (to help control health care costs), and the full range of time off programs recommended by consultant Andrea Birch (i.e., paid vacation, sick leave, paid holidays). Please note that the pay rate that is used in salary-based benefits is $21,840 (which represents the $10.50 per hour fte). Government-mandated programs: FICA = (Social Security) 21,840 X 6.2% = 1354.08 (Medicare) 21,840 X 1.45% = 316.68 FUTA = 7,000 X .8% = 56.00 Workers’ Compensation = (21,840/100) X 1.50= 327.60 Sub-total 2054.36 Employee only +"Family”premium Health Care medium plan 3,500 + 1,350 Life Insurance (2 yr salary) 650 + 250 Sub-total 4,150 + 1,600 Defined contribution pension plan 3 % X 21,840 = 655.20 EAP (to help control health care costs) .5% X 21,840 = 109.20 Time off Programs: Vacation: 10 days @ 62/day = 620.00 Sick leave: 7 days @ 52/day = 364.00 Holidays: 5 days @ 57/day = 285.00 SubTotal: 1,269.00 Total Cost per fte = $8,237.76 + $1,600 (family premium) Benefits budget per fte = $8300 As can be seen from the above scenario, the employee would pay for all family coverage. Although the various combinations are limitless, some of the more common alternatives may include the following: Reduce Defined Contribution pension plan to 1.5%-2% and permit employees to voluntarily match the contributions. Then, add a low dental (HMO) or tuition reimbursement, or allow the company to pay part of the family premium costs. (Remember the assumption presented in the case that an estimated 70% of the workforce will require family coverage.) A “packaging” of options in a modular approach where employees choose a design like the above, or an alternate health plan of HMO Medical + HMO Dental and 1 yr pay life insurance. This type of approach limits the administrative/cost burdens of full cafeteria plans. A full cafeteria plan in which employees are allocated $6246 (i.e., $8300 budgeted minus 2054.36 for government-mandated programs) to select and purchase the program of their choice. Astute or advanced students may note that, with a cafeteria plan, pre-tax contributions may be used to purchase some benefits and may be used to set aside child care costs, even if the organization does not subsidize such costs. 2. What were the trade-offs you made in deciding on your recommendations? Students should recognize that - as in the case with real-world business - the cost of benefits is extremely high. Students will be forced to provide some coverages in lieu of others. They must also be sensitive to the fact that these are not highly paid people and a $1500+ contribution for family coverage represents a sizeable percentage of base pay. In the sample plan above, the provision of a middle-level health care plan and a 3% DC pension plan precluded the offering of virtually every other program on the menu. That plan also reflected a meet-the-market philosophy on time off provisions: such may not be absolutely necessary. If students choose a lower health care (HMO) and no pension plan initially (wait a few years for this and see whether worker productivity justifies the addition of a pension plan) a broader array of coverages could be offered. As stated earlier, if students choose a full cafeteria approach, they are exchanging flexibility for increased administrative complexity. However, we have reason to believe, based on the business USA Credit is in, that their information management capability is quite good. 3. Assume that Andy Wolfson is interested in a cafeteria benefits approach. He has heard, however, that when people are permitted to select their own coverages, unit costs may rise (called “adverse selection”). In other words, in cafeteria benefits, the averaging effect of users versus nonusers across employee populations declines as people opt out of programs that they are not likely to use in favor of benefits that they are very likely to use. How might Andy deal with this problem in designing a cafeteria benefits plan? Adverse selection can be a problem in cafeteria benefits plans as individual employee selections (and, probably, plan utilization rates) reflect individual needs. For example, without the “healthy” employees included in the health care plan, the average cost of medical insurance may increase significantly. Time off costs may also go up as the “healthy” employees (who don’t select health care coverage) choose more paid time off instead. Many companies ask for estimates of this “additional cost attributable to individual choice” premium and build them into cost structures. So, if $6246 is budgeted per employee, and the adverse selection premium is estimated at 5%, the actual employee allocation for spending may be $5934. Some organizations don’t experience increased plan utilization or increased costs when they install cafeteria plans, but they probably monitor their costs very closely in order to make certain that such a trend does not begin. 4. What additional information concerning this situation would have enabled you to provide better recommendations? A good bit of additional information would be helpful. We don’t have specific information concerning the practices of other organizations concerning group benefits plans (Do they offer medical, life, pensions, LTD, etc. and how long are the waiting periods? Do other area employers offer cafeteria plans?). The information concerning time off is very sketchy - it appears to be an educated guess on the part of a local consultant. Considering the expenses involved, more specific information should be sought using the kinds of surveying practices outlined in this chapter. We also don’t know as much about our prospective employees as we could. If we target hiring casino “spouses,” how much do the casino workers earn? We’ve been told that casinos offer good pay and tips, and “few” benefits, but we have no specific information about what kinds of benefits casino workers actually get. “Few benefits” may mean health and life insurance ... but this would be helpful information in setting priorities and choosing trade-offs. Earnings of casino workers might also provide some insight into the kinds of benefits costs our workers might really be able or willing to absorb. Also, we don’t know yet whether we will be seeking our employees from other organizations, or whether we will be trying to attract individuals currently outside the work force. If the former is true, we’d better find out what types of benefits these employers currently offer. This is especially critical when a new business opens up in a new market. An “employer of choice” may not be a realistic strategy if the organizations from which we hope to recruit are currently offering exactly these types of pay and benefits. In summary, a great deal of work still needs to be done. 5. How will you decide whether or not your benefits program is an effective one? Describe the procedure that you would use. What specific criteria would you use? When benefits programs are considerably better than those offered by other organizations, they can be an attractive incentive for individuals to seek employment there and to stay with a firm. One way to judge effectiveness would be to see whether this package assists us in recruiting qualified workers to staff the new facility. Recruiters should be encouraged to keep detailed records concerning applicant responses to descriptions of benefit offerings and the reason for job turndowns. Once a work force has been recruited, employee surveys that include questions concerning the comprehensiveness of the benefits package, satisfaction with the plan and with the administrative processing that occurs (e.g., are claims paid promptly?), and questions about other benefits they would value could provide useful insights. As employees leave, a well-structured exit interview program that seeks information concerning the reason for resignation is useful. When employees resign in order to join another firm, specific information about the pay and benefits offered by the organization to which they are going could indicate actual or perceived shortcomings in USA Credit’s programs. CHAPTER 11 – CHAPTER EXERCISES Chapter Exercise 11.1 The Design of a PFP System for Mega Manufacturing E. Brian Peach and M. Ronald Buckley Objectives. The purpose of Exercise 11.1 is to demonstrate to the student some of the variables that need to be considered when implementing a PFP system. In addition to variables that affect pay systems at the operating level, sometimes there are organizational level variables that have an effect on pay practices. Description. This is an exercise that requires an integration of material from Chapters 9 11. Students must take positions on five issues related to the PFP system(s) at Mega. After reading Chapter 11, students will need about two hours of out of class preparation for the Individual Analysis (Part A). Allow about one hour for the Group Analysis (Part B). The difficulty of changing to a PFP system will be compounded by the variables that arise during and after the implementation phase. The two memos to Ellen (Exhibits 11.1.1 and 11.1.2) highlight some typical problems with implementation. The memo from Don Walker introduces budgetary constraints and organizational deadlines as new factors in the development of the system. The memo from Bill Idrey introduces several typical problems that PFP systems can effectively address (if properly implemented and maintained). Students should include in their discussion the process of overcoming employee and supervisory resistance to change, the need for learning new skills, and how to deal with positions whose contribution is hard to measure or perceived as marginal by other workers. The second comment in Idrey's note brings up the problem of group performance measures. Students should recognize and address the fact that there is no feasible method of quality checking production for each production step. For the third comment, many students may elect to pay more for the "higher status" production steps. Discussion should cover the fact that these steps may be used as a proxy for increased pay (i.e., better performers get to work on these steps). The class discussion on the problem should be allowed to jump around. The point to be learned is that the multitude of variables, which come about in a PFP system increase the difficulty, associated with PFP implementation. The instructor should stress that PFP can be implemented but only with adequate preparation and forethought. STRONG ANSWER he chapter indicated that incentive plans should consider the firm's organizational strategy, culture, and position in the marketplace, and may be indicated if the following five situations existed: (1) high labor costs, (2) a high level of cost competition in the marketplace, (3) relatively slow advance of technology, (4) high potential for bottlenecks in the production process, and (5) a high level of trust and cooperation between labor and management. Kanto has undergone a change in ownership and with that change has come a change in organizational strategy. Mega's intention to change Kanto's product to compete in the military marketplace conflicts with the existing culture at Kanto. There is some distrust of management by employees due to the new changes. TABLE 11.1.1 Answers to Form 11.1.1 1. Is an incentive program appropriate? Explain your position. Mega's overall strategy emphasizes pay for performance, and the new assembly process lends itself to group-based performance measures. Using an incentive plan would help each employee to be concerned for product success and to be involved in quality control. Thus, an incentive plan is appropriate if properly introduced and executed. 2. If so, should there be one, two, or several plans? There probably should be at least two incentive plans, one for the assembly workers and the other for management. Management is responsible for the overall introduction and management of the new product line and its pay should be tied to overall plant success. 3. Who should be included? Anyone whose productivity level would reasonably be improved through incentives and whose output is measurable should be included. However, given the differing nature of tasks accomplished, separate plans will be needed. Based on Mega's experience in it’s other plants and knowledge of the functions performed at Kanto other incentive programs for workers such as maintenance, administration/clerical might also be installed. 4. What should be the basis for incentive payments? The assembly of switches consists of a series of steps, and the supervisors of the various steps must cooperate to ensure final product success. Thus, their incentive payments should be based on some overall plant measure such as profits, cost savings, etc. Because the assembly workers work in small, interdependent groups, a group plan based on their productivity would be appropriate. 5. What kind of incentives should be included? There are two types of group incentives, profit sharing and gainsharing. Because this is a new product, there is no benchmark to be used for a gainsharing program. Profit sharing could be used, but its remoteness from the immediate job, combined with the diffusion of responsibility for success, makes it a poor choice for the small groups. "Improshare" does not necessarily require historical benchmarks, and can be used with engineering studies' standard hour projections to initially establish productivity levels for employees to qualify for bonuses. The incentive payments should be based on measures such as productivity and quality (i.e., percent quality rejections). The memo from Don Walker indicates the need for savings beyond those anticipated when the contract was bid. Thus, a special incentive program based on real savings should be instituted. Any payoffs to the employees would be based on actual savings accruing to Kanto. Special recognition programs (e.g., suggestion of the day, weekly and monthly awards) and other publicity actions to keep the program in the attention of employees should be used in addition to awarding cash payments. Widespread participation and some show of actual rewards received, however small, will convince employees of the program's benefits. RESPONSES TO IDREY'S MEMO 1. There is a problem in getting the supervisors to learn the required new skills. Ellen must know whether the supervisors are qualified to perform the new job requirements. If the answer to this question is no, then remedial steps must be taken to train them or to hire appropriate personnel. However, if they are qualified to learn, the second question is: Are they motivated? The incentive system must be structured so that they perceive the relationship between learning the required new skills and the rewards offered. The incentive system should be reevaluated and discussions held with selected supervisors to determine the problem and how the system can be restructured. 2. If Kanto is being graded on number and quality of output of switching assemblies, and their parts are defective, no incentive system can remedy the situation. Mega must either upgrade the quality of inputs or switch suppliers. In the meantime, to maintain morale, assemblies not meeting quality control requirements due to defective parts can be "counted" for the sake of team bonuses, with the cost charged back to the Indonesian plant. 3. In many cases, job analysis is imperfect. A reanalysis of the tasks should be accomplished to see if some steps are more important. Incentive systems do not always have to pay off with cash. If the steps are perceived as more prestigious, then those steps can be assigned to the "best" workers. Merely being assigned to the positions can be treated as a reward. 4. What is too strict in terms of Ms. Inggold? If she is following specifications in checking assemblies, then either the parts are not within specification or the specifications are wrong. If the specifications are correct, then Ellen should ensure that the incentive system for Ms. Inggold motivates her to efficiently and accurately pass correctly assembled switches and reject improper switches. 5. This relates back to who should be included in the incentive system. Design & Fabrication should be placed on a separate incentive system and receive bonuses based on useful suggestions with measurable impact. Then they will be more inclined to make meaningful suggestions and everyone will be able to fairly evaluate and appreciate their contribution. A WEAK ANSWER TO THE EXERCISE An incentive system is appropriate because the new assembly has small groups that need to work together. The plan should be some sort of gainsharing with bonuses based on each group's productivity. The bonuses should also be based on some measure of quality. In other words, defective assemblies should not count. The bonuses should be partly paid each month, with the rest paid annually. Thus, there would be some immediate benefit plus an incentive to keep working all year. Ellen Lennet: Ellen is under pressure from her boss to get the incentive system in and save an extra 3%. Perhaps a suggestion program directed toward saving money with benefits paid from savings would help get the 3%. If supervisors aren't cooperating, add a little extra to their incentive system. Kanto should not be penalized for defective parts from another plant. Employees should get paid for all production that is not defective due to their fault. If a job is more important to employees, it should be paid more. It does not have to be a lot, just a little extra. If Beatrice is holding up production, give her a bonus based on number of parts examined. If she is arbitrarily rejecting good assemblies, she should be counseled or replaced. Engineers or anyone else should be paid for useful suggestions. Otherwise, they should keep out of the way. Exercise 11.1 Assessment Questions 1. What were the key variables you considered in your selection of an individual- or group-based PFP system? Even though the manufacturing process can be broken down into steps of individual skills, the key is in the quality process. It is in the quality process that groups of specifically skilled individuals will have to work together to achieve the desired quality levels. Second variable was the fact that the steps were not perceived as equal even though they should have been. A team-based approach would allow the input of others from those steps and from the skilled individuals of the steps that are not considered the same status. A consensus of processes will help in leveling the perceived status differences. 2. What changes in organizational characteristics would seriously affect your recommendations? If the switching product could lend itself to the same type of manufacturing processes the Kanto plant has had in the past, where workers have little involvement with each other, the recommendation would be for individual based incentives. Although there would be certain components of both systems that would be the same, such as premium for specified amount of products being error-free, the way the incentive would be calculated would be different. In addition, instead of paying for the aggregate or composite of the skills to attain the final product, the incentive could be based on which new skills were learned by the individual to get to the outcome of error-free parts. 3. What circumstances would lead you to conclude that a PFP system would not be in the best interests of the organization? If employees viewed that their efforts did not match the outcome (the incentive) the PFP system would more than likely not be in the organization’s best interest. In order for PFP systems to succeed they should make sure that the worker values the incentive, that the performance is measurable, that the worker can control the output rate and is capable of doing so, that the worker receives the reward when the increased output is achieved, the reward is enough for the extra work, and that the performance measures match the goals of the organization. If these are not the case then PFP systems should not be instituted. Chapter Exercise 11.2 Pay for Performance at Dee’s Personalized Baskets Objectives. The purpose of Exercise 11.2 is to have students consider the various options for PFP systems and to consider those options in the context of other components of the system such as performance measurement and managerial training. In addition, students must also construct a methodology for evaluating the effects of the program. Description. This exercise requires the student to consider pay for performance with consideration given to discussion on training and development in Chapter 8 and performance appraisal in Chapter 7. Principles from these chapters must be integrated with the prescriptions for pay for performance discussed in Chapter 11. The Individual Analysis (Part A) requires about two hours of out of class preparation in addition to reading the chapter and reviewing the materials on training evaluation (Chapter 8). The Group Analysis (Part B) requires at least 45 minutes in order for each group to review members' responses to Form 11.2.1. Table 11.2.1 presents recommended responses to each of the questions on Form 11.2.1. Table 11.2.1 Answers to Form 11.2.1 1. What type(s) (if any) of PFP systems do you recommend for Dee’s? Be as specific as possible and consider all jobs. What (if any) additional information would help you develop the most effective PFP system? (You may take a position against all PFP systems but make sure you explain why.) The information provided in the case suggests the implementation of an individual piece rate system that links individual performance with pay since such individual measurement can be done reliably and the work tasks are not particularly interdependent. A “Quality” performance measure (per basket) is required before it is an acceptable “piece. This approach can create an adversarial relationship between the workers and management as workers attempt to manipulate the system of setting rates, setting informal production norms, and perhaps filing grievances regarding rate adjustments. However, the development of procedures with the cooperation of all of those affected should increase the potential effectiveness. This approach may also create an adversarial relationship with any coworkers, who are not included in the incentive plan, many of whom provide support services (maintenance, purchasing, communications, etc.) that are required for individual performance. 2. Describe the chronology of steps for implementing the PFP system or explain why you are opposed to a PFP system for this situation. The "basics" of the PFP system should be provided for all managers who are to participate in the system. Presumably the decision about who is to participate is based on an "organizational analysis" of the strategic goals of the organization that the PFP system is to support. Based on "individual assessments" of managerial skills, some managers may be targeted for more intensive training based on experiential methods. Examination of whether an improved performance appraisal system may help to solve the quality issues and productivity problems is first in order before attempting to correct them with a PFP system. In order for the PFP system to work well, an effective performance appraisal system should be in place. Once the performance appraisal system is giving accurate feedback (leniency errors reduced), then a PFP system can be introduced. Identification of who is to be included in the incentive system needs to be addressed in context of the organization’s strategy. Since customer service is important for this organization, incentives should be done with the customers in mind. Each of the specific functions within the company should have its own PFP plan. Next comes the specifics of the performance measures for each of the functional units. Third is the decision on what is being offered as the reward. How that reward is distributed, how often and when should also be considered. Lastly, the evaluation of the PFP system itself. Is it improving the quality and productivity issues that it was meant to do? 3. Jessica Harrison, Dee’s President, read an airline magazine article about gainsharing and was impressed. She thinks it’s a perfect approach for motivating the basket assemblers. How does gainsharing work, what conditions are necessary and what does the research say about its effects? What would you say to Ms. Harrison about whether gainsharing is (or is not) a good PFP approach for Dee’s. Piece-rate superior for this circumstance. The level of aggregation is critical- individual, group/unit, or organization level. Use individual measurement when you can clearly measure individual outcomes Note Power Points with these pertinent comments PP: 11-14 Should you use individual, group, or company level PFP? Depends on: extent outcome controlled at group or individual level whether individual contributions can be measured extent teamwork affects PFP system preference for individual level systems PP: 11-21 Bottom-Line on gainsharing: Improved productivity and quality Trend is to use gain sharing with other approaches to improving productivity (e.g., TQM) Success depends on: Significant involvement and support by management Employee participation and understanding Realistic employee and (if applicable) union expectations Company size- Smaller number of employees (200 vs. 400) results in larger productivity gains PP: 11-23 Review of Scanlon, Rucker, and IMPROSHARE: IMPROSHARE is easier for workers to understand IMPROSHARE gives workers more control over physical productivity IMPROSHARE does not require management to reveal sensitive corporate financial information Scanlon and Rucker plans actually allow workers to share in the financial risks of the company Scanlon allows for more integration with problem-solving One good study of IMPROSHARE found productivity continues to rise sharply for at least three years and then plateaus at high level 4. What is measured using the PADS? What role (if any) should this score play in the PFP system or training raters for the system?
Page 376- “Research has established that rater characteristics, including their personality traits, can predict the average rating raters give across all people whom they rate. Rater “discomfort,” defined as the extent to which a person feels uncomfortable giving negative feedback and measured by the Performance Appraisal Discomfort Scale (PADS), has been shown to be correlated with the average rating level given by the rater (i.e., higher discomfort is related to more lenient ratings). Also, a rater with a low “Conscientiousness” score (from the Five- Factor Model discussed in Chapter 6) combined with a high “Agreeableness” score will tend to inflate ratings. Recent research shows incremental validity for the prediction of rater leniency using all three rater characteristics (low rater Conscientiousness + high rater Agreeableness + high rater Discomfort = highest Leniency levels). The good news is that raters can be trained to reduce their levels of discomfort, which does then reduce leniency PADS could be used as a diagnostic but if we’re interested in identifying lenient raters, a rater’s average rating level history across all ratees is the best measure of rater leniency.” 5. How would you address the high turnover rate? Could this problem be related to compensation? While there are many causes of turnover , compensation could certainly be a primary cause at Dee’s. Exit interview data, a study of the competitive, external market compensation would be a good strategy to study possible correlates of voluntary turnover. A PFP system that is perceived to be fair and that rewards hard and productive work could reduce the turnover of the most effective employees. The use of employee referrals (Ch 5 discussion) and measures such as the Job Compatibility Questionnaire could also work. CHAPTER 12 – CHAPTER EXERCISES Chapter Exercise 12.1 An Approach to Downsizing Objectives . The purpose of Exercise 12.1 is to evaluate the effectiveness of downsizing strategies used by a phosphate company and a pharmaceutical company. After completion of the exercise, students should have a better understanding of the different approaches to downsizing, and knowledge of the potential problems that can develop with downsizing programs. Description . This is a short exercise that requires students to consider personnel action in the context of claims of discrimination. The staff meeting notes (Exhibit 12.1.1) are almost identical to staff notes from a court case involving allegations of age discrimination. The Individual Analysis should take the student no longer than 30 minutes of out of class preparation. The Group Analysis, which requires consensus on Items 2 and 3 of Form 12.1.1, should only take 30 minutes as well. After group presentations, discussion should focus on whether there was a violation of age discrimination and whether the approach used by the phosphate company was the most effective method for downsizing. Table 12.1.1 presents answers to Form 12.1.1. Table 12.1.1 Answers to Form 12.1.1 1. How do you evaluate this approach to workforce reduction? What (if anything) did Abbott do right and what did he do wrong? What additional information do you need about the downsizing effort to fully understand the process? Right: Focus on performance after reanalysis, although the note is not clear on methodology. Wrong: 1. Discussion of early retirement eligibility. 2. Little or no discussion of strategic plan for business. 3. Meeting should have been devoted to methodology for restructuring and performance appraisal, not evaluation of particular people or jobs that could go. 2. Three months after this meeting, Garcia (age 58) and Lopata (age 55) were discharged. Based on the information, were Garcia and Lopata victims of age discrimination? Explain your answer. If necessary, what specific, additional information do you require before you can take a position? Provide a set of “if-then” propositions (e.g., if I know “X,” then “Y” follows). In order for there to be a clear finding of age discrimination, recall from Chapter 3 that the burden is on the plaintiffs to show that age was the "determinative factor" in the personnel decisions. Such a finding is more likely under the following conditions: (1) If the plaintiffs could show that all persons placed on the list of those eligible for "early retirement” were ultimately terminated; (2) none of these people were placed elsewhere in the company; (3) many of those not on the list were given transfers; and (4) that performance data on Garcia et al. prior to the downsizing indicated that the plaintiffs were superior to people (under 40) who were retained and who performed work similar to or the same as the work required for the new positions. While the data presented for this case were not definitive, the data did lead to an out-of-court settlement acceptable to the plaintiffs. An expert on performance appraisal testified that the performance appraisal process after the announcement resulted in a "tainted" process since the older workers were held to a higher standard. 3. Must the company adhere to the WARN Act? How do they meet this obligation? Since the company has more than 100 employees, and plans a mass layoff that will last six months or more, the company should give employees that are affected by the layoff or early retirement option a 60 days’ written notice. 4. How would you evaluate the fairness of this approach to downsizing? What are some examples of possible difficulties with distributive and procedural justice? Distributive justice deals with perceptions of equity in the downsizing. In other words, what employees perceive as fair. For instance, if employees see that all the staff in the maintenance department are laid off it would be a fair elimination of those jobs. Procedural justice deals with the way in which the downsizing is handled. In other words, was early retirement offered to everyone in a certain age category? What will happen to those employees who opt to not take the early retirement package? Has everyone been handled the same using the same rules? Brooks will have to deal with difficulties with both procedural justice and distributive justice since the company is not consistent in its handling of employees, retaining diversity, and not laying off all departments in the same percentages. How would you have handled this situation? What would you have done differently? Provide a chronology of steps. Would you use an outplacement service? Inform employee of downsizing in advance and why it needs to happen. Inform employees of any options they may have (moving to another location at their expense, retirement, etc.) Explain how the downsizing will work (how many will be affected, who will be affected, and when it will take place). Implemented from top - initiated from bottom up. Make sure it is short-term and across the board but also long-term and focused (on being lean and mean). Pay special attention to terminated employees, offer outplacement, résumé services. Pay special attention to survivors (morale issues). Target inside but also include terminating subcontractors, etc. Make sure the result is small autonomous work groups with strong centralized functions. Emphasize downsizing as a means to an end but also the targeted end. Table 12.1.2 Answers to Form 12.1.2 1. Based on what you know so far, evaluate the Brooks approach to workforce reduction? What did Brooks do right and what did the company do wrong? While the HR oversight is recommended and the internal assessment of adverse impact statistics is sound, the so-called "challenges" to personnel decisions based on "diversity" could be problematic. What could certainly fall under scrutiny is the process of "challenging." To the extent that changes in initial decisions were made strictly as a function of "diversity," the Company could be vulnerable to a "reverse discrimination" lawsuit. 2. What additional information do you need about the downsizing effort at Brooks to fully understand the legal implications of its restructuring? The key data would be the actual results of the downsizing broken down by protected classes and information regarding any changes that were made to initial decisions based on "diversity" information. If performance assessments were changed after impact analysis simply to avoid violations of the 80% rule, individuals who "made the cut" the first time but who were ultimately terminated could have a claim. 3. One month after the restructuring, Brooks is informed by the EEOC that, thus far, four complaints have been file against Brooks for discrimination in the process. What data should you examine to determine the possibility of discrimination? Should Brooks be concerned about an ADEA claim based on disparate impact theory? Brooks should examine the process as it affected the four individuals. The particular claims of the four will drive the need for certain data. Thus, the general question regarding the four complaints should be the source of redress and the particular allegations (e.g., race, age, gender, disability). For example, one critical question would be: If there is an allegation of age discrimination, how were the older workers affected by the affirmative action/ diversity programs but, in particular, how was the claimant treated in terms of the protected class characteristic? Also, what did the post-downsizing adverse impact analysis reveal? The pre and post "challenge" data should also be analyzed. Brooks should be concerned about an ADEA claim based on disparate impact theory since the Smith v. Jackson (2005) and the 2008 Meacham et al. v. Knolls Atomic Power Laboratory Supreme Court cases permitting “disparate impact” theory to be used in age discrimination lawsuits and that the employer must show that action against a worker stems from “reasonable factors other than age.” Chapter Exercise 12.2 Compududes Considers Arbitration Options for Employee Disputes Catherine Tyler Objective. In Circuit City v Adams, the Supreme Court. determined that an employer can insist on the submission of an employment dispute to arbitration as a condition of employment. This Exercise gives students an opportunity to discover the critical elements to a defensible alternative dispute resolution agreement. Students will also gain knowledge of the differences in attitudes toward that ADR options and the implications of those attitudes. Description. Prior to class students should review the four ADR options presented in Exhibit 12.2.1 and complete the ratings for each of these options on Form 12.2.1. Students should expect to spend 30 minutes outside of class to complete Part A. For Part B: Group Analysis, students should break into groups of six, calculate ratings for each option, then representing Compududes interest, attempt to reach consensus on the policy to adopt. Groups may also reject all options and derive an alternative program instead. Instructors should plan on using 30-45 minutes of class time. Discussion “A visionary lawyer from State of Illinois said it best, more than 150 years ago: Discourage litigation. Persuade your neighbors to compromise, whenever you can. Point out to them how the nominal winner is often a real loser in fees, expenses, and waste of time. As a peacemaker, the lawyer has a superior opportunity, being a good man. There will still be business enough. That man was Abraham Lincoln.” History Since the United States Supreme Court's decision in Gilmer v. Interstate/Johnson Lane Corp. in 1991, mandatory arbitration of statutory rights has received widespread judicial acceptance. (Employees' common law claims -- such as defamation, invasion of privacy, infliction of emotional distress -- are generally arbitrable and have received far less attention than the arbitration of statutory rights.) Gilmer opened the door to arbitration of statutory claims by holding that an employee's claim of age discrimination, under the Age Discrimination in Employment Act ("ADEA"), was subject to a mandatory arbitration clause contained in a securities exchange registration application. The clause, by its terms, covered any controversy between the employer and employee that arose out of his employment or the termination thereof. The Supreme Court held that the arbitration agreement precluded the employee from litigating his claim in court. Lower courts since Gilmer have held that employees' claims brought under Title VII of the Civil Rights Act of 1964 ("Title VII"), the Americans with Disabilities Act ("ADA"), the Fair Labor Standards Act ("FLSA"), the Employee Polygraph Protection Act, the Employee Retirement Income Security Act, the Equal Pay Act, the Jury Systems Improvement Act (which bars discrimination against employees who serve on a jury), 42 U.S.C. § 1981, and numerous state fair employment practices laws are also subject to arbitration pursuant to mandatory arbitration clauses. In 1998, the United States Supreme Court in Wright vs. Universal Maritime Service Corp. held that arbitration provisions in a collective bargaining agreement did not contain the required clear and unmistakable waiver of an employee’s rights to a civil forum for claims of employment discrimination under the Americans with Disabilities Act. In Ramirez v. Circuit City Stores, the Court of Appeals for the First District, on December 10, 1999, found that an employer’s arbitration agreement was unconscionable, therefore unenforceable. Although the employer argued that he did have a choice in that he was free to not apply for a job, the court simply did not agree that the plaintiff’s acceptance of the agreement was voluntary. On March 1, 2001 the National Employment Dispute Resolution Act (NEDRA) was introduced in the House of Representatives (HR 820 IH). The bill calls for amending Title VII of CRA of 1964, ADEA of 1967, ADA of 1990, the Vocational Rehabilitation Act of 1973, and the CRA of 1991 to require the EEOC to mediate employee claims arising under such acts. The EEOC “has taken the position that agreements that mandate binding arbitration of discrimination claims as a condition of employment are contrary to the fundamental principles evinced in these laws.” Circuit City Stores v. Saint Clair Adams, the Supreme Court ruled that employers could require employees to take a dispute to arbitration rather than to court. Employees’ Rights Critics of mandatory arbitration believe that it waives employee rights and leads to inequity in bargaining power giving more power to the employer due to the “take-I-or-leave-it” way in which most employee policies are given. When the agreement is unilateral, as in an employee handbook, the terms of the agreement are not negotiable and the contract is in the employer’s interest. However, as long as the arbitration program is fair and voluntary, and the employee has knowledge that an alternative resolution to grievances was signed; the arbitration process is defendable in the courts. Allowing voluntary participation in ADR programs increases the use of the ADR program in all types of workplace conflict. In a recent poll, found that the majority of respondents that are attracted to mediation choose mediation because it offered them a win-win option. All the studies show that employees actually prevail more often in arbitration than in court. The American Arbitration Association in one study found a winning rate of 63 percent for arbitral claimants. In a much-criticized system operated by the securities industry, employees still prevailed 55 percent of the time, according to the U.S. General Accounting Office. “As it stands currently, arbitration does not always allow for punitive damages as is provided for in employment claims arising under the 1991 Civil Rights Act.” RESISTANCE Norman Pickell offers these reasons as reluctance to enter into mediation. 1. I am not sure what mediation is or how it works.
2. What are the advantages of mediation for me?
3. The other side is too miserable and mean.
4. The other side is too uncooperative or too unreasonable.
5. I don't trust the other side.
6. My dispute is not suitable for mediation.
7. This case is too complex for mediation.
8. We have already tried to settle this dispute.
9. We are in the middle of court proceedings now.
10. I don't want to compromise.
11. If I suggest mediation, won't the other side interpret this as a sign of weakness?
12. We have to pay for the mediator.
13. How do you find a mediator?
14. How do you choose a mediator?
15. The parties cannot communicate well (or at all).
16. If the other party is in the same room as I am, he/she will just shout at me.
17. I am not a good negotiator.
18. Mediation is just "free discovery".
19. My lawyer says we don't need mediation.
20. I want my lawyer present.
21. What are the advantages of mediation for the lawyers?
22. Mediation does not guarantee success.
23. What if the mediation process is not working?
24. I want to have my side of the story heard.
25. I want a judge or jury to decide.
26. I am going to court because I know that I am right and I am going to win!
27. My case involves family violence and abuse.
28. The conflict will go away.
29. I had a prior bad experience with mediation.
30. If mediation fails, we have wasted our time and money. “Surveys show, however, that employees are generally receptive to arbitration procedures. Thus, properly educating employees about the benefits of arbitration should minimize the danger of employee resistance to such a program.” Consulting employees and allowing them to give input help overcome their resistance. Additionally, disclosing the full cost of the arbitration process in advance may convince employees that their costs would also be substantially less using ADR than the courts for resolution. Increased Risk of Unionization? An employer-implemented arbitration program may actually reduce employees' desire for unionization by providing them with access to the arbitration process normally enjoyed by unionized employees. However, if implemented without employee opinion considered, the opposite effect could occur. Mean ratings of the four options by college students are as follows (see Form 12.2)*: QUESTION OPTION 1 2 3 4 1 3.4 3.1 2.9 2.5 2 2.8 3.0 3.3 4.1 3 2.9 2.9 2.7 2.5 4 3.1 3.0 2.8 2.3 * Based on a sample of 256 college students. Chapter Exercise 12.3 Handling an Employee’s Termination Jennifer Robin Objective. Students will experience the process by which HR professionals handle requests for termination by line managers and supervisors in the organization. They will also make decisions on crucial issues involved in the termination process, and develop an understanding of the sensitivity and gravity of the termination process. Description. This exercise was created as a mini in-basket in which students must sort through relevant information, analyze and distill the information in order to understand the sequence of events and the company’s policy, and utilize the information to make judgments on a very important HR issue, that of termination. Table 12.3.1 Answers to questions and points to discuss The first step is to investigate the situation to make sure the supervisor’s claims are true. Who will you contact? What questions will you ask? What precautions should you take to assure that your investigation is confidential and legally appropriate? In an investigation of such a situation, the first step would be to contact Paul directly to ensure that the situation he has described in the email is completely understood. He is clearly irritated at this point, so it is likely that he will have to be encouraged to be objective throughout any conversations that may take place. Any documentation that is not formal (e.g., a critical incidents notebook, notes taken after PA meetings, etc.) that may be relevant should also be solicited from Paul. At this point, it is unknown whether or not Jeanette should be contacted. Given the obviously hostile relationship between her and Paul, it may be a good idea in order to rule out harassment or other inappropriate reasons for her termination. In her most recent disciplinary action (3.3.01), it was noted that she understood that further steps would be taken if her performance did not improve. Because it appears that she knows the ramifications of her actions, speaking to her becomes more feasible. Confidentiality should be communicated to both parties. Specifically, both parties should be made aware that the HR department considers the investigation confidential, and the HR Professional should encourage confidentiality on the part of both Paul and Jeanette. Ensure that the necessary documentation is in place based upon the discipline policy and your expertise as an HR manager. The Daily Register has a progressive discipline policy in which four steps are to be taken before termination. Failure to meet performance requirements is considered a minor infraction; so all measures on the progressive discipline process are to be taken. Paul has not submitted documentation of the second disciplinary action – a written warning documented by the supervisor. He should be contacted to determine if this step has been taken. If it has not, Paul must be questioned as to why, and termination is not the best cause of action. Additionally, Paul has requested that the suspension step be skipped, as he does not think it would do any good. Policies, particularly discipline policies, must be applied consistently in order to increase perceptions of fairness and to avoid wrongful termination suits. It is strongly recommended that the discipline proceed as outlined in the policy. Thus, suspension should be recommended rather than termination. It is important to realize that this situation has only been on HR’s radar screen (through documentation) since the previous month. It may take several weeks to sort out the particulars of the situation, and clearly, the HR Manager should be involved after she returns from vacation. Approving termination would be inappropriate and unethical. Assume that the termination was in fact warranted. Managers typically hold termination meetings at The Daily Register, but it is not unheard of for the HR department to conduct this meeting. Given the available information, who should conduct the meeting? What steps will you take to prepare the manager and/or yourself for this meeting? Prepare an agenda for the termination meeting. Operating on the assumption that the termination was warranted, it is clear that representatives from HR should hold this meeting. Paul expressed a “punishment” mentality in his email, so it is unlikely that he would be able to follow the guidelines for termination meetings as listed in the chapter. In preparation for this meeting, documents should be gathered and organized, and a succinct statement of the reason behind the termination should be formulated. If legal counsel existed at The Daily Register, they should be contacted. Severance materials and the final paycheck should be prepared, factoring in remuneration for any earned vacation days. The agenda may be as follows: Notification that the employee has been fired and the reason behind the actions. Make sure there is an outline of the severance, benefits, and any non-compete agreements in place. Encourage the employee to focus upon the job search. Ask if there are any questions. Make any final arrangements such as the removal of the employee’s personal belongings and the return of any keys or other company property. 4. The Daily Register has some guidelines for severance packages, benefits, and outplacement services, but they are very informal and typically decided upon on a case-by-case basis. In this situation, what would you recommend for Jeanette? Looking to the position description, Jeanette’s position is an entry-level position, and one that operates from commission rather than salary. A very minimal severance package is recommended, although this would ultimately depend upon convention at The Daily Register. Outplacement assistance would be a good suggestion for Jeanette, as she clearly has some skills that would be marketable as noted in her performance appraisal. As an aside, it may be worthwhile to see if Jeanette would be a good candidate for other positions within The Daily Register. Solution Manual for Human Resource Management John H. Bernardin, Joyce E. A. Russell 9780078029165, 9780071326186

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