MGMT 4330 Compensation

Title VII of the Civil Rights Act of 1964 and Related Laws

-Title VII prohibits discrimination. -Age Discrimination in Employment Act and Americans with Disabilities Act also prohibit discrimination based on age and disability, respectively. -The Lilly Ledbetter Fair Pay Act increases compliance challenges. -Two theories of discrimination behavior: --Disparate treatment. --Disparate impact

Pay Discrimination

*Access discrimination* -denies particular jobs, promotions, or training opportunities to qualified women or minorities --See The University of Michigan example, p. 632 *Valuation discrimination* - looks at pay women and men receive for the jobs they perform --Equal pay for equal work, i.e., it is discriminatory to pay minorities or women less than males when performing equal work

Theories of Discrimination

*Disparate Treatment* -Disparate or unequal treatment applies different standards to different employees, i.e., individuals, and must show intent to discriminate *Disparate Impact* -Practices that have a differential effect on members of protected groups are illegal, unless the differences are work-related -4/5ths or 80% rule

Unemployment Insurance

*Eligibility requirements to receive benefits* -Meeting requirements for wages earned or time worked during a base period -Being unemployed through no fault of the individual -Available for work and seeking work -Meeting other eligibility requirements of State law *Financed by* -Employers that pay federal and state unemployment insurance tax --Federal tax- 6.2% of the first $7,000 earned by each worker --States additionally impose a tax above the $7,000 figure --The extra amount a company pays depends on its experience rating

Employee Retirement Income Security Act (ERISA)

*Eligibility* -Employees at least 21 years old -Employers may require 6 months of service *Vesting* Pg. 456 -Length of time employee must work for employer before entitlement to payments *Portability* Pg. 456 Pension Benefit Guaranty Corporation (PBGC)

Defined Benefit Plans

*Employer provides a specific pension level defined in terms of* -Fixed dollar amount or percentage-of-earnings amount which varies with seniority *Employer finances this by* -Following an actuarially determined benefit formula -Making current payments that will yield the future pension benefit

Exempt vs Non-Exempt

*Exempt*- employees exempt from overtime pay provisions, from both the minimum wage and overtime pay provisions, or from the child labor provisions of the FlSA *Non-Exempt*- A worker entitled to the minimum wage and/or overtime pay protections of the FLSA

Government's Impact on Labor Supply

-Legislation, e.g., licensing for certain occupations, compulsory education -Immigration policy, e.g., how rigorously it is enforced -Immigrants in the U.S. and across the globe, e.g. 2016 growth Pg. 575

Defined Contribution Plans

*Specific contributions by employer, but up to employee to determine how to stipulate contributions, e.g., cash, stocks, bonds, etc.* *Popular forms of plans* -401 (k) plan -Employee stock ownership plan (ESOP) -Profit sharing plan *There are three popular forms of these plans.* *401(k) plan* -Savings plan where employees can defer pretax income. -Employers match at 50 cents on the dollar. *Employee Stock Ownership Plan (ESOP)* -Employer makes a tax deductible contribution of stock shares or cash to a trust. -The trust allocates stock to employees based on earnings. *Profit sharing plan* -This can be considered a DC pension plan if the distribution of profits is delayed until retirement.

Living Wage (not part of FLSA)

-At local levels it provides a minimum wage tailored to living costs for a city or a state -See Maryland, California, Michigan, New York, and Wisconsin examples, p. 627

Minimum Wage

-Minimum-wage legislation is intended to provide an income floor for workers in society's least productive jobs -If state and federal legislation cover same job, the higher rate prevails -Current, 2016, minimum wage is $7.25/hr. -Recently, some states, e.g., California and New York have decided to increase the minimum wage to $15.00/hr. *Issues regarding minimum wage* -Whether the gains through higher wages are greater than the losses of jobs and/or hours -Whether wage gains go primarily to workers from low income families rather than going to workers from families with higher incomes

Overtime and Hours of Work

-Overtime provision of the FLSA requires payment at one-and-a-half times the standard for working more than 40 hours per week -Exempt versus Non-Exempt classifications -The conditions that inspired the legislation have changed since the law was passed -See Exhibit 17.6 -New federal regulations regarding overtime rules, effective December 1, 2016: Blocked by a federal judge in Texas

Affordable Care Act (ACA)

-Passed in 2010, a complex package of changes in how health care is to be paid for, including incentives and penalties -In 2014, automatic enrollment in health insurance was required of companies with over 200 employees -Companies, with over 50 employees, that do not provide health insurance will have to pay a penalty

On-Call Employees

-Portal-to-Portal Act provides that time spent on activities before beginning the "principal activity" generally is not compensable -*On-call employees* need to be available to respond to work outside the usual workday, e.g., firefighters -*Beeper pay* employees respond to problems outside regularly scheduled workday, e.g., telecommunications personnel -If employees can use "on-call" time for their own purposes, then no pay is required -However, if employees are required to stay on the employer's premises, then pay is required

Equal Pay Act of 1963

-Prohibits wage discrimination on the basis of gender when employees perform jobs requiring equal skill, effort, and responsibility under similar working conditions -*Differences in pay between men and women doing equal work are legal if based on* --Seniority --Merit or quality of performance --Quality or quantity of production --Some factor other than gender -Additional factors other than gender: --shift differentials --temporary assignments --bona fide training programs *differences based on ability, training, or experience* --other reasons of "business necessity" -Requires that jobs be equal, but not identical

Paid Time Off During Working Hours

-Rest periods -Lunch periods -Wash-up time -Travel -Clothes-change time -Get-ready time

Employee Benefits Required by U.S. Law

1. Workers' Compensation 2. Social Security 3. Unemployment Insurance 4. Affordable Care Act

Managing Communication

Formal Communication is essential Compensation "communicates" and sends a message Employees must understand the pay system Understanding is shaped indirectly through pay checks, and directly through job performance Pay transparency is a catalyst Pay is an agent for change The Pay Model: Full Circle Pg.

Compensatory Time Off

Gives employees and employers the option of trading overtime pay for time off

Controlling Salary Level: Top down versus Bottom Up

Pg. 630

Effects of Job Hopping on Pensions

See Exhibit 13.7 The High Cost of Job Hopping Pg. 458

Consolidated Omnibus Budget Reconciliations Act (COBRA)

-Enacted in 1985 -Applies if 20 or more employees -Extends health coverage during certain events -Current and former employees, and spouses and dependents, are covered. -An employer can charge individuals up to 102% of the premium. -Brief qualifying period of 18 months.

Worker Compensation

*Form of no-fault insurance* -Employees are eligible even if their actions caused the accident -Financed by employer and is a function of experience rating, occupation, risk, and state -Covered by state, not federal, laws *Benefits* -Medical care for work-related injuries and diseases -Temporary disability benefits -Permanent partial and permanent total disability benefits -Survivor benefits -Rehabilitation

Fair Labor Standards Act of 1938

*Law is a cornerstone of pay regulation in the U.S.* -Covers all employees of companies engaged in interstate commerce or in the production of goods for interstate commerce. -Major provisions include: minimum wage, hours of work, and child labor. Records must be kept of employees, their hours worked, and their pay.

Pay for Time Not Worked

*Paid vacations and payments in lieu of vacation* *Payments for holidays not worked *Paid sick leave *Other* -National guard -Army, or other reserve duty -Jury duty -Voting pay allowances -Personal reasons

Social Security

*System is split into two programs for tax purposes* -Social security - 6.2% -Medicare - 1.45% -Total is 7.65% of first $118,500 *Money comes from contributions made by* -Employees -Employers -Self-employed people during working years *Issues* -Number of retired workers is rising -No corresponding increase in number of contributors to offset costs --Currently, 3.5 workers pay into system for each person collecting benefits --Within next 40 years this ratio drops to about 2 to 1 *Reform options* -Increase payroll taxes -Decrease benefits --Use general revenues

Monitoring Embedded Controls

-Controls are built into "techniques," which operationalize policies in the Pay Model, e.g., --Job analysis --Job evaluation --Pay policy lines --Range minimums and maximums --Performance evaluations --Variable pay plans --Cost containment --Revenue management -Controls can be monitored and tracked through transaction processing and compensation software systems, e.g., SAP ERP

Family and Medical Leave Act (FMLA)

-Enacted in 1993 -Applies if 50 or more employees -Up to 12 weeks of unpaid leave -Employee is guaranteed same or similar job when returns. -More state legislatures are moving toward some form of paid family and medical leave

Health Insurance Portability and Accountability Act (HIPAA)

-Enacted in 1996 *Designed to* -Lessen denial for preexisting condition -Prevent discrimination on the basis of health -Privacy provisions cause added compliance problems.

Government's Impact on Labor Demand

-Government is a big employer -Indirectly affects labor demand through its purchases, e.g., paper clips, computer systems, facilities, military aircraft, Maine blueberries -Financial policy decisions affect labor demand, e.g., lowering interest rates which boosts manufacturing Pg. 575

Managing and Controlling Labor Costs

-Headcount, e.g., reduce the number of core and contingent employees -Hours, e.g., minimize overtime, promote job sharing, mandate unpaid leave or furloughs -Benefits, e.g., eliminate benefits, suspend matching contributions --Variable pay, e.g., limit size of variable pay, enforce pay-for-performance plans -Base salary, e.g., decide on top-down budgeting or bottom-up budgeting Pg, 620 Exhibit 18.1

Comparable Worth

-If jobs require comparable skill, effort, and responsibility, the pay must be comparable, no matter how dissimilar the job content may be -Establishing comparable worth begins with adopting a point job evaluation plan for all of the jobs within a unit -All jobs with equal job evaluation results should be paid the same -Determining comparable worth is largely a function of conducting a good job analysis

The Earnings Gap

-Women's median annual earnings compared to men's has changed from 60% in 1980 to 78% in 2013 -Asian men's earnings compared to white men's varied between 89% in 1988 to 107% in 2013 -Black to white men's earnings ratios varied between 68% in 1988 to 76% in 2013 -Ratio of Hispanic to white men's earnings varied from 55% in 1988 to 61% in 2013 -Asian women earn more than white women, and the gap between black and white women is less than the gap between black and white men, partly because of having a college degree -See Exhibits 17.7, 17.8, 17.9, 17.14 -American women working full time earned 79 cents for every dollar earned by men working full time in 2014 (most recent available data) -Gaps are global