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.

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

Chapter 15Chapter 15Union Role in Union Role in

Wage and Salary Wage and Salary AdministrationAdministration

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Chapter TopicsChapter Topics The Impact of Unions in Wage DeterminationThe Impact of Unions in Wage Determination

Unions and Alternative Reward SystemsUnions and Alternative Reward Systems

Your Turn: General TechnologyYour Turn: General Technology

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Impact of Unions in Wage Impact of Unions in Wage DeterminationDetermination

Impact on general wage and benefit levelsImpact on general wage and benefit levels

Impact on structure of wagesImpact on structure of wages

Impact on non-union firms, spillover effectImpact on non-union firms, spillover effect

Impact on wage and salary policiesImpact on wage and salary policiesand practices in unionized firmsand practices in unionized firms

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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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Structure of Wage PackagesStructure of Wage Packages Three dimensions related to wage structureThree dimensions related to wage structure

– Division between direct wagesDivision between direct wagesand employee benefitsand employee benefits

– Evolution of two-tier pay plansEvolution of two-tier pay plans

– Relationship between worker wages and pay of Relationship between worker wages and pay of managers in union and nonunion environmentsmanagers in union and nonunion environments

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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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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 payIncentive pay

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

– Automatic progression based on seniorityAutomatic progression based on seniority– MeritMerit– 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.)

Other differentialsOther differentials– Pay to unionized employees employed by firm in Pay to unionized employees employed by firm in

different geographic areasdifferent geographic areas– Part-time and temporary employeesPart-time and temporary employees

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

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Exhibit 15.2: Union Perceptions of Gain Exhibit 15.2: Union Perceptions of Gain SharingSharing