BUS 681 Week 1 DQ 1 & @

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2 Contextual In�luences on Compensation Practice

Learning Objectives

When you �inish studying this chapter, you should be able to:

2-1. Discuss the reasons for interindustry wage differentials. 2-2. Explain the factors that contribute to pay differentials based on occupational characteristics.

2-3. Summarize the reasons for the occurrence of geographic pay differentials. 2-4. Discuss the role of labor unions in setting compensation.

2-5. Identify and discuss key employment laws pertinent to compensation practice.

CHAPTER WARM-UP!

If your professor has assigned this, go to the Assignments section of mymanagementlab.com (http://mymanagementlab.com) to complete the Chapter Warm-Up! and see what you already know. After reading the chapter, you’ll have a chance to take the Chapter Quiz! and see what you’ve learned.

In Chapter 1 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch01#ch01) , we discussed strategic compensation. That discussion revealed that compensation professionals plan, develop, and implement compensation practices to help achieve competitive advantage. From this perspective, it is imperative that compensation professionals understand the broader context in which compensation decisions are rendered. Compensation professionals should understand the patterns of pay differentials outside their companies to help make informed decisions about fair and competitive pay practices. Also, with these data, they may make compelling requests to the Chief Financial Of�icer (CFO) for monetary resources necessary to appropriately fund compensation programs for competitive advantage. These factors include interindustry wage differentials, occupational pay differentials, geographic pay differentials, and the role of labor unions. We will present basic statistical information to illustrate these differentials as well as discuss possible explanations for them.

Besides these various patterns of pay differentials, compensation professionals make decisions within the scope of pertinent employment and labor relations laws to maintain compliance with government mandates, and, in doing so, protecting the welfare of employees and serving the interests of company shareholders. Employment and labor relations laws are essential to maintain a balance of power between employers and employees. In a nutshell:

The freedom to contract is crucial to freedom of the market; an employee may choose to work or not to work for a given employer, and an employer may choose to hire or not to hire a given applicant. As a result, the employment relationship is regulated in some important ways. Congress tries to avoid telling employers how to manage their employees …. However, Congress has passed employment-related laws when it believes that the employee is not on equal footing with the employer. For example, Congress has passed laws that require employers to pay minimum wages and to refrain from using certain criteria, such as race or gender, in arriving at speci�ic employment decisions. These laws re�lect the reality that employers stand in a position of power in the employment relationship. Legal protections granted to employees seek to make the power relationship between employer and employee one that is fair and equitable.1

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end1)

In this regard, compensation professionals strive to establish and maintain a fair pay-effort bargain (that is, appropriate pay for performing work according to standard), and to collaborate with managers and supervisors to ensure that employee performance is appropriately rewarded over time.

It should be noted that compensation professionals operate in a global context in which compensation practices may require modi�ication to attract and retain employees on important international assignments. Also, it is necessary to understand the role governments and cultural values in other countries play in compensation practices. The global stage presents an important contextual factor. We will address those issues in Chapters 13 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch13#ch13) and 14 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch14#ch14) .

2.1 INTERINDUSTRY WAGE DIFFERENTIALS

2-1 Discuss the reasons for interindustry wage differentials.

TABLE 2-1 Average Weekly Earnings by Industry Group, Select Years 2007–2015

Industry 2007 ($)

2009 ($)

2011 ($)

2013 ($)

2015 ($)a

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec1#ch02fn1)

Utilities 1,207 1,366 1,385 1,474 1,530

Mining 946 1,180 1,276 1,276 1,365

Construction 794 911 988 1,010 1,049

Manufacturing 707 885 969 976 1,022

Retail trade 380 478 506 516 541

Leisure and hospitality

316 329 338 348 372

a2015 �igures are for January. Source: U.S. Bureau of Labor Statistics. Employment, Hours, and Earnings. Data Retrieval. Available: www.bls.gov/webapps/legacy/cesbtab3.htm (http://www.bls.gov/webapps/legacy/cesbtab3.htm) , accessed February 13, 2015.

Are equivalent workers performing similar work paid more in some industries than in others? Most often, the answer is yes. In a competitive labor market, companies attempt to attract and retain the best individuals for employment partly by offering lucrative wage and bene�its packages. Some companies are unable to compete with companies in other industries on the basis of wage and bene�its because of persistent interindustry wage differentials. Interindustry wage differentials (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss224) represent the pattern of pay and bene�its associated with characteristics of industries. Interindustry wage differentials can be attributed to a number of factors, including the industry’s product market, the degree of capital intensity, the pro�itability of the industry, and unionization of the workforce.2

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end2) The basis for interindustry wage differentials will be explained shortly. Table 2-1 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec1#ch02tab01) displays the average weekly earnings in various industries for select years between 2007 and 2015. Utilities and mining establishments generally pay the highest wages; retail trade and leisure and hospitality establishments generally pay the lowest wages. In 2013, for instance, general of�ice clerks who were employed in the coal mining industry earned an hourly wage, on average, of $16.02. In the full service restaurant industry, the average hourly wage was $12.85.3

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end3)

Companies that operate in product markets where there is relatively little competition from other companies tend to pay higher wages because these companies generally exhibit substantial pro�its. This phenomenon can be attributed to factors such as higher barriers to enter into the product market and virtually have no in�luence of foreign competition. Government regulation and extremely expensive heavy or robotic equipment represent entry barriers. The U.S. defense industry and the public utilities industry have high entry barriers and virtually no threats from foreign competitors.

Capital intensity refers to the extent to which companies’ operations are based on the use of large-scale equipment. Capital intensity also explains pay differentials between industries. The amount of average pay varies with the degree of capital intensity. On average, capital-intensive industries (e.g., manufacturing) pay more than industries that are less capital intensive (e.g., retail). Capital-intensive businesses require highly capable employees who have the aptitude to learn how to use complex physical equipment such as casting machines and robotics. Workers usually receive on-the-job training, sometimes including employer-sponsored technical instruction. In addition, some employers may require specialized training or an associate’s degree for the most skilled assembly and fabrication jobs. Employment settings include automotive assembly, aircraft engine assembly, and ship building.

Service industries such as retail are not capital intensive, and most have the reputation of paying low wages. The operation of service industries depends almost exclusively on employees with relatively common skills. Most retail sales workers receive on-the-job training, which usually lasts a few days to a few months.

Furthermore, companies in pro�itable industries tend to pay higher compensation, on average, than companies in less pro�itable industries. Employees in pro�itable industries presumably receive higher pay because their skills and abilities contribute to companies’ success and are more productive; however, as more companies have failed to meet �inancial goals over the past few years, they have struggled with how best to pay for performance.

As we will discuss shortly, companies in highly unionized industries tend to pay higher wages, on average, than do companies in lesser unionized industries. In general, the power of collectively negotiating employment terms, including pay, is greater than the negotiating power of a single individual. Employees’ right to strike could cripple not only their employer, but also hurt companies that rely on receiving raw materials or �inished goods. In 2015, for instance, workers in the Los Angeles area ports refused to load or unload ships’ cargo, delaying the delivery of automobiles to dealerships. At the same time, most highly unionized industries (e.g., manufacturing, construction, and mining) are capital intensive, requiring employees with the aptitude to learn and use complex production technology such as the cranes and hoists for loading and unloading massive cargo containers.

2.2 PAY DIFFERENTIALS BASED ON OCCUPATIONAL CHARACTERISTICS

2-2 Explain the factors that contribute to pay differentials based on occupational characteristics.

An occupation (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss301) is a group of jobs, found at more than one company, in which a common set of tasks are performed or are related in terms of similar objectives, methodologies, materials, products, worker actions, or worker characteristics.4

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end4) File clerk, clerk typist, administrative clerk, staff secretary, and administrative secretary are jobs in the of�ice support occupation. Compensation analyst, training and development specialist, recruiter, and bene�its counselor are jobs in the human resources management occupation. Considerable variation in pay between occupations can be explained by the complexity of knowledge, skills, and abilities (KSAs) that de�ine jobs (for example, surgeons and building service workers). Another important factor is the labor market dynamics of the supply and demand for quali�ied employees.

Pay variations can also be observed within occupations, also based on the complexity of KSAs associated with different jobs that de�ine an occupation, and we will look at some examples shortly. It should be noted that references to differences in KSAs or relative worth of different jobs are based exclusively on job content and demand for individuals who possess the required KSAs. These references do not convey value judgments about the worth of these jobs in society or to the value placed on the people who hold different jobs. The same applies to pay level references.

KNOWLEDGE, SKILLS, AND ABILITIES

In Chapter 6 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch06#ch06) , we will address the role of job analysis to provide detailed descriptions of jobs based on differing combinations of KSAs. Typically, jobs that are based on knowledge and skills, which are developed based on formal education (vocational education, college education) or early job experiences such as internships or apprenticeships (for example, in the cases of medical doctors or plumbers, respectively) are highly valued as measured by pay levels. Jobs with less specialized or complex KSAs are typically paid much less.

Let’s consider one job from the health care practitioners and technical operations occupation and one from the of�ice and administrative support occupation. According to the Occupational Outlook Handbook,5

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end5) anesthesiologists focus on the care of surgical patients and on pain relief. They also work outside of the operating room, providing pain relief in the intensive care unit, during labor and delivery, and for those who suffer from chronic pain. Anesthesiologists work with other physicians and surgeons to decide on treatments and procedures before, during, and after surgery. Preparation for becoming an anesthesiologist requires advanced training that includes completion of medical school, internships, residencies, and attaining medical board certi�ication. In May 2013, the average annual salary was $235,070.6 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end6)

According to the Occupational Outlook Handbook,7

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end7) secretaries and administrative assistants usually answer telephones and take messages or transfer calls, schedule appointments and update event calendars, arrange staff meetings, handle incoming and outgoing mail and faxes, draft routine memos, billing, or other reports, and maintain databases and �iling systems. Typically, high school graduates who have basic of�ice and computer skills qualify for entry-level positions. Most secretaries learn their job in several weeks. In May 2013, the average annual salary was $34,000.8 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end8)

Pay differences are also evident within occupations because of different job requirements. Let’s consider pharmacist and pharmacist technician jobs, which are part of the health care occupation. According to the Occupational Outlook Handbook,9 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end9) pharmacists possess advanced training to give them the knowledge and skills to safely �ill prescriptions, verifying instructions from physicians on the proper amounts of medication to give to patients, check whether the prescription will interact negatively with other drugs that a patient is taking or any medical conditions the patient has, and instruct patients on how and when to take a prescribed medicine and inform them about potential side effects they may experience from taking the medicine. Pharmacy technicians support the work of pharmacists while under their supervision. For example, technicians, take the information needed to �ill a prescription from customers or health professionals, measure amounts of medication for prescriptions, package and label prescriptions, and organize inventory. Pharmacy technicians do not require advanced education; most of their training takes place on the job. Average annual pay re�lects these differences. In 2013, pharmacists earned $116,500 while pharmacy technicians earned $30,840.10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end10)

SUPPLY AND DEMAND

Companies’ demand for quali�ied individuals for particular jobs relative to supply often in�luences compensation. There are upward pressures to raise starting pay when the demand for quali�ied workers in particular jobs is greater than supply. These market dynamics require that companies compete for limited quali�ied workers. This appears to be the case for information security analysts. According to the Occupational Outlook Handbook,11

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end11) demand for information security analysts is expected to be very high. Cyberattacks have grown in frequency and sophistication over the last few years, and many organizations are behind in their ability to detect these attacks. For instance, the retailer Target experienced a breach of their databases that contained customers’ credit card numbers. Analysts will be needed to come up with innovative solutions to prevent hackers from stealing critical information or creating havoc on computer networks. Also, the federal government is expected to greatly increase its use of information security analysts to protect the nation’s critical information technology (IT) systems. Further, as the healthcare industry expands its use of electronic medical records, ensuring patients’ privacy and protecting personal data are becoming more important. More information security analysts are likely to be needed to create the safeguards that will satisfy patients’ concerns.

A common assumption is that high demand for workers applies only to highly skilled jobs. But, that assumption is not correct. Recently, retailer Wal-Mart announced that it would raise the pay for all of its U.S. employees to at least $9 per hour, which would exceed the federal minimum wage level by $1.75 per hour (when this book went to press).12

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end12) Through the middle of 2015, there were 14 states that have a minimum wage requirement that is the same as the federal minimum wage requirement. This move would raise the pay of more than one-third of the company’s workers. Wal-Mart made this decision, in part, because it has been more dif�icult to hire well-quali�ied workers at lower pay rates, particularly since the unemployment rate has declined.

2.3 GEOGRAPHIC PAY DIFFERENTIALS

2-3 Summarize the reasons for the occurrence of geographic pay differentials.

Overall, there are relative pay differentials between geographic areas. Most typically, these are focused on comparisons between the nation and small geographic areas such as city or state. Based on the most recent comprehensive analysis published by the U.S. Bureau of Labor Statistics, all Los Angeles, California area employees were paid, on average, 20 percent more than the national average.13

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end13) In Lincoln, Nebraska, employees were paid 3 percent less than the national average. This is an example of relative pay differentials.

We can also consider pay rate differentials (expressed in dollars as hourly or annual pay) for occupations based on particular geographic regions (for instance, Massachusetts, and the city of Boston) and the United States, overall. On a day-to-day basis, compensation professionals focus on pay rates and pay rate differentials. It is important to note that pay rate differentials do not fully match relative pay differentials because relative pay differential measures control for the in�luence of various variables, and pay rate differentials do not, which we will discuss shortly. Nevertheless, we generally observe consistency in the direction of the relative pay and pay rate differentials. For instance, both statistics show that typical pay rates in the San Francisco area are higher than the national average. However, the magnitude of the differences captured by these statistics is most often different. For example, the relative pay differential for installation workers employed in the San Francisco area was 17 percent higher than in the United States, overall.14 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end14) However, the pay rate difference was 33 percent.15

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end15)

These disparities are partly based on the calculation methods. Compared to relative rate differences, the relative pay differential calculation takes into account (controls for) other factors that can explain pay differences within a de�ined area. The idea is to present a clearer picture of regional-based pay differences. For example, as we have learned, interindustry wage differentials represent an important factor. Other control factors include the union status of the workforce, which we will discuss shortly, and whether employees work on a full- or part-time basis, which we will also discuss in Chapter 12 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch12#ch12) . Additional control factors include occupational type, work level, whether �irms operate on a pro�it or not-for-pro�it basis, and skill-level differences between employees who are performing the same job.16

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end16) Thus, it is important for compensation professionals to consider both types of statistics when evaluating geographic differences in compensation decisions.

Cost-of-living differences between geographic locations also provide an additional explanation. Compensation professionals sometimes consider cost-of-living differences between locations. For example, let’s assume that a company was to offer starting pay to two equally quali�ied individuals who have been hired to perform the same job, but placed in different cities—Boston, Massachusetts and Fargo, North Dakota. If a differential was to be considered, it might be based on the cost of housing. Housing costs are among the largest �inancial obligations most individuals assume. The median home price in Boston was $389,000, and only $173,000 in Fargo.17

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end17) The company may consider offering the Boston-based employee a higher salary to help offset some of the difference in cost-of-living. The idea is to help employees in similar jobs to maintain comparable standards of living, which will help with recruitment and retention of quali�ied employees. Other spending categories include food, utilities, transportation, and health care. Oftentimes, companies choose to take into account all of the spending categories when setting pay rates. Cost-of-living comparison calculators (for example, one furnished by CNN, http://money.cnn.com/calculator/pf/cost-of-living/

(http://money.cnn.com/calculator/pf/cost-of-living/) ) may be useful. Based on this calculator, a $50,000 salary in Fargo is equivalent to a $73,000 salary in Boston.

2.4 LABOR UNIONS

2-4 Discuss the role of labor unions in setting compensation.

Since the passage of the National Labor Relations Act of 1935 (NLRA) (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss289) , the federal government requires private-sector employers to enter into good-faith negotiations with workers over the terms of employment. Workers join unions to in�luence employment-related decisions, especially when they are dissatis�ied with job security, wages, bene�its, and supervisory practices.

NATIONAL LABOR RELATIONS ACT OF 1935

The purpose of this act was to remove barriers to free commerce and to restore equality of bargaining power between employees and employers. Employers denied workers the rights to bargain collectively with them on such issues as wages, work hours, and working conditions. Employees consequently experienced poor working conditions, substandard wage rates, and excessive work hours. Section 1 of the NLRA declares the policy of the United States to protect commerce:

… by encouraging the practice and procedure of collective bargaining and by protecting the exercise by workers of full freedom of association, self-organization, and designation of representatives of their own choosing for the purpose of negotiating the terms and conditions of employment ….

Sections 8(a)(5), 8(d), and 9(a) are key provisions of this act. Section 8(a)(5) provides that it is an unfair labor practice for an employer “… to refuse to bargain collectively with the representatives of his employees subject to the provisions of Section 9(a).”

Section 8(d) de�ines the phrase “to bargain collectively” as the “performance of the mutual obligation of the employer and the representative of the employees to meet at reasonable times and confer in good faith with respect to wages, hours, and other terms and conditions of employment ….”

Section 9(a) declares:

Representatives designated or selected for the purposes of collective bargaining by the majority of employees in a unit appropriate for such purposes shall be the exclusive representatives of all the employees in such unit for the purposes of collective bargaining in respect to rates of pay, wages, hours of employment, or other conditions of employment ….

A collective bargaining agreement (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss49) is a written document that describes the terms of employment approved by management and employees during negotiations. It codi�ies the terms and conditions of employment regarding rates of pay and pay adjustments, hours of work or other working conditions of employees. Collective bargaining agreements are put in place for multiple years, most typically three or four years.

The National Labor Relations Board (NLRB) oversees the enforcement of the NLRA. The president of the United States appoints members to the NLRB for �ive-year terms. The National Labor Relations Act covers most private- sector employers. Left out from coverage under the NLRA are public-sector employees, agricultural and domestic workers, independent contractors, employees of air and rail carriers covered by the Railway Labor Act, and supervisors.

COMPENSATION ISSUES IN COLLECTIVE BARGAINING

Union and management negotiations usually center on pay raises and employee bene�its. Unions fought hard for general pay increases and regular COLAs. COLAs, or cost-of-living adjustments, represent automatic pay increases that are based on changes in prices, as recorded by the consumer price index (CPI). COLAs enable workers to maintain their standards of living by adjusting wages for in�lation. Union leaders also fought hard for these improvements to maintain the memberships’ loyalty and support.

Unions generally secured high wages for their members through the early 1980s. In fact, it was not uncommon for union members to earn as much as 30 percent more than their nonunion counterparts. Unions also improved members’ employee bene�its. The establishment of sound retirement income programs was most noteworthy. Unions’ gains also in�luenced nonunion companies’ compensation practices. Many nonunion companies offer higher compensation than they would if unions were nonexistent. This phenomenon is known as a spillover effect (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss421) because management of nonunion �irms generally offered somewhat higher wages and bene�its to reduce the chance that employees would seek union representation.18 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end18) In 2014, the average weekly pay for all union workers (both private- and public sectors) was $970 and $763 for all nonunion workers. For union workers employed in the private sector, pay was $1,014 and it was $850 for nonunion workers. In the public sector, union workers earned $900 compared to $753 for nonunion workers.

Notwithstanding unions’ gains over the years, their in�luence has been in decline. Since 1954, when union representation was at its highest (28.3 percent of the U.S. labor force),19

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end19) the percentage of U.S. civilian workers in both the public and private sectors represented by unions has declined steadily. Thirty years ago, the representation rate was 20.5 percent.20

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end20) In 2014, the union representation for both the private and public sectors was 11.1 percent. Union representation will probably continue to decline in the future. There are �ive noteworthy reasons for the continued decline in unionization.

First, in decades past, unions often intimidated workers to become members even if they did not care to do so. Unions used such tactics in order to boost their membership, thus, their power to negotiate with employers over terms of employment. Quite simply, it is more dif�icult to ignore the voices of many rather than the few. Over time, legislation outlawed unions’ use of intimidation, after which the prevalence of unions began to decline.

Second, historically, unions provided a voice to protect the rights of disadvantaged groups, including women, older workers, and racial minorities. However, starting in the 1960s, antidiscrimination laws such as Title VII of the Civil Rights Act instituted protections. The array of legislation lessened the role of unions.

Third, globalization of business is believed to have contributed substantially to the decline in unionization in a variety of ways. For example, higher quality automobile imports (such as Toyota and Honda automobiles) than U.S. automobile manufacturers required greater investments in quality control and workforce �lexibility, which unions tend to resist. Unions resist giving management too much discretion over employee assignments and pay out of concern that they would treat them unfairly; however, the survival of companies required that unions accept �lexibility. Unions’ willingness to permit greater management discretion raised questions about their ability to protect workers.

Globalization through offshoring activities threatens unionization. Offshoring refers to the migration of all or a signi�icant part of the development, maintenance, and delivery of services to a company located in another country. With rare exception, employees do not move with the jobs. Traditionally, the reason given for offshoring is to reduce costs. Moreover, the absence of or less restrictive labor laws (for example, minimum wage laws) in other countries generally permit U.S. companies to lower employment costs.

Fourth, large companies such as Boeing, which have highly unionized workforces, are establishing new manufacturing facilities in states where unionization rates are low. German automobile manufacturer Volkswagen built a state-of-the-art factory in Tennessee, which possess right-to-work laws. Right-to-work laws (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss382) prohibit management and unions from entering into agreements requiring union membership as a condition of employment. The prevalence of unions’ in�luence on wages varies tremendously by state based on whether there are right-to-work laws in place. In right-to-work states, union in�luence is less potent than in other states. Currently, about half of the states have right- to-work laws in place. Historically, most were found in southern states. Increasingly, northern states are adopting these laws. Michigan, which has a substantial population of union employees, recently adopted right-to-work laws. Private sector employees in right-to-work states earned an average of $738 in 2012, which is about 10 percent less than elsewhere.21 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end21) These differences have been one contributing factor that has led many manufacturing businesses to relocate in right-to-work states where employment costs are lower, further weakening unions’ in�luence.

Fifth, unionization is substantially higher in the public or government sector than in the private sector. In 2014, the unionization rate of government workers was 35.7 percent, compared to 6.6 percent among private sector employees. Still, public sector unionization is being challenged throughout the country. Traditionally, there was much less resistance to unionize in the public sector than in the private sector. But the tide is changing. For example, that began to change when Wisconsin Governor Scott Walker signed a law in 2011 that eliminated most union rights for government workers. The state lost nearly 50,000 public sector union members between 2011 and 2013. In Indiana, a new right-to-work law took effect in 2012 where it lost about 52,000 union members in both the private and public sectors. Michigan lawmakers approved a right-to-work law a few months later, losing approximately 40,000 union members in both the private and public sectors.

Still, the news is not all bad. In 2014, the UAW, in preparation for negotiations with Chrysler, Ford, and General Motors, vowed to negotiate hourly wage increases (permanent increases to hourly pay) after 10 years without such increases. This stance departs from the pattern of concessionary bargaining that had become commonplace, in large part because the automobile companies are experiencing a boom in business activity and pro�itability as the U.S. auto industry has shown signs of rebound since the so called Great Recession (2007-2009). In addition, the UAW vowed to close the pay gap between newly hired auto workers whose pay has been substantially lower than higher seniority individuals. This pay structure is referred to as a two-tier structure, which we will address in Chapter 8 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch08#ch08) .

2.5 EMPLOYMENT LAWS PERTINENT TO COMPENSATION PRACTICE

2-5 Identify and discuss key employment laws pertinent to compensation practice.

The federal constitution (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss153) forms the basis for employment laws. The following four amendments of the Constitution are most applicable:

Article I, Section 8. “The Congress shall have Power … to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes ….” First Amendment. “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.” Fifth Amendment. “No person shall … be deprived of life, liberty, or property, without due process of law ….” Fourteenth Amendment, Section 1. “… No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States, nor shall any State deprive any person of life, liberty, or property without due process of law; nor deny any person within its jurisdiction the equal protection of the laws.”

Government in the United States is organized at three levels roughly de�ined by geographic scope. A single federal government (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss155) oversees the entire United States and its territories. The vast majority of laws that in�luence compensation were established at the federal level. Next, individual state governments (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss426) enact and enforce laws that pertain exclusively to their respective regions (e.g., Illinois and Michigan). Most noteworthy are differences in state minimum wage laws, which we will discuss shortly. Finally, local governments (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss254) enact and enforce laws that are most pertinent to smaller geographic regions (e.g., Champaign County in Illinois and the City of Los Angeles). Many of the federal laws have counterparts in state and local legislation. State and local legislation may be concurrent with federal law or may exist in the absence of similar federal legislation. Wherever inconsistencies in federal, state, or local laws exist, the law that provides individuals the greatest bene�it generally prevails. For example, in addition to federal minimum wage legislation, many states also have minimum wage laws. In cases where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages.

Federal laws that apply to compensation practices are grouped according to four key themes. Table 2-2 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#ch02tab02) lists that laws associated with each theme:

Income continuity, safety, and work hours

Pay discrimination

Accommodating disabilities and family needs

Prevailing wage laws

TABLE 2-2 Laws that In�luence Compensation Practice

Income Continuity, Safety, and Work Hours Fair Labor Standards Act of 1938 Portal-to-Portal Act of 1947 Equal Pay Act of 1963 Work Hours and Safety Standards Act of 1962 McNamara–O’Hara Service Contract Act of 1965 Pay Discrimination Equal Pay Act of 1963 Lilly Ledbetter Fair Pay Act (2009) Civil Rights Act of 1964, Title VII Bennett Amendment (1964) Age Discrimination in Employment Act of 1967 (amended in 1978, 1986, and 1990) Civil Rights Act of 1991 Accommodating Disabilities and Family Needs Pregnancy Discrimination Act of 1978 Americans with Disabilities Act of 1990 (amended in 2008) Family and Medical Leave Act of 1993 Prevailing Wage Laws Davis–Bacon Act of 1931 Walsh–Healey Public Contracts Act of 1936

Income Continuity, Safety, and Work Hours

Three factors led to the passage of income continuity, safety, and work hours legislation. The �irst factor was the Great Depression (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss180) , the move from family businesses to large factories, and divisions of labor within factories. During the Great Depression, which took place in the 1930s, scores of businesses failed, and many workers became chronically unemployed. Government enacted key legislation designed to stabilize the income of an individual who became unemployed because of poor business conditions or workplace injuries. The Social Security Act of 1935 (Title IX) (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss418) provided temporary income to workers who became unemployed through no fault of their own. Workers’ compensation (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss484) programs granted income to workers who were unable to work because of injuries sustained on the job. Supporting workers during these misfortunes promoted the well-being of the economy: These income provisions enabled the unemployed to participate in the economy as consumers of essential goods and services. We will defer a more detailed discussion of the Social Security Act of 1935 and workers’ compensation laws until Chapter 10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch10#ch10) because these laws instituted legally required employee bene�its.

Second, the main U.S. economic activities prior to the twentieth century were agriculture and small family businesses that were organized along craft lines. Workers began to move from their farms and small family businesses to capitalists’ factories for employment. The character of work changed dramatically with the move of workers to factories. An individual’s status changed from owner to employee. This status change meant that individuals lost control over their earnings and working conditions.

Third, the factory system also created divisions of labor characterized by differences in skills and responsibilities. Some workers received training, whereas others did not. This contributed greatly to differences in skills and responsibilities. Workers with higher skills and responsibilities did not necessarily earn higher wages than workers with fewer skills and responsibilities. Paying some workers more than others only increased costs, which is something factory owners avoided whenever possible.

In sum, factory workers received very low wages and worked in unsafe conditions because factory owners sought to maximize pro�its. Offering workers high wages and providing safe working conditions would have cut into factory owners’ pro�its. These conditions led to the passage of the Fair Labor Standards Act of 1938 (FLSA) (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss148) . The FLSA addresses major abuses that intensi�ied during the Great Depression and the transition from agricultural to industrial enterprises. These include substandard pay, excessive work hours, and the employment of children in oppressive working conditions.

FAIR LABOR STANDARDS ACT OF 1938

The FLSA addresses three broad issues:

Minimum wage

Overtime pay

Child labor provisions

The FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments. The U.S. Department of Labor enforces the FLSA.

Minimum Wage

The purpose of the minimum wage provision is to ensure a minimally acceptable standard of living for workers. The original minimum wage was 25 cents per hour. Since the act’s passage in 1938, the federal government has raised the minimum wage several times. In 2007, Congress passed an increase in the federal minimum wage from $5.15 in increments to $7.25 in 2009. In 2014, U.S. President Barack Obama urged Congress substantially raise the minimum wage. An increase could create a cost burden on companies. We will consider this challenge in Chapter 15 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch15#ch15) .

According to the U.S. Department of Labor, in January 2015, 45 states had minimum wage requirements.22

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end22) There were 2 states with minimum wage rates set lower than the federal minimum wage. There were 29 states plus the District of Columbia with minimum wage rates set higher than the federal minimum wage. There were 14 states that have a minimum wage requirement that is the same as the federal minimum wage requirement. The remaining 5 states do not have an established minimum wage requirement. In January 2015, the District of Columbia had the highest minimum wage at $9.50 per hour while the states of Georgia and Wyoming had the lowest minimum wage ($5.15 per hour) of the 45 states that have a minimum wage requirement.

In general, federal minimum wage law supersedes state minimum wage laws where the federal minimum wage is greater than the state minimum wage. In those states where the state minimum wage is greater than the federal minimum wage, the state minimum wage rate prevails. Speci�ic FLSA exemptions, however, permit employers to pay some workers less than the minimum wage. For instance, students employed in retail or service businesses, on farms, or in institutions of higher education may be paid less than the minimum wage with the consent of the Department of Labor. With explicit permission from the Department of Labor, employers can pay less than the minimum wage for trainee positions or to prevent a reduction in the employment of mentally or physically disabled individuals.

Even though the federal and some state governments raise the minimum wage from time to time, most workers who earn the minimum wage argue that it is insuf�icient to afford the basic necessities. In the summer of 2013, fast food workers across the United States walked off their jobs to protest against what they believe is insuf�icient pay. The following Watch It! video captures workers’ concerns about the minimum wage level and the collective response of restaurant owners to their concerns.

WATCH IT!

If your professor has assigned this, go to the Assignments section of mymanagementlab.com (http://mymanagementlab.com) to complete the video exercise titled Fast Food Workers Walk Out, Demanding Higher Pay.

It is worth noting that fast food workers’ protests may have contributed to changes in company policies. For example, company-operated McDonald’s stores announced that it would increase pay at least $1 more per hour than the local minimum wage. In addition, as the economy has improved since 2009, many workers have left fast food service jobs for higher paying jobs in other industries. Altogether, pressures for boosting pay has increased, and it is expected that many other fast food restaurants will follow suit.

Overtime Provisions

The FLSA requires employers to pay workers at a rate at least equal to time and one-half for all hours worked in excess of 40 hours within a period of 7 consecutive days. For example, a worker’s regular hourly rate is $10 for working 40 hours or less within a 7-day period. The FLSA requires the employer to pay this employee $15 per hour for each additional hour worked beyond the regular 40 hours within this 7-day period.

The overtime provision does not apply to all jobs. Executive, administrative, learned professional, creative professional, computer workers, and outside sales employees are generally exempt (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss144) from the FLSA overtime and minimum wage provisions. Table 2-3 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#ch02tab03) describes the de�inition of these job categories. Most other jobs are nonexempt (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss294) . Nonexempt jobs are subject to the FLSA overtime pay provision.

Classifying jobs as either exempt or nonexempt is not always clear-cut. In Aaron v. City of Wichita, Kansas (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss5) ,23

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end23) the city contended that its �ire chiefs were exempt as executives under the FLSA because they spent more than 80 percent of their work hours managing the �ire department. The �ire chiefs maintained that they should not be exempt from the FLSA because they did not possess the authority to hire, �ire, authorize shift trades, give pay raises, or make policy decisions.

Determining whether jobs are exempt from the FLSA overtime pay provision has become even more complex since the U.S. Department of Labor introduced revised guidelines known as the FairPay Rules (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss149) in August 2004. Under the FairPay Rules (as of July, 2015), workers earning less than $23,660 per year—or $455 per week—are guaranteed overtime protection. The U.S. Department of Labor provides extensive information regarding the FairPay Rules, including instructional videos and a “frequently asked questions” section (www.dol.gov (http://www.dol.gov) ). In 2014, President Obama asked for changes in the exemption criteria. In Chapter 15 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch15#ch15) , we will give consideration to the challenges such changes would pose for compensation professionals.

TABLE 2-3 FLSA Exemption Criteria

Executive Management of the enterprise or a recognized department or subdivision.

Administrative Performing of�ice or nonmanual work directly related to the management or general business operations of the employer or employer’s customers.

Note: No minimum salary requirement. Source: U.S. Department of Labor (2007). Wage and Hour Division Web site. Available: www.dol.gov/esa/whd (http://www.dol.gov/esa/whd) , accessed February 11, 2011.

Learned Professional

Performing of�ice or nonmanual work requiring knowledge of an advanced type in a �ield of science or learning, customarily acquired by a prolonged course of specialized intellectual instruction, but which also may be acquired by such alternative means as an equivalent combination of intellectual instruction and work experience.

Creative Professional

Performing work requiring invention, imagination, originality, or talent in a recognized �ield of artistic or creative endeavor.

Computer Employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer �ield.

Outside Sales Making sales or obtaining orders or contracts for services or for future use of facilities for which a consideration will be paid by the client or customer. Customarily and regularly engaged away from the employer’s place or places of business.

Note: No minimum salary requirement. Source: U.S. Department of Labor (2007). Wage and Hour Division Web site. Available: www.dol.gov/esa/whd (http://www.dol.gov/esa/whd) , accessed February 11, 2011.

The federal government broadened the scope of the FLSA twice since 1938 through the passage of two acts:

Portal-to-Portal Act of 1947

Equal Pay Act of 1963

The Portal-to-Portal Act of 1947 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss343) de�ines the term hours worked that appears in the FLSA. Table 2-4 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#ch02tab04) lists the compensable work activities. For example, time spent by state correctional of�icers caring for police dogs at home is compensable under the FLSA (Andres v. DuBois).24 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end24) The care of dogs, including feeding, grooming, and walking, is indispensable to maintaining dogs as a critical law enforcement tool, it is part of of�icers’ principal activities, and it bene�its the corrections department; however, this court ruled that time spent by state correction canine handlers transporting dogs between home and correctional facilities is not compensable under FLSA.

In a 2012 lawsuit, the judge found a Subway franchisee in Ohio to be in violation of labor laws after it refused to pay employees for the work they completed during the nightly closing routine.25

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end25) For example, the company might say a worker’s shift stopped when the store closed even when it actually took another half hour to shut the restaurant down and clean up.

In 2014, the U.S. Supreme Court ruled on the issue whether security screenings at the workplace constitutes a compensable work activity (Integrity Staf�ing Solutions, Inc. v. Busk et al (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss222) ).26

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end26) The Supreme Court heard this case on appeal from the company after a lower court ruled that workplace screening constitutes a compensable work activity. Integrity Staf�ing Solutions, Inc. employs workers (paid on an hourly basis) whose jobs it is to retrieve products from warehouse shelves and package them for delivery to Amazon.com (http://Amazon.com) customers. The company mandated these workers to undergo a security screening before leaving the warehouse each day.

Former employees claimed that they were entitled to compensation under the FLSA for the roughly 25 minutes each day that they spent waiting to undergo those screenings. They also claimed that the company could have substantially reduced wait times by adding more screeners or staggering shift terminations, and security screenings were conducted to prevent employee theft for the sole bene�it of the employers and their customers.

TABLE 2-4 Compensable Work Activities

Waiting Time: Whether waiting time is hours worked under the act depends upon the particular circumstances. Generally, the facts may show that the employee was engaged to wait (which is work time), or the facts may show that the employee was waiting to be engaged (which is not work time). For example, a secretary who reads a book while waiting for dictation or a �ireman who plays checkers while waiting for an alarm is working during such periods of inactivity. These employees have been “engaged to wait.” On-Call Time: An employee who is required to remain on call on the employer’s premises is working while “on call.” An employee who is required to remain on call at home, or who is allowed to leave a message where he/she can be reached, is not working (in most cases) while on call. Additional constraints on the employee’s freedom could require this time to be compensated. Rest and Meal Periods: Rest periods of short duration, usually 20 minutes or less, are common in industry (and promote the ef�iciency of the employee) and are customarily paid for as working time. These short periods must be counted as hours worked. Unauthorized extensions of authorized work breaks need not be counted as hours worked when the employer has expressly and unambiguously communicated to the employee that the authorized break may only last for a speci�ic length of time, that any extension of the break is contrary to the employer’s rules, and that any extension of the break will be punished. Bona �ide meal periods (typically 30 minutes or more) generally need not be compensated as work time. The employee must be completely relieved from duty for the purpose of eating regular meals. The employee is not relieved if he or she is required to perform any duties, whether active or inactive, while eating. Sleeping Time and Certain Other Activities: An employee who is required to be on duty for less than 24 hours is working even though he or she is permitted to sleep or engage in other personal activities when not busy. An employee required to be on duty for 24 hours or more may agree with the employer to exclude from hours worked bona �ide regularly scheduled sleeping periods of not more than 8 hours, provided adequate sleeping facilities are furnished by the employer and the employee can usually enjoy an uninterrupted night’s sleep. No reduction is permitted unless at least �ive hours of sleep is taken. Lectures, Meetings, and Training Programs: Attendance at lectures, meetings, training programs, and similar activities need not be counted as working time only if four criteria are met, namely: It is outside normal hours, voluntary, not job related, and no other work is concurrently performed. In other words, the time spent in employer-mandated training counts as compensable time. Travel time: The principles that apply in determining whether time spent in travel is compensable time depends upon the kind of travel involved.

Home-to-work travel: An employee who travels from home before the regular workday and returns to his or her home at the end of the workday is engaged in ordinary home-to-work travel, which is not work time. Home-to-work travel on a special one-day assignment, including employer-mandated training, in another city: An employee who regularly works at a �ixed location in one city is given a special one-day assignment, including employer-mandated training, in another city and returns home the same day. The time spent in traveling to and returning from the other city is work time, except that the employer may deduct/not count that time the employee would normally spend commuting to the regular work site. Travel that is all in a day’s work: Time spent by an employee in travel as part of his or her principal activity, such as travel from job site to job site during the workday, is work time and must be counted as hours worked. Travel away from home community: Travel that keeps an employee away from home overnight is travel away from home. Travel away from home is clearly work time when it cuts across the employee’s workday. The time is not only hours worked on regular working days during normal working hours but also during corresponding hours on nonworking days. As an enforcement policy, the U.S. Department of Labor will not consider as work time that time spent in travel away from home outside of regular working hours as a passenger on an airplane, train, boat, bus, or automobile.

Source: Adapted from U.S. Department of Labor. (2011). Compliance Assistance—Fair Labor Standards Act (FLSA). Available: http://www.dol.gov (http://www.dol.gov) , accessed February 19, 2013.

The court concluded that the security screenings at issue here are not compensable activities because the screenings were not the principal activity which the employee is employed to perform. Integrity Staf�ing employed individuals to retrieve products from warehouse shelves and package those products for shipment to Amazon.com (http://Amazon.com) customers, not to undergo security screenings. In addition, the court ruled that the security screenings were not integral and indispensable to the employees’ duties as warehouse workers. In other words, the screenings were not a necessary step for retrieving products from warehouse shelves or packaging them for shipment.

The Equal Pay Act of 1963 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss133) prohibits sex discrimination in pay for employees performing equal work. We will discuss the Equal Pay Act of 1963 later in this chapter.

Child Labor Provisions

The FLSA child labor provisions protect children from being overworked, working in potentially hazardous settings, and having their education jeopardized due to excessive work hours. The restrictions vary by age:

Children under age 14 usually cannot be employed.

Children ages 14 and 15 may work in safe occupations outside school hours if their work does not exceed 3 hours on a school day (18 hours per week while school is in session). When school is not in session, as in the summer, children cannot work more than 40 hours per week.

Children ages 16 and 17 do not have hourly restrictions; however, they cannot work in hazardous jobs (e.g., the use of heavy industrial equipment or exposure to harmful substances).

Pay Discrimination

The civil rights movement of the 1960s led to the passage of key legislation designed to protect designated classes of employees and to uphold their rights individually against discriminatory employment decisions. Some of these laws, such as the Civil Rights Act of 1964 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss43) , apply to all employment- related decisions (e.g., recruitment, selection, performance appraisal, compensation, and termination). Other laws, such as the Equal Pay Act of 1963, apply speci�ically to compensation practices. These laws limit employers’ authority over employment decisions.

EQUAL PAY ACT OF 1963

Congress enacted the Equal Pay Act of 1963 to remedy a serious problem of employment discrimination in private industry: “Many segments of American industry [have] been based on an ancient but outmoded belief that a man, because of his role in society, should be paid more than a woman even though his duties are the same.”27

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end27) The Equal Pay Act of 1963 is based on a simple principle: Men and women should receive equal pay for performing equal work.

The Equal Employment Opportunity Commission (EEOC) enforces the Equal Pay Act of 1963. The EEOC possesses the authority to investigate and reconcile charges of illegal discrimination. The Act applies to all employers and labor organizations. In particular,

No employer … shall discriminate within any establishment in which such employees are employed, between employees on the basis of sex by paying wages to employees in such establishment at a rate less than the rate at which he pays wages to employees of the opposite sex … for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions …. [29 USC 206, Section 6, paragraph (d)]

TABLE 2-5 U.S. Department of Labor De�initions of Compensable Factors

Factor De�inition

Skill Experience, training, education, and ability as measured by the performance requirements of a job.

Effort The amount of mental or physical effort expended in the performance of a job.

Responsibility The degree of accountability required in the performance of a job.

Working conditions

The physical surroundings and hazards of a job, including dimensions such as inside versus outside work, heat, cold, and poor ventilation.

Source: U.S. Department of Labor, Equal pay for equal work under the Fair Labor Standards Act (Washington, DC: U.S. Government Printing Of�ice, December 31, 1971).

The Equal Pay Act of 1963 pertains explicitly to jobs of equal worth. Companies assign pay rates to jobs according to the skill, effort, responsibility, and working conditions required. Skill, effort, responsibility, and working conditions represent compensable factors (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss61) . The U.S. Department of Labor’s de�initions of these compensable factors are listed in Table 2-5 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#ch02tab05) .

How do we judge whether jobs are equal? The case EEOC v. Madison Community Unit School District No. 12 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss124) 28

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end28) sheds light on this important issue. The school district paid female athletic coaches of girls’ sports teams less than it paid male athletic coaches of boys’ teams. The judge concluded:

The jobs that are compared must be in some sense the same to count as “equal work” under the Equal Pay Act of 1963; and here we come to the main dif�iculty in applying the Act; whether two jobs are the same depends on how �ine a system of job classi�ication the courts will accept. If coaching an athletic team in the Madison, Illinois, school system is considered a single job rather than a [collection] of jobs, the school district violated the Equal Pay Act prima facie by paying female holders of this job less than male holders …. If, on the other hand, coaching the girls’ tennis team is considered a different job from coaching the boys’ tennis team, and if coaching the girls’ volleyball or basketball team is considered a different job (or jobs) from coaching the boys’ soccer team, there is no prima facie violation. So, the question is how narrow a de�inition of job the courts should be using in deciding whether the Equal Pay Act is applicable. We can get some guidance from the language of the Act. The act requires that the jobs compared have “similar working conditions,” not the same working conditions. This implies that some comparison of different jobs is possible … since the working conditions need not be “equal,” the jobs need not be completely identical …. Above the lowest rank of employee, every employee has a somewhat different job from every other one, even if the two employees being compared are in the same department. So, if “equal work” and “equal skill, effort, and responsibility” were taken literally, the Act would have a minute domain ….

The courts have thus had to steer a narrow course. The cases do not require an absolute identity between the jobs, but do require substantial identity.

Pay differentials for equal work are not always illegal. Pay differentials between men and women who are performing equal work are acceptable where

… such payment is made pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex: Provided, that an employer who is paying a wage rate differential … shall not … reduce the wage rate of any employee. [29 USC 206, Section 6, paragraph (d)]

Civil Rights Act of 1964

The Civil Rights Act of 1964 is a comprehensive piece of legislation. Title VII of the Civil Rights Act is the most pertinent to compensation. Legislators designed Title VII to promote equal employment opportunities for underrepresented minorities. According to Title VII:

It shall be an unlawful employment practice for an employer—(1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin; or (2) to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s race, color, religion, sex, or national origin. (42 USC 2000e-2, Section 703)

The courts have distinguished between two types of discrimination covered by Title VII: disparate treatment and disparate impact. Disparate treatment (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss112) represents intentional discrimination, occurring whenever employers intentionally treat some workers less favorably than others because of their race, color, sex, national origin, or religion. Applying different standards to determine pay increases for blacks and whites may result in disparate treatment. For example, choosing to award a high-performing African American employee a smaller pay raise than a lower-performing Caucasian employee could be considered disparate treatment.

Disparate impact (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss111) represents unintentional discrimination. It occurs whenever an employer applies an employment practice to all employees, but the practice leads to unequal treatment of protected employee groups. Awarding pay increases to male and female production workers according to seniority could lead to disparate impact if females had less seniority, on average, than males.

Title VII protects employees who work for all private sector employers; local, state, and federal governments; and educational institutions that employ 15 or more individuals. Title VII also applies to private and public employment agencies, labor organizations, and joint labor management committees controlling apprenticeship and training.

It had become more dif�icult to sue employers for pay discrimination under Title VII. Title VII imposes a statute of limitation period, typically 180 days, after which employees may �ile claims of illegal discrimination against employers. In 2007, the U.S. Supreme Court rendered a very strict interpretation as to when the statute of limitations period begins for women to sue their employers for discrimination in pay. In Ledbetter v. Goodyear Tire & Rubber Co (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss247) .,29

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end29) a female employee named Lilly Ledbetter sued Goodyear Tire & Rubber Co. after she learned that some male employees with the same job had been paid substantially more than her over a period of several years. Ledbetter claimed that the statute of limitation period began when each discriminatory pay decision was made and communicated to her. She argued that multiple pay decisions were made over the years each time Goodyear endorsed each paycheck, making each paycheck a separate act of illegal pay discrimination. The Supreme Court rejected Ledbetter’s allegation that each paycheck (following the initial paycheck when the pay disparity �irst existed) represented an intentionally discriminatory act by the employer. Instead, any act of discrimination occurred each time pay raise decisions were made. In Ledbetter’s case, the court argued that any discriminatory decisions literally occurred years prior to raising her concerns with the EEOC. The later effects of past discrimination do not restart the clock for �iling an EEOC charge, making Ledbetter’s claim an untimely one. Not all of the judges agreed with this ruling, noting that given pay secrecy policies in most companies many employees would have no idea within 180 days that they had received a lower raise than others. In addition, an initial disparity in pay may be small, leading a woman or minority group member not to make waves in order to try to succeed.

In 2009, the Ledbetter court decision was overturned with the passage of the Lilly Ledbetter Fair Pay Act (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss252) , a key initiative in closing the pay gap between men and women. This Act restores the law as it was prior to the narrowly decided (5–4) Supreme Court Ledbetter decision in 2007. That decision tossed aside long-standing prior law and made it much harder for women and other workers to pursue pay discrimination claims—stating a pay discrimination charge must be �iled within 180 days of the employer’s initial decision to pay an employee less. The bill restores prior law— providing that a pay discrimination charge must simply be �iled within 180 days of a discriminatory paycheck. The Paycheck Fairness Act (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss323) is a second key initiative in closing the pay gap between men and women. This bill strengthens the Equal Pay Act of 1963 by strengthening the remedies available to put sex-based pay discrimination on par with race-based pay discrimination. That is, employers are now required to justify unequal pay by showing that the pay disparity is not sex based, but, rather, job related. This act also prohibits employers from retaliating against employees who share salary information with their coworkers.

BENNETT AMENDMENT

This provision is an amendment to Title VII. The Bennett Amendment (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss28) allows female employees to charge employers with Title VII violations regarding pay only when the employer has violated the Equal Pay Act of 1963. The Bennett Amendment is necessary because lawmakers could not agree on the answers to the following questions:

Does Title VII incorporate both the Equal Pay Act of 1963’s equal pay standard and the four defenses for unequal work [(i) a seniority system; (ii) merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex]?

Does Title VII include only the four exceptions to the Equal Pay Act of 1963 standard?

Some lawmakers believed that Title VII incorporates the equal pay standard (i.e., answering yes to the �irst question and no to the second question); however, other lawmakers believed that Title VII does not incorporate the equal pay standard (i.e., answering no to the �irst question and yes to the second question). If Title VII did not incorporate the equal pay standard, then employees could raise charges of illegal pay discrimination (on the basis of race, religion, color, sex, or national origin) for unequal jobs. Pay differentials based on different or unequal jobs �it with the foundation for effective compensation systems—internal consistency and market competitiveness, which we will address in Chapters 6 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch06#ch06) and 7 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch07#ch07) , respectively.

AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967 (AS AMENDED IN 1978, 1986, AND 1990)

Congress passed the Age Discrimination in Employment Act of 1967 (ADEA) (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss10) to protect workers age 40 and older from illegal discrimination. This act provides protection to a large segment of the U.S. population known as the baby boom generation (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss18) or “baby boomers.” The baby boom generation was born roughly between 1946 and 1964 and represented a swell in the American population. Some members of the baby boom generation reached age 40 in 1986, and all baby boomers are now over age 50.

A large segment of the population will probably continue to work beyond age 67, which is the retirement age for receiving Social Security retirement bene�its, because many fear that Social Security retirement income (Chapter 10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch10#ch10) ) will not provide adequate support. The U.S. Census Bureau predicts that individuals age 65 and older will increase from about 25 million in 2001 (12.4 percent of the population) to about 77 million (20.3 percent of the population) by 2050.30

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end30)

The ADEA established guidelines prohibiting age-related discrimination in employment. Its purpose is “to promote the employment of older persons based on their ability rather than age, to prohibit arbitrary age discrimination in employment, and to help employers and workers �ind ways of meeting problems arising from the impact of age on employment.” The ADEA speci�ies that it is unlawful for an employer:

(1) to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s age; (2) to limit, segregate or classify his employees in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual’s age; or (3) to reduce the wage rate of any employee in order to comply with this act. (29 USC 623, Section 4)

The Older Workers Bene�it Protection Act (OWBPA) (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss307) 31

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end31) —the 1990 amendment to the ADEA —placed additional restrictions on employer bene�its practices. When employers require that all employees contribute toward coverage of bene�its, under particular circumstances, they can also require older employees to pay more for health care, disability, or life insurance than younger employees. This is the case because these bene�its generally become more costly with age (e.g., older workers may be more likely to incur serious illnesses, thus, insurance companies may charge employers higher rates to provide coverage for older workers than younger ones). However, an older employee may not be required to pay more for the bene�it as a condition of employment. Where the premium has increased for an older employee, the employer must provide three options to older workers. First, the employee has the option of withdrawing from the bene�it plan altogether. Second, the employee has the option of reducing his or her bene�it coverage in order to keep his or her premium cost the same. Third, an older employee may be offered the option of paying more for the bene�it in order to avoid otherwise justi�ied reductions in coverage.

Employers can legally reduce the coverage of older workers for bene�its that typically become more costly as employees further age only if the costs for providing those bene�its are signi�icantly greater than the cost for younger workers. When costs differ signi�icantly, the employer may reduce the bene�it for older workers only to the point where it is paying just as much per older worker (with lower coverage) as it is for younger workers (with higher coverage). This practice is referred to as the equal bene�it or equal cost principle.

The ADEA covers private employers with 20 or more employees, labor unions with 25 or more members, and employment agencies. The EEOC enforces this act.

CIVIL RIGHTS ACT OF 1991

The Civil Rights Act of 1991 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss44) overturned several Supreme Court rulings. The reversal of the Atonio v. Wards Cove Packing Co (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss17) . court decision is perhaps the most noteworthy.32 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end32) The Supreme Court ruled that plaintiffs (employees) must indicate which employment practice created disparate impact and demonstrate how the employment practice created disparate impact. Since the passage of the Civil Rights Act of 1991, employers must show that the challenged employment practice is a business necessity. Thus, the Civil Rights Act of 1991 shifted the burden of proof from employees to employers.

Two additional sections of the Civil Rights Act of 1991 apply to compensation practice. The �irst feature pertains to seniority systems. As we will discuss in Chapter 3 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03#ch03) , public sector employers commonly make employment decisions based on employees’ seniority. For example, public sector employers award more vacation days to employees with higher seniority than to employees with lower seniority. The Civil Rights Act of 1991 overturned the Supreme Court’s decision in Lorance v. AT&T Technologies (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss258) ,33

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end33) which allowed employees to challenge the use of seniority systems only within 180 days from the system’s implementation date. Employees may now �ile suits claiming discrimination either when the system is implemented or whenever the system negatively affects them.

A second development addresses the geographic scope of federal job discrimination. Prior to the Civil Rights Act of 1991, the U.S. Supreme Court (Boureslan v. Aramco (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss31) )34

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end34) ruled that federal job discrimination laws do not apply to U.S. citizens working for U.S. companies in foreign countries. Since the act’s passage, U.S. citizens working overseas may �ile suit against U.S. businesses for discriminatory employment practices.

The Civil Rights Act of 1991 provides coverage to the same groups protected under the Civil Rights Act of 1964. The 1991 act also extends coverage to Senate employees and political appointees of the federal government’s executive branch. The EEOC enforces the Civil Rights Act of 1991.

Accommodating Disabilities and Family Needs

Congress enacted the Pregnancy Discrimination Act of 1978, the Americans with Disabilities Act of 1990, and the Family and Medical Leave Act of 1993 to accommodate employees with disabilities and pressing family needs, respectively. These laws protect a signi�icant number of employees: In 2000, approximately 68 percent of employed women were responsible for children under the age of 18. The preamble to the Americans with Disabilities Act states that it covers 43 million Americans. Many employees will bene�it from the Family and Medical Leave Act if they need substantial time away from work to care for newborns or elderly family members. Two trends explain this need. First, many elderly and seriously ill parents of the employed baby boom generation depend on their children. Second, both husbands and wives work full-time jobs now more than ever before, necessitating extended leave to care for newborns or for children who become ill.

PREGNANCY DISCRIMINATION ACT OF 1978

The Pregnancy Discrimination Act of 1978 (PDA) (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss350) is an amendment to Title VII of the Civil Rights Act of 1964. The PDA prohibits disparate impact discrimination against pregnant women for all employment practices. Employers must not treat pregnancy less favorably than other medical conditions covered under employee bene�its plans. In addition, employers must treat pregnancy and childbirth the same way they treat other causes of disability. Furthermore, the PDA protects the rights of women who take leave for pregnancy-related reasons. The protected rights include:

Credit for previous service

Accrued retirement bene�its

Accumulated seniority

AMERICANS WITH DISABILITIES ACT OF 1990

The Americans with Disabilities Act of 1990 (ADA) (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss14) prohibits discrimination against individuals with mental or physical disabilities within and outside employment settings, including public services and transportation, public accommodations, and employment. It applies to all employers with 15 or more employees, and the EEOC is the enforcement agency. In employment contexts, there are two ADA requirements:

[P]rohibits covered employers from discriminating against a “quali�ied individual with a disability” in regard to job applications, hiring, advancement, discharge, compensation, training or other terms,

conditions, or privileges of employment.

Employers are required to make “reasonable accommodations” to the known physical or mental limitations of an otherwise quali�ied individual with a disability unless to do so would impose an “undue hardship.”35 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec10#ch02end35)

Title I of the ADA requires that employers provide reasonable accommodation. Reasonable accommodation for disabled employees may include such efforts as making existing facilities readily accessible, restructuring job, and modifying work schedules. Every “quali�ied individual with a disability” is entitled to reasonable accommodation. A quali�ied individual with a disability, however, must be able to perform the “essential functions” of the job in question. Essential functions are those job duties that are critical to the job. The act prohibits employers from offsetting the cost of providing reasonable accommodation by lowering pay.

On September 25, 2008, former president George W. Bush signed the Americans with Disabilities Act Amendments Act of 2008, making important changes to the de�inition of the term disability. These changes make it easier for an individual seeking protection under the ADA to establish that he or she has a disability within the meaning of the ADA.

The act retains the ADA’s basic de�inition of disability as an impairment that substantially limits one or more major life activities, a record of such an impairment, or being regarded as having such an impairment. However, it changes the way that these statutory terms should be interpreted. For example, it expands the de�inition of “major life activities” by including two non-exhaustive lists:

The �irst list includes many activities that the EEOC has recognized (e.g., walking) as well as activities that EEOC has not speci�ically recognized (e.g., reading, bending, and communicating). The second list includes major bodily functions (e.g., “functions of the immune system, normal cell growth, digestive, bowel, bladder, neurological, brain, respiratory, circulatory, endocrine, and reproductive functions”).

FAMILY AND MEDICAL LEAVE ACT OF 1993

The Family and Medical Leave Act of 1993 (FMLA) (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss150) aimed to provide employees with job protection in cases of family or medical emergency. The basic thrust of the act is guaranteed leave, and a key element of that guarantee is the right of the employee to return to either the position he or she left when the leave began or to an equivalent position with the same bene�its, pay, and other terms and conditions of employment. We will discuss this act in greater detail in Chapter 10 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch10#ch10) because compensation professionals treat such leave as a legally required bene�it.

Prevailing Wage Laws DAVIS–BACON ACT OF 1931

The Davis–Bacon Act of 1931 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss93) establishes employment standards for construction contractors holding federal government contracts valued at more than $2,000. Covered contracts include highway building, dredging, demolition, and cleaning, as well as painting and decorating public buildings. This act applies to laborers and mechanics who are employed on site. Contractors must pay wages at least equal to the prevailing wage in the local area. The U.S. Secretary of Labor determines prevailing wage rates based on compensation surveys of different areas. In this context, “local” area refers to the general location where work is performed. Cities and counties represent local areas. The “prevailing wage” is the typical hourly wage paid to more than 50 percent of all laborers and mechanics employed in the local area. The act also requires that contractors offer fringe bene�its that are equal in scope and value to fringe compensation that prevails in the local area.

WALSH–HEALEY PUBLIC CONTRACTS ACT OF 1936

This act covers contractors and manufacturers who sell supplies, materials, and equipment to the federal government. Its coverage is more extensive than the Davis–Bacon Act. The Walsh–Healey Public Contracts Act of 1936 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss474) applies to both construction and nonconstruction activities. In addition, this act covers all of the contractors’ employees except of�ice, supervisory, custodial, and maintenance workers who do any work in preparation for the performance of the contract. The minimum contract amount that quali�ies for coverage is $10,000 rather than the $2,000 amount under the Davis–Bacon Act of 1931.

The Walsh–Healey Act of 1936 mandates that contractors with federal contracts meet guidelines regarding wages and hours, child labor, convict labor, and hazardous working conditions. Contractors must observe the minimum wage and overtime provisions of the FLSA. In addition, this act prohibits the employment of individuals younger than 16 as well as convicted criminals. Furthermore, this act prohibits contractors from exposing workers to any conditions that violate the Occupational Safety and Health Act of 1970 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/bm01#bm01goss304) . This act was passed to ensure safe and healthful working conditions for working men and women by authorizing enforcement of the standards under the act.

COMPENSATION IN ACTION

It is critical for HR and compensation professionals to have a working knowledge of legislative imperatives and organizational policies designed to oversee certain aspects of compensation and bene�its. Together with the legal department, HR has the responsibility to educate line managers and other decision makers in the organization as to what should and should not be done in working with employees on compensation and bene�its issues. While ultimately the administration of compensation and bene�its will be the responsibility of HR, line managers must have enough awareness to make informed decisions which will both protect the company from certain liabilities as well as ensure the retention and engagement of employees critical to the success of the organization. The most successful line managers are often quite adept at explaining these nuances and are respected by their employees for their concern with the factors that in�luence the employee experience.

Action checklist for line managers and HR—understanding and applying the legal landscape

HR takes the lead

Work with the legal department to conduct training sessions designed to educate line managers on some of the most important legislation that will govern employee-related actions (e.g., FLSA, Civil Rights Acts, ADEA, ADA, and FMLA).

Conduct an audit to identify certain potential for disparate impact; disparate impact training is conducted to ensure that line managers and other decision makers are aware of some of the pitfalls.

Give careful consideration to private sector companies that hold government contracts to understand what additional standards may be placed on them because of their relationship with the federal government.

Provide legal updates to line managers, with legislation changing fairly quickly (particularly in these times). Many law �irms provide this type of service via pro bono teleconferences. In-house employment lawyers could also provide these updates.

Make sure that the legislative necessities create a starting point for establishing company policy and not merely the justi�ication for doing the bare minimum.

Line managers take the lead

Identify employees who fall into a group addressed speci�ically by law or company policy (e.g., ADA) which may be a new experience for you to work with as a manager (e.g., in most jobs, you will have more experience working with minority employees than disabled employees).

END OF CHAPTER REVIEW

MyManagementLab Go to mymanagementlab.com (http://mymanagementlab.com) to complete the problems marked with this icon .

Summary

Learning Objective 1: Interindustry wage differentials represent the pattern of pay and bene�its associated with characteristics of industries. Interindustry wage differentials can be attributed to a number of factors, including the industry’s product market, the degree of capital intensity, the pro�itability of the industry, and unionization of the workforce.

Learning Objective 2: An occupation is a group of jobs, found at more than one company, in which a common set of tasks are performed or are related in terms of similar objectives, methodologies, materials, products, worker actions, or worker characteristics. Considerable variation in pay can be explained by the complexity of knowledge, skills, and abilities (KSAs) that de�ine jobs (for example, surgeons and building service workers). Another important factor is the labor market dynamics of the supply and demand for quali�ied employees

Learning Objective 3: A number of factors in�luence geographic pay differentials. Interindustry wage differentials represent an important factor. Other factors include the union status of the workforce, occupational type, work level, whether �irms operate on a pro�it or not-for-pro�it basis, skill-level differences between employees who are performing the same job, and cost-of-living.

Learning Objective 4: Labor unions increase the bargaining power of employees by organizing into a collective to negotiate terms of employment with management. Wages in union settings, on average, are higher than wages in nonunion settings.

Learning Objective 5: There are a variety of laws that were put in place to ensure a balance of power between employees and employers. For the purposes of compensation management, these laws can be categorized in four groups as income continuity, safety, and work hours; pay discrimination; accommodating disabilities and family needs, and prevailing wage laws.

Key Terms interindustry wage differentials 26

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02#page_26) occupation 27 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec1#page_27) National Labor Relations Act of 1935 (NLRA) 30

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec3#page_30) collective bargaining agreement 30

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec3#page_30) spillover effect 31 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec4#page_31) right-to-work-laws 32 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec4#page_32) concessionary bargaining 32

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec4#page_32) federal constitution 32 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec4#page_32) federal governments 33 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_33) state governments 33 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_33) local governments 33 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_33) Great Depression 34 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_34) Social Security Act of 1935 (Title IX) 34

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_34) workers’ compensation 34

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_34) Fair Labor Standards Act of 1938 (FLSA) 34

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_34) exempt 35 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_35) nonexempt 35 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_35) Aaron v. City of Wichita, Kansas 35

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_35) FairPay Rules 35 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_35) Portal-to-Portal Act of 1947 36

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_36) Integrity Staf�ing Solutions, Inc. v. Busk et al. 36

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_36) Equal Pay Act of 1963 38

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_38) Civil Rights Act of 1964 38

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_38) compensable factors 39 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_39) EEOC v. Madison Community Unit School District No. 12 39

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_39) Title VII 40 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_40) disparate treatment 40 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_40) disparate impact 40 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_40) Ledbetter v. Goodyear Tire & Rubber Co. 40

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_40) Lilly Ledbetter Fair Pay Act 41

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_41)

Paycheck Fairness Act 41 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_41)

Bennett Amendment 41 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_41) Age Discrimination in Employment Act of 1967 (ADEA) 41

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_41) baby boom generation 41

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_41) Older Workers Bene�it Protection Act (OWBPA) 42

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_42) Civil Rights Act of 1991 42

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_42) Atonio v. Wards Cove Packing Co. 42

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_42) Lorance v. AT&T Technologies 42

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_42) Boureslan v. Aramco 42 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_42) Pregnancy Discrimination Act of 1978 (PDA) 43

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_43) Americans with Disabilities Act of 1990 (ADA) 43

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_43) Title I 43 (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_43) Family and Medical Leave Act of 1993 (FMLA) 44

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_44) Davis–Bacon Act of 1931 44

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_44) Walsh–Healey Public Contracts Act of 1936 44

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_44) Occupational Safety and Health Act of 1970 44

(http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch02lev1sec5#page_44)

MyManagementLab CHAPTER QUIZ! If your professor has assigned this, go to the Assignments section of mymanagementlab.com (http://mymanagementlab.com) to complete the Chapter Quiz! and see what you’ve learned.

Discussion Questions 2-1. Identify the contextual in�luence that you believe will pose the greatest challenge to companies’

competitiveness, and identify the contextual in�luence that will pose the least challenge to companies’ competitiveness. Explain your rationale.

2-2. Should the government raise the minimum wage? Explain your answer.

2-3. Do unions make it dif�icult for companies to attain competitive advantage? Explain your answer.

2-4. Explain the pros and cons of adjusting pay based on cost-of-living differences from a company’s perspective and an employee’s perspective.

2-5. Some people argue that there is too much government intervention, while others say there is not enough. Based on the presentation of laws in this chapter, do you think there is too little or too much government intervention? Explain your answer.

CASE Exempt or Nonexempt?

An additional Supplemental Case can be found on MyManagementLab.

Jane Swift is becoming frustrated with her job as a shift leader at Jones Department Store. She’s worked there for 6 months, and the full-time job has turned into more than full time. Several associates have left the store, and as a result, the past several weeks she has worked 45–50 hours each week. She doesn’t mind working the extra hours; she is just frustrated because she is not getting paid overtime pay.

She asked the store manager, Amy Kostner, about the overtime pay she was due. Amy informed Jane that shift leaders are part of the management team and are classi�ied as exempt under the Fair Labor Standards Act. The store is not required to pay exempt workers overtime pay.

Jane agrees that she is part of the management team. As a shift leader, Jane runs the �loor when she is on duty. One of the assistant managers sets the daily schedule of associates each week, but Jane and other shift leaders assign the associates to various work areas as needed. Depending on store traf�ic, associates need to be moved from stocking shelves and cleaning to cashiering or assisting customers. When not working on such management responsibilities, the shift leaders generally assume the duties of associates by assisting customers and cashiering. Jane reports that she typically spends only a little more than half of her time performing associate duties.

Shift leaders are also involved in managerial decisions. For example, they often sit in on employment interviews and typically are aware of employee terminations before the employee is �ired. They also give feedback about the associates to the assistant managers who write the annual performance appraisals.

Just like a manager, Jane makes a lot of decisions during the course of her shift each day. If there is a dispute on a sale price, Jane searches the weekly sales �lyer to determine the correct price. If a customer has a return, Jane reviews the transaction and initials it before the cashier can give a refund. However, she does not have complete autonomy in making decisions. For example, if a return is greater than $50.00, an assistant manager or the store manager needs to approve the refund.

But even though she agrees that she is part of the management team, Jane isn’t satis�ied with Amy’s answer on her question about pay. If she isn’t eligible for overtime pay, she thinks that she should be paid more. While she is paid at

a higher rate than most of the associates, she is not paid nearly as much as the assistant managers. A pay increase or overtime pay would at least make it worthwhile for her to put in the extra hours.

Questions:

2-6. Why did Amy classify the shift leaders as exempt? Are there any advantages to Jones Department Store to having the shift leaders classi�ied as exempt?

2-7. Do you think that the shift leaders are properly classi�ied as exempt? Why or why not?

2-8. What are some factors that Amy should consider when determining whether shift leaders are exempt or nonexempt?

Crunch the Numbers! Whether to Work Overtime or Hire Additional Employees

An additional Crunch the Numbers! exercise can be found on mymanagementlab.com (http://mymanagementlab.com) .

The Fair Labor Standards Act requires employers to pay nonexempt status employees an overtime rate at least equal to 1.5 times the normal hourly wage for each hour worked beyond the 40-hour workweek period.

ACME manufacturing has just signed a lucrative contract to produce the casings for �lashlights. The contract spans �ive years. During this time, ACME must increase its total manufacturing output by 10 percent. To meet this added demand, the company’s compensation and HR leadership will have to decide whether to require current manufacturing employees work additional hours per week, hire additional workers, or both. Making this decision will require an analysis of compensation costs and other HR-related expenses (for example, training).

Overtime Pay Scenario: Let’s assume that ACME employees 1,000 manufacturing employees and each of these employees earns $20 per hour. Because manufacturing output will increase by 10 percent, each employee would have to work an additional 4 hours per week (40 hours per week × 10%). For each of these additional 4 hours, employees would earn $30 per hour ($20 per hour × 1.5 hourly overtime pay premium).

Hiring Additional Workers Scenario: To meet this additional demand (10% output), ACME would have to increase their workforce by 10 percent, or 100 employees (1,000 person workforce × 10%). Besides hourly pay, there are costs associated with hiring new employees. These include employee bene�its ($10,000 annually per new employee), recruitment ($5,000 on a one-time basis per new employee), training ($3,000 on a one-time basis per employee), and termination ($12,000) upon the end of the contract period.

Questions:

2-9. Is it more cost effective to have current manufacturing employees work on an overtime basis during the life of the contract or to hire new employees?

2-10. Let’s assume that the unemployment rate in the area is low, which is making it dif�icult to attract new manufacturing employees. ACME is �inding that it is able to overcome this problem by paying new employees at a higher hourly rate of $25 per hour. Under this scenario, is it more cost effective to have current manufacturing employees work on an overtime basis or to hire new employees?

2-11. Would it be more cost effective to hire 50 new employees as well as having half of current manufacturing employees work overtime?

MyManagementLab

Go to mymanagementlab.com (http://mymanagementlab.com) for Auto-graded writing questions as well as the following Assisted-graded writing questions:

2-12. How would the compensation system change if the minimum wage provision of the Fair Labor Standards Act of 1938 were repealed?

2-13. Suggest ways that companies in low-paying industries can increase their ability to attract and retain highly quali�ied individuals.

2-14. MyManagementLab Only – comprehensive writing assignment for this chapter.

Endnotes 1. Bennett-Alexander, D. D., & Hartman, L. P. (2007). Employment Law for Business (5th ed.). Burr Ridge, IL: McGraw-

Hill/Irwin, p. 3. 2. Osburn, J. (2000). Interindustry wage differentials: Patterns and possible sources. Monthly Labor Review,

February, pp. 34–46; Krueger, A. B., & Summers, L. H. (1987). Re�lections on inter-industry wage structure. In K. Lang & J. S. Leonard (Eds.), Unemployment and the Structure of the Labor Market. New York: Basil Blackwell, pp. 14–17.

3. U.S. Bureau of Labor Statistics (2015). May 2013 National Industry-Speci�ic Occupational Employment and Wage Estimates. Available: http://www.bls/oes.gov (http://www.bls/oes.gov) , accessed February 17, 2015.

4. U.S. Department of Labor (1991). The Revised Handbook for Analyzing Jobs. Washington, DC: U.S. Government Printing Of�ice.

5. U.S. Bureau of Labor Statistics. Physicians and Surgeon. Occupational Outlook Handbook, 2014-15 Edition. Available: http://www.bls.gov/ooh/healthcare/physicians-and-surgeons.htm (http://www.bls.gov/ooh/healthcare/physicians-and-surgeons.htm) , accessed February 17, 2015.

6. U.S. Bureau of Labor Statistics. Occupational Employment Statistics. Data Retrieval. Available: http://data.bls.gov/oes/ (http://data.bls.gov/oes/) , accessed February 17, 2015.

7. U.S. Bureau of Labor Statistics. Secretaries and Administrative Assistants. Occupational Outlook Handbook, 2014- 15 Edition. Available: http://www.bls.gov/ooh/of�ice-and-administrative-support/secretaries-and- administrative-assistants.htm (http://www.bls.gov/ooh/of�ice-and-administrative-support/secretaries-and- administrative-assistants.htm) , accessed February 17, 2015.

8. U.S. Bureau of Labor Statistics. Occupational Employment Statistics. Data Retrieval. Available: http://data.bls.gov/oes/ (http://data.bls.gov/oes/) , accessed February 17, 2015.

9. U.S. Bureau of Labor Statistics. Pharmacists. Occupational Outlook Handbook, 2014-15 Edition. Available: http://www.bls.gov/ooh/healthcare/pharmacists.htm (http://www.bls.gov/ooh/healthcare/pharmacists.htm) , accessed February 17, 2015, and U.S. Bureau of Labor Statistics. Pharmacy Technicians. Occupational Outlook Handbook, 2014-15 Edition. Available: http://www.bls.gov/ooh/healthcare/pharmacy-technicians.htm (http://www.bls.gov/ooh/healthcare/pharmacy-technicians.htm) , accessed February 17, 2015.

10. U.S. Bureau of Labor Statistics. Occupational Employment Statistics. Data Retrieval. Available: http://data.bls.gov/oes/ (http://data.bls.gov/oes/) , accessed February 17, 2015.

11. U.S. Bureau of Labor Statistics. Information Security Analysts. Occupational Outlook Handbook, 2014-15 Edition. Available: http://www.bls.gov/ooh/computer-and-information-technology/information-security- analysts.htm (http://www.bls.gov/ooh/computer-and-information-technology/information-security-analysts.htm) , accessed February 17, 2015.

12. Morath, E. (2015). Wal-Mart plans to boost pay of U.S. workers. The Wall Street Journal (February 19, 2015). Available: http://www.wsj.com (http://www.wsj.com) , accessed February 19, 2015.

13. U.S. Bureau of Labor Statistics (2009). Occupational Pay Comparisons among Metropolitan Areas, 2008 (USDL: 09- 0843). Available: http://www.bls.gov (http://www.bls.gov) , accessed February 19, 2015.

14. U.S. Bureau of Labor Statistics (2009). Occupational Pay Comparisons among Metropolitan Areas, 2008 (USDL: 09- 0843). Available: http://www.bls.gov (http://www.bls.gov) , accessed February 19, 2015.

15. U.S. Bureau of Labor Statistics (2015). National Compensation Survey – Wages (data retrieval). Available: http://www.bls.gov/ncs/ocs/data.htm (http://www.bls.gov/ncs/ocs/data.htm) , accessed February 19, 2015.

16. U.S. Bureau of Labor Statistics (2009). Occupational Pay Comparisons among Metropolitan Areas, 2008 (USDL: 09- 0843). Available: http://www.bls.gov (http://www.bls.gov) , accessed February 19, 2015.

17. National Association of Realtors (2015). Median price of existing single-family homes for metropolitan areas. Available: http://realtor.org (http://realtor.org) , accessed February 10, 2015.

18. Solnick, L. (1985). The effect of the blue collar unions on white collar wages and bene�its. Industrial and Labor Relations Review, 38, pp. 23–35.

19. Mayer, G. (2004). Union membership trends in the United States. Washington, DC: Congressional Research Service.

20. U.S. Bureau of Labor Statistics. (2015). Union Members—2014. USDL 15-0072. Available: http://www.bls.gov (http://www.bls.gov) , accessed February 15, 2015, and, historical database of union membership.

21. Shah N., & Casselman, B. (2012). ‘Right-to-work’ economics. The Wall Street Journal (December 14). Available: http://www.wsj.com (http://www.wsj.com) , accessed January 10, 2015.

22. U.S. Department of Labor (December 14, 2014). Minimum wage laws in the states – January 1, 2015. Available: http://www.dol.gov/whd/minwage/america.htm#content (http://www.dol.gov/whd/minwage/america.htm#content) , accessed January 5, 2015.

23. Aaron v. City of Wichita, Kansas, 54 F. 3d 652 (10th Cir. 1995), 2 WH Cases 2d 1159 (1995). 24. Andres v. DuBois, 888 F. Supp. 213 (D.C. Mass 1995), 2 WH Cases 2d 1297 (1995). 25. Kurtz, A. (2014). Subway leads fast food industry in underpaying workers. CNNMoney (May 1). Available:

http://cnnmoney.com (http://cnnmoney.com) , accessed February 15, 2015. 26. Integrity Staf�ing Solutions, Inc., v. Busk et al., No. 13-433 (U.S. Supreme Court, December 9, 2014). 27. S. Rep. No. 176, 88th Congress, 1st Session, 1 (1963). 28. EEOC v. Madison Community Unit School District No. 12, 818 F. 2d 577 (7th Cir., 1987). 29. Ledbetter v. Goodyear Tire & Rubber Co., No. 05–1074 (U.S. Supreme Court, May 29, 2007). 30. U.S. Department of Commerce. (2004–2005). Statistical Abstracts of the United States (124th ed.), U.S. Department

of Census (May 2001). Pro�ile of general demographic statistics, Table DP–1. Available: www.census.gov (http://www.census.gov) , accessed February 12, 2011.

31. Older Workers Bene�it Protection Act of 1990, Pub. L. No.PL 101-433. 32. Atonio v. Wards Cove Packing Co., 490 U.S. 642, 49 FEP Cases 1519 (1989). 33. Lorance v. AT&T Technologies, 49 FEP Cases 1656 (1989). 34. Boureslan v. Aramco, 499 U.S. 244, 55 FEP Cases 449 (1991). 35. Bureau of National Affairs. (1990). Americans with Disabilities Act of 1990: Text and analysis. Labor Relations

Reporter, Vol. 134, No. 3. Washington, DC: Author.

II BASES FOR PAY

Where We Are Now: PART I (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/part01#part01) , SETTING THE STAGE FOR STRATEGIC COMPENSATION explained what compensation is, strategic compensation concepts, compensation professionals’ goals, employment laws that in�luence compensation practices, and the roles of unions and market forces in in�luencing compensation practices. Now, we turn to the methods for determining employee pay.

In PART II (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/part02#part02) , BASES FOR PAY, we will therefore study

Chapter 3 TRADITIONAL BASES FOR PAY (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch03#ch03)

Chapter 4 INCENTIVE PAY (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch04#ch04)

Chapter 5 PERSON-FOCUSED PAY (http://content.thuzelearning.com/books/Martocchio.7916.16.1/sections/ch05#ch05)

MyManagementLab®

You can access the CompAnalysis Software to complete the online Building Strategic Compensation Systems Project by logging into www.mymanagementlab.com (http://www.mymanagementlab.com) .