CMS2 Assignment 12: Managing the Compensation Process

explain hours of work under the Fair labor standards Act.

Employers are required to make overtime payment of time and one-half after 40 hours of work. Union contracts may require overtime after fewer hours of work. Overtime pay was originally intended to encourage the hiring of additional workers instead of paying overtime, but many employers find it less expensive to pay overtime than to incur the expense of hiring, training and providing benefits to new workers. Effects of the overtime provision show that as hours of work increase, pay satisfaction and job satisfaction decrease. Exempt and nonexempt positions distinguish between who is entitled to overtime pay. Non exempt jobs must receive time and one-half for overtime. Employers must follow the criteria of the Department of Labor to determine which jobs are exempt and which jobs are nonexempt.

summarize research findings concerning sources of the earnings gaps.

There has been considerable research examining wage differences between men and women and various racial and ethnic groups. The issue of earnings gaps, especially any proposed remedies, continues to generate research and debate. Research appears to indicate the primary sources contributing to the gender gap differ from the primary sources for the racial/ ethnic earnings gaps. At a summary level, it appears that differences in the work/occupation (e.g., technician vs. clerical) and differences in work-related behaviors (e.g., work-life balance challenges) are central to understanding the persisting gender wage gaps. In contrast, differences in qualifications, especially educational levels and work-related experience as well as differences in occupations, are important sources of the gaps for both blacks and Hispanics compared to white men. There is evidence that women of all ethnic groups are more likely than men to seek parttime and flexible work arrangements and that they are more likely than men to interrupt their careers due to family responsibilities. There is also evidence that gender differences in occupational choices continue to exist. Evidence of increased levels of occupational attainment does not automatically mean that the wage gap will close. For a variety of reasons, a relatively small wage gap among younger cohorts (i.e., recent college graduates) tends to increase as the cohort ages. Perhaps women continue to be more likely to drop out of the labor force at some point for family reasons, or perhaps the barriers to continued advancement become more substantial at higher levels in the job hierarchy. It has been conjectured that some of the observed differences in wages paid in different occupations may be stuck due to inertia, or more poetically, "original sin." Wage differences among occupations were determined decades ago. While a variety of reasons account for these original wage differences, an important one is the belief about gender roles and "women's work" that prevailed at the time. These pay differences have persisted and influence today's occupational wage structures even though attitudes have changed. Level of schooling and work-related experience appear to be primary sources of the pay gaps among both black and Hispanic men and women. Generally, the longer Hispanic immigrants stay in the United States, the better they do educationally and financially. However, the continuing inflow of poorly educated new immigrants holds down the average wage for the whole category. Black men's high school dropout rates match those of Hispanic men. In contrast, more than half of Asian men are college graduates or hold higher degrees. All this research about sources of the earnings gaps does not mean there are not any discriminatory pay practices; it does mean that important sources of the pay gaps reside in other productivity-related factors such as level and quality of education, work-life/career tradeoffs, and occupational choices. Other factors that affect earnings differences among men and women and among race/ ethnic groups are the industries and the firms in which they are employed.

identify the steps in the compensation forecasting cycle or controlling salary level with the bottom-up approach.

Compensation forecasting cycle includes the following steps. Step 1: Instruct managers in compensation policies and techniques. Step 2: Distribute forecasting instructions and worksheets. Step 3: Provide consultation to managers. Step 4: Check data and compile reports. Step 5: Analyze forecasts. Step 6: Review and revise forecasts and budgets with management. Step 7: Conduct feedback with management. Step 8: Monitor budgeted versus actual increases.

discuss the Fair labor standards Act of 1938 in terms of its minimum wage.

The Fair Labor Standards Act of 1938 covers all employees of companies engaged in interstate commerce or in production of goods for interstate commerce. Minimum wage legislation is intended to provide an income floor for workers in society's least productive jobs. When first enacted in 1938, the minimum wage was 25¢ an hour. It has been raised periodically. In 2009 the minimum wage was raised to $7.25. (As of 2014, the federal minimum wage remains $7.25.) Almost all states have their own minimum wage to cover jobs omitted from federal legislation. If state and federal legislation cover the same job, the higher rate prevails. As legislation forces pay rates at the lowest end of the scale to move up, pay rates above the minimum often increase in order to maintain differentials. This shift in pay structure does not affect all industries equally. When legislation results in substantially higher labor costs for firms, they may consider substituting capital for jobs or reducing the number of jobs available. It may seem initially that most people would support minimum wage legislation. However, this is not necessarily true. The concern is that the resulting higher labor costs for affected firms may lead them to decrease their demand for workers and/or their hours worked. Counterintuitively, a higher minimum wage, which is intended to help low-wage workers, runs the risk of reducing employment opportunities for the very workers it is intended to assist. Therefore, whether a minimum wage is effective or not depends on whether the gains through higher wages are greater than the losses of jobs and/or hours. Another consideration in evaluating the success of a minimum wage law is whether wage gains go primarily to workers from low-income families rather than going to workers from families with higher incomes. As can be seen, employers have a substantial stake in minimum wage public policy and thus may seek to influence it over time. In the shorter run, employers must be in compliance and will need to consider how changes to the minimum wage will affect their labor costs, to what degree they can pass the higher costs on to customers, and to what degree they will need to take some other action to control or offset higher labor costs.

What are the four basic steps involved in establishing a comparable worth plan?

The four basic steps involved in establishing a comparable worth plan are: (1) Adopt a single "gender neutral" point job evaluation plan for all jobs within a unit. This is necessary so that similar standards will be used to evaluate dissimilar jobs. (2) All jobs with equal job evaluation results should be paid the same. If total points for jobs are the same, the jobs must be paid the same. (3) Identify general representation, that is, percentage male and female employees, in each job group. (4) The wage-to-job evaluation point ratio should be based on the wages paid for male- dominated jobs since they are presumed to be free of discrimination. Some feel that these rates will artificially inflate all pay rates since wages cannot be lowered to make them equal.

explain prevailing wage laws.

A government-defined prevailing wage is a minimum wage that must be paid for work done on covered government projects or purchases. Prevailing wage laws prevent contractors from using their size to drive down wages. Contractors must determine the "going rate" for construction in an area. As a practical matter, the "union rate" for labor becomes the "going rate." That rate then becomes the mandated minimum wage on the government-financed project. Contractors object to this requirement because it frequently means they have to match a wage rate that only a minority of area workers receive. Many taxpayers also object because they believe it drives up the cost of government. A number of laws contain prevailing wage provisions. They vary on the government expenditures they target for coverage.

describe title Vii of the Civil rights Act of 1964 and the Civil rights Act of 1991.

Title VII of the Civil Rights Act prohibits discrimination in any employment condition including hiring, firing, promotion, transfer, admission to training programs and compensation. It also prohibits discrimination on the basis of race, religion, color, sex, national origin and, as amended, on the basis of age, pregnancy or related conditions. Two types of discrimination have been defined through court interpretation. They include disparate treatment and disparate impact. Disparate treatment refers to treating people differently because of their protected status, such as race, religion, sex, etc. The mere fact of unequal treatment may be taken as evidence of the employer's intention to discriminate under U.S. law. Disparate impact discrimination involves the use of a neutral policy that has an adverse effect on women or minority employees. The case of Griggs v. Duke Power established this interpretation of discrimination. It struck down employment tests and educational requirements that screened out a higher proportion of blacks than whites. The prerequisites were applied equally to both; however, they were prohibited because (1) they had the consequence of excluding a protected group disproportionately and (2) the tests were not related to the jobs in question.

Briefly discuss controlling employment and controlling average cash compensation.

Variables that must be considered in order to manage labor costs include the number of employees and the number of hours they work, average cash compensation and average benefit costs. These all must be considered in order to control labor costs. The most obvious approach to managing labor costs is to control the number of employees and the hours they work. Employers may avoid the negative consequences of layoffs and work reductions by using contingent workers who work for short time periods in addition to the core employees who are employed for long periods. Contingent workers may work parttime or full-time. They are generally cheaper than core employees since part-time workers often do not receive benefits. Another approach to managing costs is to examine the use of overtime versus adding to the workforce. Another recent method has been to reduce benefits costs by suspending employer contributions to retirement accounts of 401(k) plans. In order to control the average cash compensation, the organization must manage increases in variable compensation and in the average salary level. The average salary level can be managed through a top-down or a bottom-up approach. With a top-down approach, top management determines the pay and allocates it down to lower units, who then allocate it to employees. With a bottom-up approach, next year's pay for each employee is forecasted and summed to create the organization's salary budget.

government policy decisions impact compensation by

affecting the supply and demand for people. legislation aimed at protecting specific groups also tends to restrict that group's participation in the labor market. For example, compulsory schooling laws restrict the supply of children available to sell hamburgers or to assemble soccer balls. Licensing requirements for certain occupations, for example, plumbers or psycholo-gists, restrict the number of people who can legally offer a service. in addition, immigration policy together with how rigorously it is enforced is an increasingly important factor in labor supply. government affects demand for labor supply most directly as a major employer. in the United states, local, state and federal government units employ a substantial number of workers. A government also indirectly affects labor demand through its purchases as well as its public policy decisions.

the decision of whether to classify a worker as an employee or independent contractor requires

careful attention to compliance issues related to tax law and erisA. small businesses as well as large corporations such as microsoft and Fedex have had to deal with stiff irs penalties for misclassifying workers as independent contractors.

Financial planning is integral to

managing compensation. the cost implications of actions such as updating the pay structure, increasing merit pay or instituting gain sharing are critical for making sound decisions. Budgets account for these costs. Creating a compensation budget requires trade-offs, such as how much of an increase should be allocated according to employee contributions versus across-theboard increases. trade-offs also occur over short- versus long-term incentives, over pay increases contingent on performance versus seniority and over cash compensation compared to benefits.

Jobs held predominantly by women, almost without exception, are

paid less than jobs held pre dominantly by men. Comparable worth has been debated off and on since World War ii. proponents continue to lobby for either new legislation or voluntary action on the part of employers that would include the comparable worth standard. A lot of this political activity is occurring in state and local governments. this is not surprising since over half of all women in the workforce are employed in the public sector.

generally, people under the age of 18 cannot

work in hazardous jobs such as meat packing and logging. persons under the age of 16 cannot be employed in jobs involving interstate commerce except for non hazardous work for a parent or guardian. Additional exceptions and limitations also exist. the union movement in the United states has taken a leading role in publicizing the extent of the use of child labor outside the United states to produce goods destined for the U.s. consumer.

discuss pay discrimination and dissimilar jobs.

In the case of Gunther v. County of Washington, the Supreme Court found that charges of pay discrimination for dissimilar jobs could be based under Title VII. Prior to that ruling, lower courts only considered cases that met the equal work criteria of the Equal Pay Act. While the Supreme Court did not say that Washington County had discriminated, it did say that a claim of wage discrimination could be brought under Title VII for situations where the jobs were not the same. The Court did not specify what would constitute pay discrimination for dissimilar jobs. Different approaches to define pay discrimination for dissimilar jobs are presented below. The courts have continuously upheld the use of market data as a defense of paying dissimilar jobs different wages, even though the employees claim the jobs are comparable and should be paid the same. The courts clearly defined their position in Spaulding v. University of Washington. Market prices are perceived as "inherently job related." The courts have not considered the judgment involved in defining the relevant market used to obtain wage data and the procedures used to collect the range of possible pay rates that exist for any given job. Another approach to providing pay discrimination for dissimilar jobs is to show that the jobs are of equal value through the use of job evaluation. This approach was established through the case of AFSCME v. State of Washington. Although a state-commissioned study found that female-dominated jobs were paid 20% less than male-dominated jobs of comparable value, the state did not change its policies, and the court did not find that they were obligated to do so. The case was ultimately settled out of court, however, and the state agreed to make pay equity adjustments in its policies. The cases discussed above make it clear that pay discrimination for dissimilar jobs may be charged under Title VII. However, the pay differences will be allowed if they are justified based on the content of the work, its value to the organization or market factors, which affect the organization's ability to attract and retain workers.

Briefly explain what the living wage is under the Fair labor standards Act.

Many cities have passed their own versions of minimum wage. Sometimes the laws cover only city workers; other times they cover employers that do business with the city. Sometimes they cover only base wage, but more frequently, they are beginning to require health insurance, vacation, sick pay, job security and incentives to unionize. The aim is to increase the wage of the "working poor." Generally, the wage that is mandated is based on some kind of assessment of living costs in an area. As a result, the amounts required vary widely. Because "living wage" laws are so narrowly tailored, there is some speculation that one intention of this legislation is to reduce any cost savings a municipality might receive from outsourcing. Reduced outsourcing means more government jobs, which generally translates into more union members.

discuss the equal pay Act and its many considerations.

The Equal Pay Act makes it illegal to pay men and women differently for doing the same job in the organization. It requires that men and women working on substantially equal jobs receive equal pay. Equal work is defined in terms of: (1) skill, (2) effort and (3) responsibility under similar working conditions. Differences in pay are permitted if the differences are based on one of the four affirmative defenses. These four defenses are: (1) seniority, (2) quality of performance, (3) quality or quantity of production or (4) some factor other than gender. Guidelines to define equal work were set after numerous court cases. The courts have found that extra effort/skill/responsibility in one job must have a value commensurate with the questioned pay differential. The Department of Labor defined the four factors that determine equal work. Clarification of those guidelines has been made through the courts. These are: (1) Skill is defined in terms of experience, education, training and ability. (2) Effort is defined as mental or physical effort. (3) Responsibility is defined as the degree of accountability required. (4) Working conditions are defined as the physical surroundings and hazards of a job. Factors other than gender have been defined through court cases to include shift differentials; temporary assignments; bona fide training programs; differences based on ability, training or experience; and a broad category of business necessity, where the organization must justify the business relatedness of a practice that results in a pay differential. In reverse pay discrimination cases, men charge that they are paid less for doing a job than women, only because they are men. The courts have found that one-time adjustments in pay to correct past problems are permissible; however, any new pay system enacted to correct past problems must apply to all employees.

What is pay discrimination?

The law recognizes two types of discrimination. These are access discrimination and valuation discrimination. Access discrimination is denying qualified women and minorities opportunities for jobs, promotions or training opportunities. Valuation discrimination focuses on the pay women and minorities receive from employment. This is the issue of equal pay for equal work, as covered by the Equal Pay Act. Some feel that the valuation discrimination also occurs when the jobs that are predominantly held by women and minorities are paid less than the jobs predominantly held by men.

discuss controlling salary level with a top-down approach.

The top-down approach uses unit-level budgeting to distribute pay increases to employees. The type of unit-level budgeting illustrated in this assignment is the planned pay-level rise approach. Decisions about how much to increase the average pay level depend on an examination of the last pay-level increase, the organization's ability to pay, competitive pressures, turnover and cost-of-living considerations. The current year's rise is the percentage change in the average wage in the past year. The financial situation of the organization obviously has an important effect on its ability to increase the average pay level. The organization may change the average pay level in response to changes in the average rates for benchmark jobs in the marketplace in order to remain externally competitive. One result of turnover is that when employees leave, workers earning lower wages usually replace them. Thus, the turnover effect can influence the average pay and benefit level in the organization. Changes in the cost of living are important since employees compare changes in their pay to changes in the cost of living, and they use cost-of-living changes to argue for pay increases. A distinction is made among three related concepts when examining cost changes. Changes in wages in the labor market are measured through wage surveys. Changes in the cost of goods and services are measured to changes in indexes such as the consumer price index (CPI). Changes in the cost of living depend on many factors and can vary from one employee to another. The concepts are interrelated in the sense that changes in wages may increase the cost of goods and services, which in turn may increase the cost of living. In examining the CPI, it is important to remember that the CPI does not necessarily reflect an individual's cost of living. Rather, the CPI measures changes in the prices of a market basket of goods and services. The CPI measures changes in the prices of various designated categories of expenditures, weighted by their percentage of total expenditure. While employers often index wage increase to the CPI, the CPI is criticized because it does not allow for the purchase of substitute items in the event of price increases and does not include discount prices. Geographical differences in the CPI are reflected in separate indexes calculated for different metropolitan regions. Differences in the CPI across cities reflect the relative increase in prices from the base year to the present. An example of a planned rise in an average salary of 6.3% does not mean that each employee will get a 6.3% increase in wages. It means that the average salary for all employees at the end of the next year is targeted to be 6.3% greater than the average salary now. Distributing the budget to subunits is the next step. The percentage of the budget that each subunit should receive is calculated with various methods. Some organizations give a uniform percentage to each subunit based on the salaries of the subunit employees. Some vary the percentage to try and correct subunit problems.

discuss the two processes that control pay decisions in the pay system.

The two processes that control pay decisions in the pay system are the budgeting process and pay controls inherent in the design of the techniques in the system. These inherent controls include range maximums and minimums, compa-ratios, variable pay and cost analyses among others. A range maximum represents the highest value the organization places on the output of the work. Any wage rate paid above the maximum is known as a red circle rate. Generally, these rates are frozen until the range is shifted up because of market adjustments. The compa-ratio is used to assess employees' pay relative to the midpoint of the range. A compa-ratio of less than 1.00 means that employees in the range are paid on average below the midpoint or that pay is less than intended policy. Conversely, a compa-ratio of greater than 1.00 means that on average, pay is higher than intended policy, perhaps due to high seniority or performance. Low turnover, few new hires or low promotion rates could be factors causing a compa-ratio to exceed 1.00. Variable pay can be used as a cost-control device since it is not added to base pay and must be re-earned each period. The use of variable pay gives the organization more flexibility in man aging its labor cost but is less appealing to employees. The costs of any wage proposal are routinely calculated before pay raises are recommended. Also, proposals are costed-out before any negotiations with unions.