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Chapter

1515

Union Role in Wage andUnion Role in Wage and

Salary AdministrationSalary Administration

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Learning ObjectivesLearning ObjectivesAfter studying Chapter 15, students should be able to:After studying Chapter 15, students should be able to:

1.1. Discuss each of the factors that affects wageDiscuss each of the factors that affects wage

determination in unionized organizations.determination in unionized organizations.

2.2. Discuss the union impact on wage and benefit levels,Discuss the union impact on wage and benefit levels,

and the wage structure.and the wage structure.

3.3. Discuss the union perspective on the use of alternativeDiscuss the union perspective on the use of alternative

reward systems.reward systems.

4.4. Explain when unions would desire cost of livingExplain when unions would desire cost of livingadjustments in contracts.adjustments in contracts.

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The Impact of Unions in WageThe Impact of Unions in Wage

DeterminationDetermination

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

Impact on the structure of wagesImpact on the structure of wages

Impact on nonImpact on non--union firms (spillover)union firms (spillover)

Impact on wage and salary policies and practicesImpact on wage and salary policies and practices

in unionized firmsin unionized firms

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Union Impact on General Wage LevelsUnion Impact on General Wage Levels

Unions do make a difference in wages.Unions do make a difference in wages.

Union workers earn between 8.9% and 12.4% moreUnion workers earn between 8.9% and 12.4% more

than nonthan non--union workers.union workers.

The size of the gap varies from year to year.The size of the gap varies from year to year.During periods of higher unemployment and slowDuring periods of higher unemployment and slow

economies, the impact of unions is larger.economies, the impact of unions is larger.

D

uring strong economies the unionD

uring strong economies the union--nonunion gap isnonunion gap issmaller.smaller.

Unions in the public sector make a difference in wagesUnions in the public sector make a difference in wages

of 7% to 12% more than their nonunion counterparts.of 7% to 12% more than their nonunion counterparts.

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The Structure of Wage PackagesThe Structure of Wage Packages

The presence of a union adds 20% to 30% to employeeThe presence of a union adds 20% to 30% to employee

benefits.benefits.

Unionized employees have a greater percentage of theirUnionized employees have a greater percentage of their

total wage bill allocated to employee benefits.

total wage bill allocated to employee benefits.

Benefits are 34.5% of the total compensation package forBenefits are 34.5% of the total compensation package for

union workersunion workers

Benefits are 25.6% for nonunion workersBenefits are 25.6% for nonunion workers

The higher costs are from higher pension expenditures andThe higher costs are from higher pension expenditures andhigher insurance benefits.higher insurance benefits.

Unions are reluctant to accept a twoUnions are reluctant to accept a two--tier wage structuretier wage structure

in contracts.in contracts.

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Union Impact: The Spillover EffectUnion Impact: The Spillover Effect

Employers seek to avoid unionization by offeringEmployers seek to avoid unionization by offering

workers the wages, benefits, and workingworkers the wages, benefits, and working

conditions won in rival unionized firms.conditions won in rival unionized firms.

The nonunion management continues to enjoy theThe nonunion management continues to enjoy thefreedom from union interference in decisionfreedom from union interference in decision

making.making.

The nonunion workers receive the spillover ofThe nonunion workers receive the spillover ofrewards obtained by their unionized counterparts.rewards obtained by their unionized counterparts.

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Role of Unions In Wage and SalaryRole of Unions In Wage and SalaryPolicies and PracticesPolicies and Practices

The role of unions in administering compensationThe role of unions in administering compensation

is outlined primarily in the contract.Thisis outlined primarily in the contract.This

includes:includes:

Basis of payBasis of pay

regular payregular pay

overtime payovertime pay

OccupationOccupation -- wage differentialswage differentials

Experience / merit differentialsExperience / merit differentials

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Role of Unions In Wage and SalaryRole of Unions In Wage and SalaryPolicies and PracticesPolicies and Practices (continued)(continued)

Other differentialsOther differentials

new and probationary employeesnew and probationary employees

pay to unionized employees employed by firm in differentpay to unionized employees employed by firm in different

geographic areasgeographic areas

partpart--time and temporary employeestime and temporary employees

Vacations and holidaysVacations and holidays

Wage adjustment provisionsWage adjustment provisions

deferred wage increasesdeferred wage increases rere--opener clausesopener clauses

costcost--ofof--living adjustments (COLA)living adjustments (COLA)

escalator clausesescalator clauses

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Unions and Alternative Reward SystemsUnions and Alternative Reward Systems

To help employers remain cost competitive, unions haveTo help employers remain cost competitive, unions have

become receptive in recent years to alternative rewardbecome receptive in recent years to alternative reward

systems that link pay to performance.systems that link pay to performance.

20percent of all U

.S.collective bargaining agreements

20percent of all U

.S.collective bargaining agreementspermit some alternative reward system.permit some alternative reward system.

Lump sum awardsLump sum awards

Piece ratePiece rate

GainGain--sharingsharingProfit sharingProfit sharing

SkillSkill--based paybased pay

Employee stock ownership plans (ESOP)Employee stock ownership plans (ESOP)

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Union Perceptions of Advantages andUnion Perceptions of Advantages and

Disadvantages of GainDisadvantages of Gain--SharingSharing

Advantages of GainAdvantages of Gain--SharingSharing

(% agreement)(% agreement)

Disadvantages of GainDisadvantages of Gain--SharingSharing

(% agreement)(% agreement)

1. Increased recognition (95)1. Increased recognition (95) 1. Management may try to substitute for 1. Management may try to substitute for

wage increases (94)wage increases (94)

2. Better job security (94)2. Better job security (94) 2. Management cant be trusted (88)2. Management cant be trusted (88)

3. More involvement in job activities (94)3. More involvement in job activities (94) 3. Peer pressure to perform may increase3. Peer pressure to perform may increase

(77)(77)

4. More money (94)4. More money (94) 4. Dont trust / understand bonus4. Dont trust / understand bonus

calculations (76)calculations (76)

5. More feeling of contributing to firm (86)5. More feeling of contributing to firm (86) 5. Union influence is undermined (66)5. Union influence is undermined (66)

6. Increased influence of union (70)6. Increased influence of union (70) 6. Increased productivity may reduce6. Increased productivity may reduce

need for jobs (64)need for jobs (64)

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SummarySummary

Due to increased international competition, U.S. laborDue to increased international competition, U.S. labor

costs must be cut to improve competitive position.costs must be cut to improve competitive position.

Unions face a difficult situation.Unions face a difficult situation.

How should they respond to the attacks on traditionalHow should they respond to the attacks on traditionalcompensation systems?compensation systems?

The crisis demands changing attitudes from bothThe crisis demands changing attitudes from both

management and labor.management and labor.

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Review QuestionsReview Questions

1.1. Most union contracts do not include provisions forMost union contracts do not include provisions for

merit pay. Given what we have discussed here and inmerit pay. Given what we have discussed here and in

Chapter11, explain why unions oppose merit pay.Chapter11, explain why unions oppose merit pay.

2.2. In recent years, the economy has enjoyed a rareIn recent years, the economy has enjoyed a rarecombination of low unemployment and low inflation.combination of low unemployment and low inflation.

Explain why this combination would make COLAExplain why this combination would make COLA

clauses less likely to appear in union contracts thanclauses less likely to appear in union contracts than

was true twenty years ago in the 1980s.was true twenty years ago in the 1980s.3.3. It is probably true that, if given a choice, unions wouldIt is probably true that, if given a choice, unions would

prefer to implement a skillprefer to implement a skill--based pay system thanbased pay system than

some form of gainsome form of gain--sharing plan. Why?sharing plan. Why?