Milkovich/Newman: Compensation, Ninth EditionMilkovich/Newman: Compensation, Ninth Edition

McGraw-Hill/IrwinMcGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 15Chapter 15Union Role in Union Role in

Wage and Salary Wage and Salary AdministrationAdministration

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Case Study: The Auto IndustryCase Study: The Auto Industry

Then…Then… Now…Now…

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Median Weekly Earnings of full-time wage and Median Weekly Earnings of full-time wage and salary workers by union affiliation and industry, salary workers by union affiliation and industry,

2009 2009

UnionUnion NonunionNonunion

Private wage and salaryPrivate wage and salary $856 $856 $697 $697

(23% premium)(23% premium)

MiningMining 1,013 1,013 1,058 1,058

ConstructionConstruction 1,072 1,072 698698

ManufacturingManufacturing 800800 762762

Transportation and utilitiesTransportation and utilities 975975 748748

Wholesale and retail tradeWholesale and retail trade 648648 609609

GovernmentGovernment 947947 782782

Percentage increase, 2008-09, private sectorPercentage increase, 2008-09, private sector

Union:Union: 2.1%2.1%

Nonunion:Nonunion: 2.5%2.5%

Source: U.S. Department of Labor, Bureau of Labor Statistics, January 2010.Source: U.S. Department of Labor, Bureau of Labor Statistics, January 2010.

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Union Impact on General Wage LevelsUnion Impact on General Wage Levels

Unions do make a difference in wagesUnions do make a difference in wages– Union workers earn between 8.9% andUnion workers earn between 8.9% and

12.4% more than nonunion workers12.4% more than nonunion workers Size of gap varies from year to yearSize of gap varies from year to year

– During periods of higher unemployment, impact of During periods of higher unemployment, impact of unions is largerunions is larger

– During strong economies, union-nonunion gap is During strong economies, union-nonunion gap is smallersmaller

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Union Impact on General Wage Levels Union Impact on General Wage Levels (cont.)(cont.)

Union-nonunion wage differentials in public Union-nonunion wage differentials in public sectorsector– Union employees earn about 22%Union employees earn about 22%

more than their nonunion counterpartsmore than their nonunion counterparts

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Wage Structure: Division Between Wage Structure: Division Between Direct Wages and Employee BenefitsDirect Wages and Employee Benefits

Presence of unions adds 20-30% to employee Presence of unions adds 20-30% to employee benefitsbenefits

Greater percentage of total wage bill allocated Greater percentage of total wage bill allocated to employee benefitsto employee benefits– Union workers: 36.9% of total compensation Union workers: 36.9% of total compensation

packagepackage

– Nonunion workers: 27.8%Nonunion workers: 27.8%

– Higher costs due to – higher pension expenditures, Higher costs due to – higher pension expenditures, and higher insurance benefitsand higher insurance benefits

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Wage Structure: Two-Tier Pay PlansWage Structure: Two-Tier Pay PlansTwo-tier pay structures are a phenomenon of Two-tier pay structures are a phenomenon of

union sectorunion sector– Contract differentiates pay based upon hire dateContract differentiates pay based upon hire date

– Employees hired after a target date will receive Employees hired after a target date will receive lower wages than their higher-seniority peers in lower wages than their higher-seniority peers in similar jobssimilar jobs

From management’s view, wage tiers are a From management’s view, wage tiers are a viable alternative pay strategyviable alternative pay strategy– Cost control strategy to allow expansion or Cost control strategy to allow expansion or

investmentinvestment

– Cost-cutting device to allow economic survivalCost-cutting device to allow economic survival

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Wage Structure: Two-Tier Pay Plans Wage Structure: Two-Tier Pay Plans (cont.)(cont.)

From a union’s perspective, wage tiers are From a union’s perspective, wage tiers are viewed as less painful thanviewed as less painful than– Wage freezesWage freezes

– Staff cuts among existing employeesStaff cuts among existing employees

However, tradeoff bargained away equivalent However, tradeoff bargained away equivalent wage treatment for future employees wage treatment for future employees

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Two-Tier Pay PlansTwo-Tier Pay Plans Recent two-tier agreementsRecent two-tier agreements

– Delphi, Visteon/UAWDelphi, Visteon/UAW

– Caterpillar/UAWCaterpillar/UAW

– S. Cal grocery ers/UFCWS. Cal grocery ers/UFCW

Workers on lower tier have more negative attitudesWorkers on lower tier have more negative attitudes

– Effects of permanent and temporary plans differEffects of permanent and temporary plans differ

– Perceived employment mobility moderates attitudesPerceived employment mobility moderates attitudes Low mobility workers had more positive attitudes than high mobilityLow mobility workers had more positive attitudes than high mobility

– Cognitive dissonance, dissonance reduction?Cognitive dissonance, dissonance reduction?

Source: Townsend and Partridge (1999)Source: Townsend and Partridge (1999)

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Wage Structure: Wages of Workers vs. Wage Structure: Wages of Workers vs. Pay of ManagersPay of Managers

Evidence indicates gap between workers and Evidence indicates gap between workers and their managers is 23% smaller in unionized their managers is 23% smaller in unionized firmsfirms

Managers in union firms receive higher wages Managers in union firms receive higher wages than nonunion managersthan nonunion managers

Narrowing of gap arises because worker wages Narrowing of gap arises because worker wages increase faster than managerial wages in increase faster than managerial wages in unionized firmsunionized firms

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Union Impact: The Spillover EffectUnion Impact: The Spillover Effect Employers seek to avoid unionization by Employers seek to avoid unionization by

offering workers wages, benefits, and working offering workers wages, benefits, and working conditions won in rival unionized firmsconditions won in rival unionized firms

OutcomesOutcomes

– Nonunion management continues to enjoy freedom Nonunion management continues to enjoy freedom from union “interference” in decision makingfrom union “interference” in decision making

– Workers receive “spillover” of rewards obtained by Workers receive “spillover” of rewards obtained by unionized counterpartsunionized counterparts

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Role of Unions in Wage and Salary Role of Unions in Wage and Salary Policies and PracticesPolicies and Practices

Role of unions in administering compensation Role of unions in administering compensation is outlined in contractis outlined in contract

Basis of payBasis of pay– Regular payRegular pay– Overtime payOvertime pay– Pay for nonstandard shiftsPay for nonstandard shifts– Incentive pay (less common than in nonU sector)Incentive pay (less common than in nonU sector)

Occupation-wage differentialsOccupation-wage differentials Experience/merit differentialsExperience/merit differentials

– Automatic progression based on seniorityAutomatic progression based on seniority– Merit (grievable)Merit (grievable)– Combination of automatic and merit progressionCombination of automatic and merit progression

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Role of Unions in Wage and Salary Role of Unions in Wage and Salary Policies and Practices (cont.)Policies and Practices (cont.)

Vacations and holidaysVacations and holidays Wage adjustment provisionsWage adjustment provisions

– Deferred wage increasesDeferred wage increases– Re-opener clausesRe-opener clauses– Cost-of-living adjustments (COLAs) or escalator Cost-of-living adjustments (COLAs) or escalator

clausesclauses

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Unions and Alternative Reward SystemsUnions and Alternative Reward Systems When employers face extreme competitive When employers face extreme competitive

pressures, unions are receptive to alternative pressures, unions are receptive to alternative reward systems linking pay to performancereward systems linking pay to performance

Union stipulationsUnion stipulations– Equity issue involves use of group-based measures Equity issue involves use of group-based measures

with equal payoutswith equal payouts– Minimize biasMinimize bias

Use of objective performance measures in unionized firmsUse of objective performance measures in unionized firms Use of measures based on past performanceUse of measures based on past performance

20 percent of all U.S. collective bargaining 20 percent of all U.S. collective bargaining agreements permit some alternative reward agreements permit some alternative reward systemsystem

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Types of Alternative Reward SystemsTypes of Alternative Reward Systems

Lump-sum awardsLump-sum awards– Given in lieu of merit increasesGiven in lieu of merit increases

Employee stock ownership plans (ESOPs)Employee stock ownership plans (ESOPs)– Give employees part ownership in companyGive employees part ownership in company

Pay-for-knowledge plansPay-for-knowledge plans– Pay employees more for learning a variety of Pay employees more for learning a variety of

different jobs or skillsdifferent jobs or skills

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Types of Alternative Reward Systems Types of Alternative Reward Systems (cont.)(cont.)

Gain-sharing plansGain-sharing plans– Align workers and management in efforts to Align workers and management in efforts to

streamline operations and cut costsstreamline operations and cut costs Profit sharing plansProfit sharing plans

– Allows union members to share wealth with more Allows union members to share wealth with more profitable firmsprofitable firms