CH-11 Pay Structure Decisions – Human Resource Management : Book Guide

Chapter 11 - Pay Structure Decisions Please click here to access the new HRM Failures case associated with this chapter. HRM Failures features real-life situations in which an HR conflict ended up in court. Each case includes a discussion questions and possible answers for easy use in the classroom. HRM Failures are not included in the text so that you can provide your students with additional real-life content that helps engrain chapter concepts. Chapter Summary This chapter discusses the nature of the pay structure and its component parts, the pay level, and the job structure. Equity theory is discussed relative to internal and external comparisons that employees make about their pay. Such comparisons may have consequences for employee attitudes and retention. Such comparisons also play an important role in the controversy over executive pay. Two administrative tools used in managing pay level and job structure components of the pay structure are pay benchmarking surveys and job evaluation. A discussion of globalization suggests why benchmarking is increasingly critical to meet the competition. A theme that runs through this chapter is the need to consider how the organization's strategy matches the compensation plan. For example, skill-based pay is discussed in terms of the trend toward reducing bureaucracy and communication of compensation being critical to reinforce participation and commitment that is increasingly expected from employees. Learning Objectives After studying this chapter, the student should be able to: List the major decision areas and concepts in employee compensation management. Describe the major administrative tools used to manage employee compensation. Explain the importance of competitive labor market and product-market forces in compensation decisions. Discuss the significance of process issues such as communication in compensation management. Describe new developments in the design of pay structures. Explain where the United States stands from an international perspective on pay issues. Explain the reasons for the controversy over executive pay. Describe the regulatory framework for employee compensation. Extended Chapter Outline Note: Key terms appear in boldface and are listed in the "Chapter Vocabulary" section. Opening Vignette: Deciding Where to Manufacture: The Role of Labor Costs Mike McNamara is the CEO of Singapore-based Flextronics International. He claims that justifying manufacturing electronic parts in the US is getting easier due to a trend of increasing wages in low-cost countries like China and companies wanting to reduce transportation costs by manufacturing parts closer to the customer. Being closer to the company provides the added benefit of making it easier to assess and respond to changes in customer demand. This makes locating production facilities either in the US or in Mexico (which offers proximity to customers combined with labor costs that are slightly higher than countries like China but still lower than in the US). Locating facilities in the US also provides a hedge against currency fluctuations. Discussion Question Explain what some of the implications of relocating production facilities are for HR professionals in an organization. Answer: There are human resource implications when a company decides to relocate its facilities. Broadly speaking, these implications have to do with the decisions around what to do with the workforce --- in particular, the workforce that is directly affected by the decision to relocate. For lower paid, hourly, manufacturing workers, it does not make sense to provide relocation assistance for them because their jobs are not highly specialized. Therefore, when a company relocates, it has to consider the impact on the employees who will likely be displaced. It then must make decisions about how to staff the new operations in the area to which is relocates. The biggest consideration, when, is around staffing. Additionally, it has to attend to issues of compensation and make its best attempt to arrive at a competitive set of wages in the new location, while optimizing the decision to relocate. Introduction From the employer's point of view, pay is critical in attaining strategic goals. 1. Pay has a major impact on employee attitudes and behaviors. 2. Employee compensation is typically a significant organizational cost. (See Table 11.1 for industry companies of Total Compensation as a Percentage of Revenues.) B. From the employees’ point of view, policies having to do with wages, salaries, and other earnings affect their overall income and thus their standard of living. Competing Through Sustainability Working at Apple: Is Serving a ‘Higher Purpose” Enough? This vignette provides an overview of an increasingly common issue for organizations today – satisfying employees through pay and benefits verses creating a situation where the employee can appreciate the notion of a protean career. The case discusses employees in Apples company stores who earn around $11 per hour – substantially less than their counterparts at AT&T or Verizon Wireless stores. Additionally, there appears to be little opportunity for advancement for these employees. Apple has recognized the potential long-term impacts of not providing these “specialists” with sustainable careers and career paths and has started to implement programs intended to bolster long-term retention of employees. Discussion Question Can enthusiasm for an organization’s products and services make up for lower employee pay over time? Answer: Student responses may vary. However, economic realities today may outweigh an employee’s enthusiasm for their company’s offerings. Employees have to face the fact that they have to pay to live in conditions of increasing costs of food, living expenses, transportation, health insurance, and the list goes on. This will be a personal answer for students who may answer in an altruistic and naïve manner… Enthusiasm vs. Lower Pay: • Short-Term Impact: Enthusiasm for a company’s products and services can boost morale and job satisfaction in the short term, creating a sense of purpose and alignment with the company’s mission. • Long-Term Sustainability: Over time, lower pay can lead to dissatisfaction and financial strain, outweighing the initial enthusiasm and leading to higher turnover rates. • Employee Retention: While enthusiasm may attract employees initially, competitive compensation is crucial for long-term retention and motivation. Does it matter whether the organization is for-profit versus not-for-profit? Answer: Again, since responses will be very personal, they will also vary. Depending on each student’s penchant for material wealth and well-being as opposed to views on family and other values, the direction this discussion can go will be very different. For-Profit vs. Not-for-Profit: • For-Profit Organizations: For-profit companies often need to balance employee enthusiasm with competitive pay to attract and retain talent, as financial stability and growth are key goals. • Not-for-Profit Organizations: Not-for-profits may rely more on intrinsic motivation and alignment with the organization’s mission, but they still need to provide fair compensation to ensure long-term employee satisfaction and stability. C. Pay decisions can be broken into two major areas: Pay Structure and Individual Pay. 1. Pay structure refers to the relative pay of different jobs (job structure) and how much they are paid (pay structure). 2. Pay level is the average pay in organizations, including wages, salaries, and bonuses. 3. Job structure is the relative pay of jobs in organizations (i.e., the range of pay often expressed by salary grades). 4. Pay policies are attached to jobs, not individuals, in order to make the process more manageable and equitable. Equity Theory and Fairness Equity theory describes a process in which people evaluate the fair¬ness of their pay by comparing their pay to that of other people. 1. A person will compare his or her ratio of perceived outcomes (e.g., pay, benefits, etc.) to perceived inputs (e.g., education, effort, experience) to the ratio of a comparison other. 2. If the person's ratio is higher, research suggests that rationaliza¬tion will occur to account for the perceived overpayment. If the comparison other's ratio is higher, the person may attempt to restore equity by reducing one's inputs (e.g., working less), increasing one's outcomes (e.g., asking for a raise, theft), or leaving the company. 3. Two types of employee social comparisons of pay are espe¬cially relevant in making pay level and job structure decisions. (See Table 11.2) a. External equity pay comparisons focus on what other organizations pay for roughly the same job. These comparisons influence decisions to join and remain in the organization. A market pay survey is used by organiza¬tions to examine the level of other organizations' pay. b. Internal equity pay comparisons focus on what employees within the same organization, but in different jobs, are paid. In addition, employees make internal equity pay comparisons with others performing the same job. III. Developing Pay Levels A. An organization faces two important competitive market pressures in deciding what to pay its employees: 1. Product market competition – the challenge to sell goods and services at a quantity and price that will bring a return on investment. An organization that has higher labor costs than its competitors will have to charge higher prices for products of similar quality. This will likely lead to a loss of sales to the competition. Product market competition places an upper bound on labor costs and compensation, although productivity differences are also important. Labor costs are the average cost per employee (direct pay and indirect compensa¬tion, such as benefits) and staffing level (number of employees). Financially troubled organizations tend to focus cuts on one or both of these. Competing Through Globalization: How Much to Produce in China: Labor Costs, Productivity, and Managing Risks This case highlights some other issues other than strictly cost factors that companies are using in their decisions concerning where to locate their production facilities. One such issue is too much dependence on one country for production. Changes in the labor force desires, demographics and other issues are forcing firms to spread their production facilities around to avoid dependence on one country. Discussion Question 1 Why are some companies moving production from China to other countries? (See also the opening to the chapter.) Answer: As discussed in the chapter opener, rising costs in China is certainly one factor, but this case highlights the fact that many companies are becoming increasingly hesitant to commit all of their production capabilities to one country to avoid dependence on one country. Reasons for Moving Production from China: 1. Rising Labor Costs: Increasing wages in China make it less cost-effective compared to lower-cost countries, impacting overall production expenses. 2. Labor Shortages: Demographic shifts and a shrinking labor force in China create difficulties in maintaining a reliable workforce. 3. Geopolitical Risks: Trade tensions, tariffs, and geopolitical uncertainties can disrupt supply chains and increase costs. 4. Diversification: Companies seek to mitigate risks associated with over-reliance on a single country by spreading production across multiple locations. 5. Regulatory Changes: Evolving labor laws and environmental regulations in China can increase compliance costs and influence relocation decisions. How large of a manufacturing presence will China have going forward? Answer: Based on the evidence presented in the case, China will be a decreasing presence due to rising costs, having fewer workers available and interested in some types of jobs, a growing labor union movement in China, and uncertainties about the Chinese government and decisions it may make. 2. Labor market competition – the amount an organization must pay to compete against other organizations that hire similar employees. Usually these are companies with similar products and those that hire similar employees. If an organization is not competitive, it will fail to attract and retain sufficient numbers of high quality employees. Labor market competition places a lower bound on pay levels. B. Employees as a Resource 1. This is a philosophy that considers employees to be an investment that will yield valuable returns. Controlling costs through noncompetitive pay can result in low employee produc¬tivity and quality. 2. Pay policies and programs are one of the most important human resource tools for encouraging desired employee behaviors and discouraging undesired behaviors. C. Deciding what to Pay 1. Deciding pay is discretionary, with a broad range. The organization has to decide whether to pay at, below, or above the market average. 2. Efficiency wage theory states that wages influence worker productivity. The benefits of higher wages may outweigh higher costs when the organization's tech¬nology or structure depends on highly skilled employees or when the organization has difficulty observing and monitoring employee performance. D. Market Pay Surveys 1. Benchmarking is a procedure by which an organization compares its own practices against those of the competition. Benchmarking in this situation is done by pay surveys that provide information on the going rates of pay of the competi¬tion. 2. Benchmarking is typically accomplished through use of pay surveys, which provide information on going rates of pay among competing organizations. The following issues must be determined before pay surveys are used: a. Which employers should be included in the survey? b. Which jobs are included in the survey? c. If multiple surveys are used, how are all the rates of pay weighted and combined? 3. Product market comparisons will be more important when: a. Labor costs represent a large share of total costs. b. Product demand is elastic. c. The supply of labor is inelastic. d. Employee skills are specific to the product market. 4. Labor market comparisons will be more important when: a. Attracting and retaining employees is difficult. b. The costs of recruiting are high. 5. As well as knowing what other organizations are paying, it is necessary to know what those organizations are getting in return for their investment in employees. Ratios such as revenues to employees or revenues to labor cost could be used. Competing Through Technology: When Does Paying More Pay Off: Using Big Data This vignette overviews the fact than many employers (95% according to Mercer and WorldatWork) collect benchmark data on pay, yet less than half use analytics and predictive modeling in setting pay levels. This may be changing. For example, one large regional bank collected turnover data to create a statistical model that would help them predict an employee’s probability of turnover. The results might be surprising to some – pay was not the biggest factor in determining turnover, but rather increased responsibility was. That was very different from what Ceasar’s Entertainment in Las Vegas learned – their model revealed that changes in salary did impact turnover, but only to a certain salary level. Discussion Question Why do companies benchmark? Answer: Reasons for Moving Production from China: 1. Rising Labor Costs: Increasing wages in China make it less cost-effective compared to lower-cost countries, impacting overall production expenses. 2. Labor Shortages: Demographic shifts and a shrinking labor force in China create difficulties in maintaining a reliable workforce. 3. Geopolitical Risks: Trade tensions, tariffs, and geopolitical uncertainties can disrupt supply chains and increase costs. 4. Diversification: Companies seek to mitigate risks associated with over-reliance on a single country by spreading production across multiple locations. 5. Regulatory Changes: Evolving labor laws and environmental regulations in China can increase compliance costs and influence relocation decisions. Students should recognize the variety of reasons a company benchmarks. This case provides some really good reasons why if they don’t, a company should benchmark. Not only does it provide the company with some additional external data to use in internal analytics exercises, it also allows them to know what their employees have for choices in the marketplace. Reasons Companies Benchmark: 1. Competitive Positioning: Benchmarking helps companies understand how their compensation packages compare to industry standards and competitors, ensuring they remain attractive to current and potential employees. 2. Attracting Talent: By aligning pay with market rates, companies can attract skilled candidates and reduce recruitment challenges. 3. Retention: It aids in identifying compensation adjustments needed to retain top talent and prevent turnover. 4. Fairness and Equity: Ensures internal pay structures are equitable and align with external market conditions, promoting fairness. 5. Budget Management: Helps in managing salary budgets effectively by providing data-driven insights into compensation trends and market demands. How can data and technology be used to improve benchmarking and make better decisions about pay? Answer: The answer to this question was spelled out pretty clearly in the vignette – just increasing salary is not always the answer – sometimes not at all. By analyzing the data available to them, companies can make better and more informed pay decisions that will benefit the company and employees rather than basing decisions on assumptions or intuition. Improving Benchmarking and Pay Decisions with Data and Technology: 1. Predictive Analytics: Use historical turnover data to create models that predict employee retention and identify key factors influencing turnover beyond just salary, such as job responsibilities and career development opportunities. 2. Benchmarking Tools: Leverage sophisticated benchmarking tools that integrate real-time data from various sources to compare pay levels against competitors and industry standards more accurately. 3. Employee Surveys: Analyze employee feedback and satisfaction surveys to gain insights into the relationship between compensation, job satisfaction, and retention, helping tailor compensation strategies. 4. Custom Analytics: Develop customized analytics solutions to assess how changes in compensation impact employee performance and turnover in specific roles or departments. 5. Market Trends: Use data to monitor and anticipate market trends in compensation, allowing for proactive adjustments to stay competitive and attract top talent. E. Rate Ranges 1. Use of rate ranges permit a company to recognize differences in employee performance. Different employees in the same job may have different pay rates. F. Key jobs and nonkey jobs 1. Key jobs are benchmark jobs that have relatively stable content and are common to many organizations so that market pay survey data can be obtained. 2. Nonkey jobs are unique to organizations and cannot be directly valued or compared through the use of market surveys. Example: Typical key jobs would include administrative assistant, department manager, controls engineer, and so on. IV. Developing a Job Structure A. A job structure refers to the relative worth of various jobs in the organization, based on internal comparisons. B. Job evaluation is an administrative procedure that measures a job's internal worth to the organization. 1. The evaluation process is composed of compensable factors, which are the characteristics of jobs that an organization values and chooses to pay for. C. The Point – Factor System - Job evaluators often apply a weighting scheme to account for the differing importance of the compensable factors to the organization. Either a priority weight can be assigned using expert judgment about the importance of each factor, or weights can be derived statistically by how important each factor seems to be in determining labor market pay. (Table 11.3 indicates an example of a three-factor job evaluation system). Example: One of the most popular commercial point factor systems on the market is The Hay Plan, which includes three compensable factors: know how, problem solving, and account¬ability. D. Developing a Pay Structure 1. Includes examining and balancing both internal and external comparisons. There are significant differences in employers in terms of whether they place priority on internal or external comparisons (Table 11.4 indicates an example of both types of data for 15 jobs). 2. Three pay setting approaches include: a. Market survey approach - This approach has the greatest emphasis on external compar-isons. It bases pay on market surveys that cover as many key jobs as possible (for an example, see Table 11.5). - A pay policy line is a mathematical expression that describes the relationship between a job’s pay and its job evaluation points. (Figure 11.1). b. Pay policy line - The second pay setting approach combines information from internal and external comparisons to derive pay rates for both key and nonkey jobs. However, actual market rates are not used for key jobs. c. Pay grades – Group jobs into a smaller number of pay grades. (Table 1.6 and the last column of Table 11.5 demonstrate a five grade structure). A pay grade is grouping jobs of similar worth or content together for pay administration purposes. (Figure 11.2 provides an example of a sample pay grade structure). The range spread is the distance between the minimum and maximum amounts in a pay grade Disadvantages of using grades are that some jobs may be underpaid while others may be overpaid. E. Conflicts Between Market Pay Surveys and Job Evaluation 1. The relative worth of jobs is quite similar overall, whether based on job evaluation or pay survey data. However, some inconsistencies do arise. 2. In resolving the conflict, emphasizing the internal data would create a situation of overpaying jobs that are paid less in the market, which drives up labor costs (and creates product-¬market problems). 3. If external market data are emphasized and a job is paid lower internally, the comparisons that employees make internally would result in dissatisfaction. 4. There are no right answers. An organization should consider its strategy and what jobs and/or functions will be critical for success. F. Monitoring Compensation Costs 1. The pay structure represents policy, but practice may not always coincide. 2. One way to examine the difference between policy and practice is to compute a compa-ratio, which is the actual average pay for grade/midpoint pay for grade (Table 11.7). G. Globalization, Geographic Region, and Pay Structures 1. Pay structures can differ substantially across countries both in terms of their level and in terms of the relative worth of jobs (See Figure 11.3). 2. Typically, expatriate pay and benefits continue to be linked more closely to the home country. However, this link appears to be slowly weak¬ening and now depends more on the nature and length of the assignment. Evidence-Based HR Sam’s Club, Costco, and Wal-Mart are all low-price retail merchandisers. Each one has a different approach to labor costs. Costco has 338 stores and 67,600 employees, and is number one in this market accounting for about 50 percent of the market. Sam’s Club has 551 stores and 110,200 employees and is number two, accounting for about 40 percent of the market. Costco provides relatively high pay and benefits for its employees, compared to its competitors. The average wage at Costco is $17 an hour, but at Wal-Mart the average wage is $10.11 an hour. 82 percent of Costco employees have health insurance coverage, but less than half have coverage at Wal-Mart. The turnover at Costco, however, is unusually low, at 17 percent overall. Wal-Mart’s turnover is 44 percent. Since the fully loaded cost of replacing a work who leaves is typically 1.5 to 2.5 times a workers’ annual salary, the lower turnover rates at Costco actually results in lower costs of employee churn. Additionally, employees at Costco are more loyal and productive. Exercise Identify an industry or industries (other than discount retailing industry). Have students select one company to study, and have them conduct some research on the compensation and benefits offered by the company they select. Encourage students to be creative in the ways that they conduct their research. For example, have them go to the company’s employment site in order to learn about their pay and benefits; have them talk to people who work at the company (where possible) and ask them directly about their pay and benefits (where appropriate). Have students report their findings back to the class. Facilitate a discussion on the differences in pay and benefits philosophies, and consider how a pay and benefits policy impacts employee loyalty and retention. V. The Importance of Process: Communication and Participation A. Since pay decisions might be viewed in different ways by different groups in the organization and technology rarely provides a "right" answer, how decisions are made and communicated is critical. 1. Participation should involve both those who will manage the process and those who will be affected by it (HR staff and line managers). Usually, participation comes in recommending, designing, and communicating a pay program. Typically, pay level decisions are only made by top management. 2. Communication a. The consequences of not communicating effec¬tively are described in a study in which a group that received pay cuts, but to which was communicated adequate information and remorse, engaged in significantly less theft after the pay cut than a group to whom communication was inadequate. b. The effect of communication is likely to be an impact on employees' perceptions of equity. Managers must be prepared to explain to employees why the pay structure is designed the way it is and to judge whether employee concerns about the structure need to be addressed with changes to the structure. VI. Current Challenges A. Although most commonly used, job based pay structures can create the following problems: 1. They encourage bureaucracy. 2. They reinforce top down decision making as well as status differentials. 3. The bureaucracy, time, and cost required to generate and update job descriptions and job evaluations can become a barrier to change. 4. The job based structure may not reward desired behaviors, where the knowledge, skills, and abilities needed yesterday may not be helpful today and tomorrow. 5. The system encourages promotion seeking behavior, but discourages lateral movement. B. Responses to problems with job based pay structures include the following: 1. Delayering is reducing the number of job levels. This provides more flexibility in job assignments and assigning merit increases. These broader groups are also called broad bands. (Table 11.8 provides an example of pay bands). 2. A second response to job based pay structure problems has been to move away from linking pay to jobs and toward building structures on skill, knowledge, and competency. Competency based pay is similar but usually refers to a plan that covers exempt employees (e.g., managers). a. Skill based pay typically pays individuals for the skills they are capable of using rather than for the job they are performing at a point in time. b. Advantages are that flexibility helps promote lower staffing levels and aids in situations where the manufacturing process demands adaptable and flexible responses (e.g., flexible manufacturing, just in time systems). It has also been suggested that skill based plans contribute to a climate of learning and adaptability and give employees a broader view of how the organization functions. c. Potential disadvantages: The organization may find it difficult to use all skills effectively (i.e., work design must also change). Employees may acquire skills quickly and compensation tops out. Skill based plans may require a larger bureaucracy (related to skills definition and measure¬ment, training, and certification). Lastly, there is almost no market information available on how to price skills. C. Can the U.S. Labor Force Compete? The costs for labor are high in the United States, particularly in comparison to newly industrialized and developing countries (see Table 11.9) There are several factors to consider in shifting production to other countries: Instability of Country Differences in Labor Costs: relative labor costs are very unstable over time because of fluctuations in currency exchange rates. Skill Levels: the quality and productivity of national labor forces can vary dramatically. Lower labor costs may reflect the lower average skill level of the labor force. Productivity: in terms of comparative productivity, unit labor costs, and gross domestic product per person, the United States is the highest in the world (See Figure 11.4). Nonlabor Considerations: operating costs may be high enough to compensate for lower labor costs. Also, product development and customer response may be faster when manufacturing is closer to staff groups. D. Executive Pay Executive pay has been given widespread attention in the press. However, executive pay accounts for a small proportion of the labor costs of an organization, and executives have a disproportionate ability to influence organizational performance. They also help set the culture, so if their pay seems unrelated to organizational performance, employees may not understand why their pay should be at risk depending on the organization's performance. Table 11.10 in the text provides data on CEO compensation. B. There is much criticism of executive pay, however, because: 1. Some executives are very highly paid, such as Lawrence Ellison, the CEO of Oracle who earns over $96 million. However, these figures reflect participation in a stock plan (Table 11.11). 2. Executives in the United States are the best paid in the world (see Table 11.12 for total remuneration of CEOs in selected countries). 3. Often, the ratio of executive pay to average worker pay is cited as creating a "trust gap" in which workers do not trust executives' intentions and resent their pay. The issue becomes even more salient when companies are engaging in layoffs but are not cutting executive pay. IX. Government Regulation of Employee Compensation A. Equal Employment Opportunity (EEO) (Title VII) prohibits discrimination in all employment outcomes, including pay, unless business necessity can be proven. Two trends related to EEO are the increasing participation of women and nonwhites in the labor force. 1. The proportion of wages that women earn compared to men was 81 percent in 2010, and Black to White earnings was 80 percent. There are legitimate explanations such as education, experience, and occupation, although even when these are controlled, differences remain. 2. Although the rates have risen in recent years, in the case of women, the gap may be related to the fact that "women's" work may be undervalued. Another hypothesis is related to "crowding," which argues that women have been restricted to entering only a few (low paid) occupations. 3. Comparable worth (or pay equity) is a public policy that advo¬cates remedies for any under evaluation of women's jobs. a. Typically, comparable worth becomes an issue when comparisons between internal (job evaluation) and external (market surveys) data suggest that there is conflict in which jobs predominantly occupied by women are evaluated more highly internally than in terms of the market data. (See Table 11.13). b. One problem is that job evaluation is most often used to help apply market pay policy and not replace the market. There is also concern that EEO regulations will attempt to replace market forces (although there are no regulations related to comparable worth) and that using only internal comparisons would result in overpayment and underpayment in several instances in relationship to the market, which would create a market disadvantage. c. Despite potential problems with market shares, the courts have consistently ruled that using the going market rates of pay is an acceptable defense in comparable worth litigation suits. d. Another approach has been to suggest that organizations should examine, when women's pay falls behind that of men, entry and access to promotions, and so on. Programs such as mentoring might improve the ability of women to access higher level jobs. B. Minimum Wage, Overtime, and Prevailing Wage Laws 1. The Fair Labor Standards Act (FLSA) of 1938 established a minimum wage and overtime pay rate. 2. Minimum wage is the lowest amount that employers are legally allowed to pay. Minimum wage now stands at $7.25 an hour. 3. Executive, professional, administrative, outside sales, and certain “computer employees” are exempt from FLSA coverage (the estimate is that about 20 percent of jobs fall in this category). Exempt means that these employees are not covered by the FLSA, and they are not eligible for overtime pay. 4. The Davis Bacon Act (1931) and Walsh Healy Public Contracts Act (1936) require federal contractors to pay employees no less than the prevailing wages in the area. The prevailing wage is set by the Secretary of Labor and is greatly influenced by relevant union contracts in the area. Integrity In Action: When It Comes to Working Overtime, What Is Good for Workers? This vignette overviews the overtime situation at Taiwan-based Foxconn – a major supplier for Apple. In the past, the company had been found in violation of China’s labor laws requiring workers to work more overtime than permitted. The company agreed to limit overtime, but some workers still work more hours than permitted. However, interviews with several employees indicate that these workers want to continue to work the overtime hours they are and more. Some workers predicted that others would leave the company if overtime was cut. Another dimension of this problem is that labor costs in China are predicted to increase with the limits on overtime due to increase number of hires and anticipated increased base pay in order to entice workers to work for the company. Discussion Question What is the ethical thing to do here regarding overtime? Answer: This question is very personal in nature and each student will likely have their own views. One issue to consider in the discussion is whether or not the overtime is mandatory or voluntary. Mandatory overtime was the cause of a number of problems for Foxconn in the past – including employee suicides due to overwork. The other side of the coin is that many workers rely on the additional earnings afforded them through overtime and limiting overtime limits their opportunities to earn what they want. Ethical Approach to Overtime: 1. Adhere to Laws: Ensure strict compliance with local labor laws regarding overtime limits to protect workers' rights and avoid legal issues. 2. Monitor Voluntary Overtime: If workers voluntarily choose to work additional hours, ensure they are compensated fairly and not coerced into working beyond legal limits. 3. Provide Fair Compensation: Pay overtime at legally mandated rates and consider additional benefits to acknowledge the extra effort and time. 4. Address Work Conditions: Improve working conditions and efficiency to reduce the need for excessive overtime. 5. Engage with Workers: Open communication channels to understand employees' needs and preferences regarding overtime and make adjustments based on their feedback. 6. Implement Work-Life Balance: Promote a healthy work-life balance by setting reasonable work hours and providing support for employees' well-being. A Look Back We began this chapter by looking at how U.S. automobile companies and their workers have had to make dramatic changes to reduce labor costs in hopes of helping the companies survive, as well as saving jobs. We also saw other strategies to control labor costs in these difficult times. For example, some firms are offshoring work to countries (e.g., China and India, but also the United States) in part, to make labor costs more competitive. Questions 1. What types of changes have the companies discussed in this chapter made to their pay structures to support execution of their business strategies? Answer: One example presented in the chapter is VW, which has built a new plant in Tennessee, where starting wages for automobile workers are comparably lower than wages at unionized plants such as those in Detroit. In a much different sense, Google has changed their pay strategy—increasing pay by 10% for all of their employees—in order to be more competitive with pre-IPO companies like Facebook and Twitter. 2. Would other companies seeking to better align their pay structures with their business strategies benefit from imitating the changes made at these companies? Answer: Yes, certainly the examples of VW and of Google provide illustrations of ways that companies can align their pay structure to support their business strategies. Although the examples are different—one is trying to keep wages low (VW) while the other is increasing pay rates in order to become more attractive (Google), they both present examples of pay structure alignment and its role in strategy. Chapter Vocabulary These terms are defined in the "Extended Chapter Outline" section. Pay Structure Pay Level Job Structure Efficiency Wage Theory Benchmarking Rate Ranges Key Jobs Nonkey Jobs Job Evaluation Compensable Factors Pay Policy Line Pay Grades Range Spread Compa Ratio Delayering Skill based Pay Comparable worth Fair Labor Standards Act (FLSA) Minimum Wage Exempt Discussion Questions You have been asked to evaluate whether your organization's current pay structure makes sense in view of what competing organizations are paying. How would you determine what organizations to compare your organization with? Why might your organization's pay structure differ from those in competing organizations? What are the potential consequences of having a pay structure that is "out of line" relative to your competitors'? Answer: You would determine what organizations to compare an organization to by looking primarily for organizations in a similar business and located in a similar geographical region. Trade associations or employer associations can frequently help by providing information. Your organization's pay structure may differ from those in competing organizations if decisions are made to use pay as a primary reward strategy or perhaps emphasize other issues. For example, your organization might offer good training opportunities for new college graduates, and therefore, your pay level decision is to pay typically below market. A consequence of having a pay structure out of line is that if you are overpaying, you will find it increasingly difficult to compete, since your labor costs are too high. If you are underpaying, it will be difficult to attract and retain employees. There are trade offs, however, that make a considerable difference in the consequences of over or underpaying in relationship to the market, for example, as mentioned in the text. Top management has decided that the organization is too bureaucratic and has too many layers of jobs to compete effectively. You have been asked to suggest innovative alternatives to the traditional "job based" approach to employee compensation and to list the advantages and disadvantages of these new approaches. Answer: The most innovative alternative discussed in the text is skill based pay. The advantages and disadvantages discussed in the text are as follows: Advantages are that flexibility helps promote lower staffing levels and aids in situations where the manufacturing process demands adaptable, flexible responses (e.g., flexible manufacturing, just in-time systems). Potential disadvantages are that the organization may find it diffi¬cult to use all skills effectively (i.e., work design must also change), employees may acquire skills quickly and compensation tops out, and skill based plans may require a larger bureaucracy (related to skills definition and measurement, training, and certification). Lastly, there is almost no market information available on how to price skills. If major changes of the type mentioned in question 2 are to be made, what types of so called process issues need to be considered? Of what relevance is equity theory in helping understand how employees might react to changes in the pay structure? Answer: Communication and participation would both be critical if skill based pay was implemented. Communication would undoubtedly be complicated since, as mentioned in the last question, employees must understand what skills are, how they are defined, what has to be learned to be certified as acquiring a new skill, and so forth. Participation is also important since skill based pay is logically connected with the need for participation (e.g., technology that is advanced and complex). It also makes sense to ensure participation is built into the process so that skill based pay will be cost efficient: that is, given the existence of skills, there should be a system that ensures the skills are employed. 4. Are executive pay levels unreasonable? Why or why not? Answer: There is evidence that may be presented on both sides for this question. The text discusses that pay levels may not be unreasonable, since executives are critical in determining the success of an organization. Data are also presented that suggest, on the average, most executives are not paid that much differently from several other professionals. In addition, only salaries themselves tend to be compared without benefits hectored into the equation. This presents a different picture in comparing executive compensation across countries. On the other hand, there are some executives who tend to be very highly compensated (often on the basis of stock options). This presents some problems relative to social comparisons of workers. Ben & Jerry's policy of allowing the executives to earn no more than seven times the salary of the lowest paid worker illustrates the social responsibility issue related to executive pay. An interesting question would be whether, with more profit sharing occurring, fewer perceptions of inequity would exist. Executive pay levels can be seen as unreasonable if they significantly exceed industry standards or do not align with company performance. Excessive compensation may create inequality and impact employee morale. However, high pay can be justified by the executive's role, experience, and the value they bring to the company. It's crucial to balance compensation with performance and company success to ensure fairness. 5. Your company plans to build a new manufacturing plant but is undecided where to locate it. What factors would you consider in making a decision about which country (or state) to build the plant in? Answer: For most organizations, the cost of labor is the highest operating expense; therefore labor with the appropriate skills must be available. Also, the area should be assessed to determine prevailing wage and benefit rates. Some other issues to consider would be the availability of an appropriate infrastructure to ensure your raw materials can arrive and that you can ship your product with few problems, costs of building and running a plant, supportiveness of local government, and tax structure. As the example of BMW suggested, the organization must also consider whether customers will perceive that the plant can produce the product at the appropriate levels of quality and quantity. 6. You have been asked to evaluate whether the pay structure is fair to women and minorities. How would you go about answering this question? Answer: First, you would have to examine whether any policies exist that are unfair to women and minorities. For example, although it is likely that seniority plays a strong role in rewarding employees, this is considered a legitimate factor. If there are, however, separate seniority systems across your organization and women and minorities are located in lower paying departments, this is not legal. Next, you would want to examine possible clusters of minorities and women, what their jobs and skills are, and their average pay in comparison to white males in similar jobs and with similar skills. A statistic, multiple regression, might be useful in determining what predicts pay in the organization. For example, one would expect that experience, education, certification of skills, and other job related factors would predict pay while race or sex should not be predictive. Self-Assessment Exercise Refer to the self-assessment exercise in the text. Exercising Strategy: Changing Compensation to Support Changes in Corporate Strategy Corning Inc. has realigned its strategy and compensation and benefits program divesting several business units, pursuing a growth strategy, and created an environment that bolstered innovation, risk taking, teaming, and speed. They also streamlined their compensation system creating a more fluid environment by decentralizing pay decisions. Questions 1. What are the pros and cons of Corning’s new pay structure? Answer: Student answers will vary. Con: Traditional promotion paths may not fit in the fluid environment Pros: Changing job structure helps the company respond to market changes quicker and more efficiently. Decentralization contributes to flexibility in the organization. Tying pay to performance motivates employees. Pros of Corning’s New Pay Structure: 1. Increased Motivation: Performance-based pay can drive employees to achieve higher productivity and contribute more effectively to company goals. 2. Attracting Talent: Competitive pay structures can help attract top talent and retain high performers by offering financial rewards aligned with their contributions. 3. Alignment with Goals: Pay linked to company performance ensures that compensation is aligned with overall business objectives and success. Cons of Corning’s New Pay Structure: 1. Potential Inequality: Performance-based pay may lead to disparities if not all employees have equal opportunities to achieve high performance metrics. 2. Increased Pressure: Employees might experience heightened stress and pressure to perform, which can affect job satisfaction and work-life balance. 3. Short-Term Focus: A strong focus on immediate performance metrics might discourage long-term strategic thinking and collaboration. 2. How did shifting product market conditions affect Corning’s restructuring and its success? Answer: Student answers may vary. These shifting environmental conditions meant that Corning had to increase its ability to move quickly in responding to customer needs. The company was able to accomplish this by encouraging flexibility, learning, and teamwork. Shifting product market conditions influenced Corning's restructuring and success in the following ways: 1. Adaptation to Market Demands: Corning had to realign its pay structure to better meet the evolving needs of the market, ensuring that compensation strategies were competitive and reflective of current industry standards. 2. Focus on Innovation: The shift in market conditions likely emphasized the need for innovation and adaptability. Corning's restructuring aimed to motivate employees to focus on developing new products and technologies, crucial for staying ahead in a dynamic market. 3. Resource Allocation: Changing market conditions necessitated a reevaluation of resource allocation, including how pay was distributed among employees. The restructuring aimed to optimize performance incentives and align rewards with company goals. 4. Employee Morale and Retention: As market conditions changed, the new pay structure was designed to address employee concerns about compensation and job security, thereby aiding in retention and maintaining morale during periods of uncertainty. 5. Success Metrics: The success of the restructuring was influenced by how well the new pay structure could respond to market fluctuations and whether it effectively incentivized employees to achieve goals that aligned with the company's strategic direction. Managing People: Reporting the Ratio of Executive Pay to Worker Pay: Is it Worth the Trouble? Recent laws require covered organizations to report the ratio of annual total compensation of the CEO to the median o the annual total compensation of all other employees. The intention is to control what many view as exorbitant growth of executive compensation. Questions Do you believe it is an undue burden on companies to compute and report the ratio of chief executive compensation to employee compensation? Answer: While it does not appear to be an onerous task, many organizations believe this practice will be used as a political tool. This will be the likely direction this discussion will go and students will each have their own views on the topic. Reporting the ratio of CEO to employee compensation is not necessarily an undue burden for companies, especially with modern data management tools. While it requires resources to calculate and verify, it promotes transparency and accountability. The process can be streamlined with existing payroll systems, making it manageable for most organizations. Do you believe reporting this ratio will result in changes that benefit companies, employees, or society? Explain. Answer: Again, depending on how the student views the practice, they will also likely feel differently about whether or not the practice is useful or not. There is no right or wrong answer here.. Benefits for Companies: • Improved Transparency: May enhance the company’s reputation by demonstrating fair compensation practices. • Benchmarking: Provides a useful benchmark for evaluating and adjusting compensation structures. Benefits for Employees: • Awareness: Employees gain insight into the compensation disparity, potentially fostering discussions about fairness and equity. • Incentive for Fair Practices: May encourage companies to address large disparities and implement more equitable pay structures. Benefits for Society: • Informed Debate: Contributes to public discourse on income inequality and executive compensation. • Regulatory Pressure: May drive policy changes and encourage broader corporate responsibility towards fair pay practices. HR in Small Business: Changing the Pay Level at Eight Crossings Eight Crossings employs 85 employees who work either in their Sacramento, California office or remotely from their homes. This business model has opened them up to competition located in low wage areas like India. This has led to clients to request lower rates from Eight Crossings’ CEO, Patrick Maher. Since the majority of Eight Crossings cost structure was wage based, the only way to accommodate these requests would be to cut worker wages, which had been based about 5% above industry averages. Maher investigated ways to trip cost and found he could reduce the transcription work of his employees by using automated software which translated into an approximate 5% increase in lines transcribed without reducing the effective pay to the employees. Maher communicated these changes via email and invited questions. Questions How did the change in pay level at Eight Crossings affect its ability to attract and retain a high-quality workforce? Answer: This change did not impact the effective pay of the workers; it simply streamlined the work completed so that the workers were more efficient. This should not impact attracting and retaining a high-quality workforce. Do you think the company’s pay structure was better suited to its objectives before or after the reduction in pay level? Why? Answer: It seems that the new pay structure is more in line with the company’s objectives since it is more efficient and simply utilizes boilerplate to enhance productivity and efficiency with no impact on the quality of service. How would you evaluate the company’s method of communicating the change in pay level? What improvements to that process can you suggest? Answer: Student’s responses will vary here – some will agree, others will not. Two important issues here.. First – with a workforce working remotely from home, email was a much more efficient and effective way of communicating than face to face meetings, Second, the message was well received and as such, appears to have been effectively executed. Eight Crossings’ method of communicating the pay change via email is clear but lacks personal touch and interaction. To improve, Maher should: 1. Host a Meeting: Hold a team meeting (virtual or in-person) to discuss the changes and address concerns. 2. Provide Detailed Explanation: Offer a comprehensive explanation of the reasons for the pay cut and the benefits of the automation. 3. Offer Support: Provide a platform for feedback and support to help employees adjust to the changes. Additional Activities Teaching Suggestions 1. One issue that may generate considerable heat and controversy is discussing in class whether internal job evaluation results or external market pay surveys should be used when there is a conflict between internal and external data. It must be recognized that the use of comparable worth is only an issue when there is conflict between the internal job evaluation and external market survey data. The choices are then to pay less and follow the market data or use internal information to increase the salary grade or pay of the job in question. A debate could be organized to discuss this issue. The promarket side would tend to focus on issues of competitiveness, external equity, and paying appropriately for human resources. The prointernal side would discuss issues of internal equity, employee perceptions of equity and motivation, and comparable worth. Students find the concept of comparable worth highly controversial. A library assignment to do additional readings and report to the class on the topic would likely make the debate more lively and controversial. For example, reporting on the Canadian province of Ontario's comparable worth regulations and how they have worked would be informative. 2. In 1990 a study was done of 313 firms, which followed a study done in 1987 of 323 firms, about the use of skill based pay systems. In 1987, 40 percent of the firms used skill based pay, while in 1990 the percentage was 51 percent. The percentage of employees covered remained approximately the same less than 20 percent in both 1987 and 1990. In 1990, 60 percent of the firms stated that skill based pay was successful in increasing organizational performance, while only 6 percent rated it as unsuccessful and 35 percent were undecided. The study supported the hypothesis that there would be more skill based pay associated with companies that used total quality management systems, experienced heavy foreign competition, and removed management layers in recent years. Lastly, the use of skill based pay was associated with the use of a variety of other reward system practices (Adapted from: E. E. Lawler, G. E. Ledford, Jr., and L. Chang, "Who Uses Skill based Pay and Why," Compensation and Benefits Review 25 no. 2, [1993], pp. 22 26.) Questions for discussion on skill based pay: Why do you believe that skill based pay was found more often in organizations that experienced a great deal of foreign competition? In organizations that had removed management levels in recent years? In organizations that also used a variety of other reward strategies? Do you believe that the use of skill based pay will continue to increase? Why or why not? 3. One interesting assignment, if you teach in a school where salaries are public information, is to have students look at the differences in salaries for different disciplines within the university and discuss the fairness and rationale for these differences. My students are often interested in looking at the differences between professors in the College of Business and professors in the Arts and Sciences. Also, we discuss the differences in the salaries for professors in the college and the market salaries. In my institutions, the professors' salaries are significantly below the market, and we discuss the issue of wage compression, why this is a problem, and what alternatives organizations have to deal with this issue. 4. Are CEOs paid too much? This is an issue that students could debate. One article that does a good job of covering both sides is "Contrasting Perspectives—The Growing Pay Gap: Are CEOs Paid Too Much Relative to Other Employees" by G. Crystal and F. Cook, American Compensation Journal, Summer 1996, pp. 22 29. Another very informative article on the subject is "Executive Pay Trends: Where Have We Been . . . Where Are We Going" by P. Meyer, American Compensation Association News, June 1996, pp. 16 18. Twitter Focus Eight Crossings provides transcription services for physicians, attorneys, and health care facilities. Employees work at the company’s office or in their homes. Sending files electronically provided a competitive advantage that helped grow the business at a tremendous pace. The downside to using electronic files was that it exposed Eight Crossings to increased competition from low-wage locations such as India. To keep competitive with off-shore vendors, Eight Crossings told its employees they would not be paid for “boilerplate text” that appeared in most documents, which was generated automatically by transcription software. This cut brought pay levels down to the market rate and kept the company competitive. Question: If you were a transcriptionist for Eight Crossings, how would you react to being told that you wouldn’t be paid for “boilerplate text?” Answer: As a transcriptionist, I’d likely feel frustrated and undervalued. Not being paid for boilerplate text could diminish my overall earnings and undermine my motivation. I’d seek clarification on how this change impacts my total compensation and express concerns about fairness. Understanding the company’s financial pressures and having open dialogue might help in addressing my concerns. Manager’s Hot Seat Exercise: Negotiation: Thawing the Salary Freeze-Please refer to the Asset Gallery on the OLC for Hot Seat videos and notes. I. Introduction This scenario depicts a negotiation between labor and management. For an Organizational Behavior or Management course, this vignette will stimulate a discussion on negotiation skills and, potentially, ethics. Instructors of HR-related courses will find this vignette useful in discussing the labor-management negotiations process. II. Learning Objectives To assess students’ understanding of the negotiation planning process and effective execution. To analyze a negotiation and identify effective and ineffective strategies and behaviors that occurred during the negotiation. To have students identify key issues related to labor-management negotiations and the legal and managerial implications, therein. III. Scenario Description: Overview: An upper management executive of a magazine publishing company, JBL Publishing, is negotiating with a Union representative regarding production workers’ contract. The main issues are salary increases, health benefits, and flexible work schedules. The Union representative is irate, because she just found out, prior to this meeting, that the executive board has received enormous bonuses for the year, at the same time they are refusing to budge on salary increases for the production workers. Profile: Katherine Knudsen has a degree in Marketing and Management and a law degree. At JBL Publishing she is Vice President of Production, managing operations and production. In addition to overseeing these departments, Katherine handles all contract negotiation and labor relations. Alisa Jackson holds a Bachelor of Arts degree in Sociology. She has been a union organizer and representative for over eight years, with efforts focused on re-negotiation at the local level. Alisa has a renegotiation success rate of 95%, winning better terms in one or more categories per contract. The renegotiation with JBL publishing is her first in the printing industry. References: The references included in the DVD are: Bargaining Zone for Negotiation (PPT 3-3) Concepts in Negotiating (PPT 3-5) Integrative Bargaining Strategy (PPT 3-6) Key Negotiator Behaviors (PPT 3-11) Back History: Knudsen and Jackson have been meeting and talking frequently regarding the contract renegotiation for the unionized labor force working in the printing press/production building. Jackson is a new representative for Local 1087, coming from an airline workers union where there were always very tough negotiation meetings. Knudsen has been the VP of Production at JBL for 10 years and has negotiated all the contracts over that time. The renegotiation thus far has addressed the following issues: A 7% wage increase for workers with seniority An improved benefits package across the board More personal days and schedule flexibility to accommodate family needs Knudsen has said flat out “no” to the wage increase – the company has a salary freeze for all employees – labor and management included. Knudsen has slightly improved the health package and is considering the schedule issues. Scene Set-up: Jackson has called an immediate meeting. She wants to discuss the executive bonuses and win more money for the union employees. Scene Location: Knudsen’s Office; JBL Publishing; Wednesday 3:00pm The Meeting - Summary: Alisa described her surprise that executives were receiving large bonuses when Katherine had said there was no money for salary increases. She immediately threatens to go the newspapers with this perceived inequity. Katherine explained that the money allocated for bonuses was based on last year’s performance even though the checks were cut this year. Alisa comes close to accusing Katherine of not disclosing this information that she feels is pertinent to the current contract. Katherine explains that it is not pertinent to the current contract because that money was budgeted last year and does not pertain to this year’s cash flow situation. Alisa then pursues the option of reallocating the bonus money so that the workers may receive a share of the money currently allocated only to upper management. Katherine agrees to draft a bonus distribution plan and present it to Alisa within the week. The two shake hands and are gracious to each other at the conclusion of the meeting. Afterthoughts – Summary: Katherine admits that the executive bonuses were more relevant to the current negotiation than she let on. She had held out on mentioning the bonus distribution option because she represents the company and didn’t want to have to do that unless it was absolutely necessary because that was the only concession she had to make. Alisa’s threat to go to the press to disparage the company concerned Katherine but she did not want give up too much. Now that they will create a bonus-sharing plan, Katherine says she will work very hard to make that solution work because she recognizes the value of hourly workforce to the revenue of the company and strongly believes in working towards a fair solution that will reward the employees if the company does well. Dossier: The specific artifacts included in the DVD are: Email Summary of Knudsen and Jackson’s previous meeting Email sent to Jackson re: the ‘sweet deal’ JBL Execs will be receiving Excerpts from previous contract IV. Discussion Questions: The References and related Discussion Questions may be found in PowerPoint slides 3-1 to 3-12 on the instructor’s side of the text’s Website. Learning Objective #1: To assess students’ understanding of the negotiation planning process. The “Bargaining Zone for Negotiation” (PPT 3-3) shows where the potential area of agreement may be. However, without planning and determination of one’s initial offer, target point, and resistance point, a negotiator may be at a disadvantage during the negotiation. What evidence of planning was demonstrated by Alisa and Katherine? Answer: See answer for #2 Alisa and Katherine demonstrated planning through their clear identification of initial offers, target points, and resistance points. They had prepared their negotiation strategies by considering their desired outcomes and acceptable compromises. This planning allowed them to navigate the bargaining zone effectively and respond strategically to each other's proposals. For both Alisa and Katherine, describe how planning impacted their ability to successfully negotiate. Answer: Alisa received an email from a friend saying that he heard that executives at JBL Publishing were receiving large bonuses. She planned to use this information as leverage in the negotiation process as well as threaten to talk to the newspapers about the perceived inequity. This strategy did work to Alisa’s advantage because it caused Katherine to concede on the distribution of future management bonuses. She also insinuated that Katherine was engaged in an unfair labor practice because she did not bargain in good faith when she did not disclose the executive bonuses. This approach was not that effective because Katherine took it personally and could have ceased or significantly hindered future negotiations. From the “Afterthoughts” it was clear that Katherine had investigated every option that she would have during the negotiation process. Because she did not have much, she did everything she could to not give-in to the union’s demands. Katherine’s plan was to focus on the exact issue the union asked for – salary increases – instead of finding alternatives that would satisfy the union. Katherine’s plan was successful in that the union representative seemed satisfied with the tentative agreement, did not ask for more, and did not intend to go to the newspaper to create bad press for the company. Learning Objective #2: To analyze a negotiation and identify effective and ineffective strategies used and behaviors that occurred during the negotiation. What aspects of the distributive and integrative bargaining approaches (see PPT 3-5 & 3-6) did Katherine demonstrate during the negotiation? Justify your answer with examples from the scenario. Answer: While in the end Katherine supports an integrative approach that is fair to all employees, she initially takes a distributive approach because she wants to give in to the union as little as possible. She does not mention other alternatives and “hides” behind financial logistics by saying the money that is being paid was from a different pool of money. An integrative approach is characterized by discussing the various options that would create a win-win outcome from the beginning.  1. What strategy should Katherine take? Continue to clarify Apologize for omission Change subject Katherine should continue to clarify the situation. Apologizing for the omission may make her appear guilty of an unfair labor practice by not bargaining in good faith. If she changes the subject she will also appear to be insincere in her bargaining and it will avoid the issue the union is most concerned about.  2. Why does Katherine offer to show her pay stub? Proof of salary freeze Exert power Change subject She wants to make it clear and irrefutable that salaries of management have not been raised either.  5. Why didn’t Katherine offer this [bonus distributions] earlier? Just thought of it Just persuaded Was stonewalling Katherine didn’t want to offer her only point of leverage too soon because she had nothing else to offer. Therefore, she held out on this solution until she absolutely had to – she was stonewalling. What aspects of the distributive and integrative bargaining approaches (see PPT 3-5 & 3-6) did Alisa demonstrate during the negotiation? Justify your answer with examples from the scenario. Answer: Alisa’s goal is to get more money for the workers she represents. While initially she tried for salary increases, she was open to other alternatives. Her approach of threatening the management and accusing them of withholding information, however, was not indicative of an integrative approach because she focused on the person, not the problem.  4. What should Alisa argue? To split bonus money Union will strike Get better benefits plan The union could strike on a mandatory issue, which salary and benefits are. This, however, would emphasize the union’s position, rather than the common interests of both parties. Offering to split the bonus money would present an alternative solution that would meet the needs of the employees (more money) and prevent a disgruntled workforce. If Katherine had outright rejected the idea to split the bonus money, threatening to strike may be the only alternative. Getting a better benefits plan was already in the works. What is the superordinate goal (see PPT 3-5) in this situation? How would a discussion of this goal aid the negotiation process? Answer: The superordinate goal is the company’s success. If the company is not successful, neither management nor the union will have jobs. Establishing a common goal will aid the negotiation process because the ideas and issues discussed should be linked to the company’s ultimate success. Therefore, data and information presented during the negotiation as to how salary increases, management bonuses, benefits, etc. will benefit the company directly will have the most impact on the negotiation outcome. Learning Objective #3: To have students identify key issues related to labor-management negotiations and the legal and managerial implications, therein. Katherine discussed a potential solution (bonus sharing) that had not previously been discussed before. Is this an example of “unlawful circumvention” according to labor laws? Why or why not? Answer: No, because she was discussing this with the union representative. If Alisa had been an employee who was not explicitly representing the union, this would have been a case of unlawfully circumventing the union. Assume Katherine refused to make a concession to Alisa’s request. According to the National Labor Code, could Alisa organize a strike? Answer: Yes, because the two parties were negotiating a new contract and salary and benefits are “mandatory subjects” that have to be bargained in good faith. Refer to the “Key Negotiator Behaviors” (PPT 3-11). Assume you are representing management (like Katherine in this scenario). What exactly would you do in this situation? Indicate a specific example for each of the key negotiator behaviors. Answer: Answers will vary. Students should identify opportunities to use an integrative approach.  1. Katherine is accused of lying. She should: Demand apology End negotiation Refute accusation This is an example of a person, not problem oriented behavior. Katherine should refute the accusation and indicate that personal attacks will not facilitate the negotiation process.  6. In this negotiation…. JBL gave too much JBL gave too little Nothing was resolved Katherine and Alisa seemed pleased with the outcome of the negotiation. It seems that both parties were bargaining in good faith and would come up with a mutually beneficial solution. As a management representative, I would: 1. Preparation: Research industry standards and the employee's role to set realistic offer parameters. 2. Listening: Actively listen to the employee's concerns and needs to understand their perspective. 3. Questioning: Ask clarifying questions to get detailed information about their demands. 4. Bargaining: Propose incremental adjustments and alternatives to meet halfway. 5. Closing: Confirm mutual agreements clearly and summarize the terms to finalize the negotiation. HRM Failures Top Case 11: Paying for the Actual Position After Ronald Stillman was hired as a sales manager in a Staples store, he spent much of his time doing tasks normally assigned to an hourly employee, such as stocking shelves, sweeping floors, and waiting on customers. He also worked more than 40 hours a week but wasn’t paid overtime. In a 2009 decision in Stillman v. Staples, Inc., a jury awarded Stillman and about 350 other current or former Staples employees more than $2.4 million in unpaid overtime compensation. The court ruled that Staples had failed to prove that the managers were exempt employees, and because the employees had worked more than 40 hours a week, they were entitled to overtime pay. From 2000 to 2004, senior management at Staples had studied the sales manager position and found that, on average, sales managers performed more hourly than managerial tasks. In 2002, for example, the study found that Staples’s sales managers spent nearly two-thirds of their time on hourly tasks. Also, sales managers had no authority to adjust associates’ pay or discipline them without the approval of a general manager and no discretion to deviate from certain company policies. During the trial it was learned that Staples’s HR department was unaware that the company had conducted a study of the sales manager position earlier and had no exit-interview data to suggest why sales managers had left the company. Also, it could not demonstrate whether employees agreed that the actual job duties were as described in the job description. Question If you were the employer, what would you have done to avoid this situation? Possible answers Make sure the duties listed in a job description match an employee’s regular tasks. Before identifying whether or not a job is exempt from overtime pay, carefully test its duties and conditions to assure it meets the definition of “exempt.” Maintain open communication across all corporate functions (for example, Finance, Operations and IT) to share information about job design and job responsibilities. Work to achieve a common understanding of what constitutes an exempt position. Consult your company’s legal department for guidance; if you have no in-house attorneys, check with your outside legal counsel for an opinion. To avoid this situation, I would: 1. Review Job Descriptions: Ensure job descriptions accurately reflect actual duties and responsibilities. 2. Regular Audits: Conduct periodic audits to verify job roles and compliance with overtime laws. 3. Employee Feedback: Gather regular feedback from employees about job duties and responsibilities. 4. Training: Train HR and management on exempt vs. non-exempt classifications and legal requirements. 5. Documentation: Maintain detailed records of employee duties, hours worked, and any exemptions claimed. Case: Stillman v. Staples, Inc., Civil Action No. 07-849 (KSH), U.S. Dist., New Jersey (Lexis 42247) Solution Manual for Human Resource Management Raymond Noe, John Hollenbeck, Barry Gerhart, Patrick Wright 9780077164126