Expert answer:Need management help for answer about a violation
Answer & Explanation:Compensation
1. Is this a violation of the EPA (Environmental Protection
Agency)? What about Title VII violation? If you cannot take a position on the
allegations, stipulate what specific additional information you need to reach a
conclusion.
2. Conduct a Web search to determine whether you can find
pay data that are relevant to the claims in the letter. The legal implications
aside, what should Dr. Boseman do?
3. Does Ms. Kate have a case?
Critical Thinking Application 10-B.pdfRead 5.pdf*Note: Please answer each question with a minimum of 350 word count. Total word count should be 1050, not to include the reference page. Please use APA format with in-text citation and reference page, minimum of three references required. Read attachment Critical Thinking Application 10-B in order to answer question. Read 5 attachment is used for references if needed. critical_thinking_application_10_b.pdfread_5.pdfcritical_thinking_application_10_b.pdfread_5.pdf
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Appendix A / Critical Thinking Applications
financial consequences if their behavior (or lack of it)
hurt their firm. Liability insurance for this provision
is now available. To what extent does insuring
against “clawback” subvert the point of the law?
Conduct research on the law and determine
whether there are any new studies that have assessed
the effects of the new law. Section 954 of the DoddFrank Act requires national securities exchanges
(meaning, for instance, the NYSE, Amex, and
Nasdaq) to adopt rules as directed by the SEC. The
rules will require issuers to develop and implement a
policy providing for disclosure of an issuer’s policy
on incentive compensation that is based on financial
information required to be reported under securities
laws, and that, if an accounting restatement is
prepared, the issuer will recover any excess incentivebased compensation from any current or former
executive officer who received such incentive-based
compensation in the 3 preceding years.
4. Should “say on pay” be mandatory for all executive
pay packages? Should corporate boards alone
continue to make decisions with respect to executive
pay packages or should consent of a majority of
shareholders be required? Suggest one or two
advantages and disadvantages.
5. Do you agree with the recommendation to require full
disclosure regarding pay consultants? Explain your
answer.
6. What about the argument that CEO pay is no more
out of line than the compensation of movie stars or
star athletes?
*Contributed by Harry Schwartz and John Bernardin.
1
Crystal, G. (1991). In search of excess (p. 3). New York, NY: Norton.
2
Retrieved from http://www.aflcio.org/corporatewatch/paywatch/; See also,
Morgenson, G. (2011, June 18). Paychecks as big as Tajikistan. The New York
Times online.
3
Rich, F. (2010, March 21). Obama, Lehman and ‘The Dragon Tattoo.’ The
New York Times on line. http://www.nytimes.com/2010/03/21/opinion/21rich
.html?scp=1&sq=Obama,%20Lehman%20and%20%E2%80%98The%20
Dragon%20Tattoo%E2%80%99%20&st=cse
4
Bebchuk, L., Cohen, A. & Spamann, H. (2010). The wages of failure: Executive
compensation at Bear Stearns and Lehman 2000–2008. Yale Journal on
Regulation, 27, 257–282.
5
Retrieved from http://www.accountingobserver.com/Reports/tabid/59/Default
.aspx S.&P. 500 Executive Pay: Bigger Than . . . Whatever You Think It Is
6
Morgenson, G. (2009, August 15).The Quick Buck Just Got Quicker. The
New York Times on line. http://www.nytimes.com/2009/08/16/business/16gret
.html?pagewanted=all
7
Equilar (2010). 2010 Clawback policy report: An analysis of compensation
recovery policies at Fortune 100 companies. Available at www.Equilar.com.
8
Finger, R. B. (2011, October 25).Why America’s highest paid CEOs are insanely
overpaid. http://www.forbes.com/sites/christopherhelman/2011/10/25/whyamericas-highest-paid-ceos-are-insanely-overpaid/
9
Ibid.
Critical Thinking Application 10-B
Illegal Pay Discrimination, Bad Pay Policy,
or Both?
The following letter was written by Ms. Julia Kate, a female
associate, and addressed to the director of the clinical
counseling center.
Dear Dr. Boseman:
The purpose of this letter is to request an assessment of my salary in the context of my performance
and responsibilities and the salary levels that have
been set for three staff members recently hired by the
Counseling Center. In the past year, the Center hired
one male Ph.D. at $10,000 more than I earn and two
unlicensed counselors (both male) at almost my identical salary rate.
I believe my salary is extremely low given the
following facts: (1) My job performance has been
rated at the highest level for all six years I have been
on staff; (2) the recently hired Ph.D., a male, had no
experience and performs the identical work I perform;
(3) the recently hired M.Ed., a male, who is paid at the
same level as I, had no experience in counseling. As
you know, with the exception of the referrals to which I
refer below, assignments of clients to staff members are
based strictly on space available and not the possession
of a particular staff member’s credentials.
While I recognize that credentials do translate into
higher salaries for persons performing identical work,
so too do other credentials such as the possession of an
applicable license and qualifications and experience in
supervising graduate student interns. I receive no additional compensation for this license despite the fact
that it enables me to supervise interns while the two
Master’s level associates hired do not possess such a
license and thus cannot (and do not) supervise students.
I have supervised graduate students since 1997. In addition, I have a Master’s in Social Work (MSW), a terminal degree that, as a credential, has far more external
marketability than the degrees possessed by the two
new hires.
I am also the designated specialist who receives all
referrals from the county regarding sexual assault and
rape. I have had to use my expertise in this highly sensitive area on several occasions.
Rational (and legal) compensation systems set and
adjust pay levels based on a number of factors, including
the credentials, experience, supervisory responsibilities,
and, of course, the job performance of the incumbents.
Based on these factors, my salary is difficult to explain,
especially when compared to the new staff of the
Counseling Center.
Thank you for considering these issues. I look
forward to your response. Ms. Julia Kate
Assignment
Write a one-page position paper. Is this a violation of the
EPA? What about a Title VII violation? Does Ms. Kate
have a case? If Dr. Boseman feels Ms. Kate has an EPA
case, can he reduce the pay of the newly hired PhD to match
Ms. Kate’s salary to erase the problem? Does it matter
that the Counseling Center hired the male PhD 8 months
ago? If so, how is this relevant in a Title VII claim? If
you cannot take a position on the allegations, stipulate
what specific additional information you need to reach
a conclusion. The legal implications aside, what should
Dr. Boseman do?
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Part 4
Compensating and
Managing Human
Resources
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Copyright © 2013 The McGraw-Hill Companies. All rights reserved.
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Chapter
10
Compensation: Base Pay
and Fringe Benefits*
W
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O B J E C T I V EGS
H
After reading this chapter,
you should be able to
T
1. Understand the traditional
model for base pay programs.
,
2. Describe the basic approaches to job evaluation.
3. Describe the contemporary trends in compensation.
4. Explain the role ofSgovernment in compensation.
5. Understand the various
H forms of fringe compensation, including
government-mandated
E programs.
6. Define the different types of retirement plans.
R
7. Understand the complexities of international compensation.
R
Y
Copyright © 2013 The McGraw-Hill Companies. All rights reserved.
OVERVIEW
2
The Tribune Company developed a new performance management system, closely following the prescriptions7provided in Chapter 7. At an orientation session in which the
new system was introduced to management, the first several questions had to do with the
9
relationship between the new system and pay. Pay is very important to people and very
3 Research on high-performance work systems indicates that
important to organizations.
characteristics of a firm’s
Bcompensation system are strongly related to corporate financial
performance.1
U employers in the United States spent an average of $27.75 per
In December 2010, private
hour worked on total employee compensation. Cash compensation averaged $19.64 per hour
(70.8 percent of total compensation) while per hour benefits costs were $8.11 (29.2 percent
of total compensation).2 Figure 10-1 depicts these average per hour compensation costs
and the percent each component bears to overall compensation. But the general perspective
about pay programs looks bleak. A February 2011 survey identified salary as the leading
cause of employee dissatisfaction among U.S. workers (47 percent), followed by workload
(24 percent), lack of advancement opportunity, and the individual’s manager or supervisor
(both at 21 percent).3 In his book, The Big Squeeze, New York Times reporter Steven Greenhouse asserts, “A profound shift has left a broad swath of the American workforce on a lower
plane than in decades past, with health coverage, pension benefits, job security, workloads,
*Contributed by Christine M. Hagan.
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4 / Compensating and Managing Human Resources
Figure 10-1
Average Employer Costs
per Hour Worked
Total compensation
Wages and salaries
Total benefits
Paid leave
Vacation
Holiday
Sick
Personal
Supplemental pay
Insurance
Retirement and savings
Legally required benefits
Social Security and Medicare
Unemployment insurance
Workers’ compensation
Cost
Percent
$27.75
19.64
8.11
1.89
.96
.60
.24
.09
.75
2.22
.97
2.28
1.64
.21
.42
100
70.8
29.2
6.8
3.5
2.1
.9
.3
2.7
8.0
3.5
8.2
5.9
.8
1.5
W
R
I
stress levels, and often wages growing
G worse for millions of workers” (p. 4). While the
productivity of the U.S. workforce rose more than 15 percent between 2001 and 2008, the
H worker increased by 1 percent.4 Between January
average wage for the typical American
and July 2009, pay was frozen in half
T of U.S. companies. (Most of these freezes were lifted
by late 2010.5) A 2009 survey reported that only 30 percent of organizations believe that
,
supervisors and line managers communicate
and manage pay programs effectively.6
Source: Adapted from the Bureau of Labor Statistics (Private Industry Employees, December, 2010). Accessed April 19,
2011, from http://www.bls.gov/news-release/pdf/ecac.pdf
Four trends
Diversity in strategies
Soaring benefits costs
The term compensation refers to all forms of financial returns and tangible benefits
that employees receive in exchange for their time, talents, efforts, performance and
S
results.7 As the business environment becomes increasingly complex and global, the challenge to create and maintain effective
H compensation programs, given cost constraints, also
requires greater professional expertise, organizational understanding, creativity, and vision
E
than ever before.
R
Over the last decade, several compensation
trends are noteworthy. First, there has been
a dramatic increase in the diversityRof pay strategies and practices. Not too long ago, employees received a base salary (which the organization probably described as being “comY benefits (which the organization probably described
petitive”) and a set of preestablished
as being “comprehensive”). Today firms are providing variable pay, special recognition
bonuses, individual and group incentive plans, and broad-based success-sharing programs
at all levels in the organization, and2flexible benefits are becoming the norm.
The second trend has been the7soaring cost of employee benefits. There is general
consensus that our traditional approach to health care is “unsustainable,” but there is little
consensus about how to effectively9revise the system. In the private sector, traditional pension plans have been replaced with3less costly programs, which will provide considerably
lower retirement benefits. In the public sector, pension plans and other benefits are under
B high price tags and because taxpayers bitterly resent
siege in many places because of their
funding benefits for public workersUthat exceed those to which most taxpayers are entitled
as private sector workers. The future of Social Security and Medicare are in question.
Third, there continues to be significant pay inequity when comparing pay at the “top” of
the firm with pay at the “bottom.” In 1980, CEOs earned 42 times the average worker; by
1990 that figure had increased to 120 times; and in 1997 the ratio was 280 to 1. The disparity peaked in 2000 when CEOs earned 531 times the average worker in the firm. In 2009,
it was estimated to have fallen back to 263 to 1.8 According to experts, “U.S. CEOs are far
and away the highest paid CEOs in the world. Yet, from a long-term perspective, and compared to CEOs in other countries, they cannot be considered the very best performers.”9
In a 2010 study, for every additional 10 percent increase in revenues in the private sector,
3 percent of those revenues went straight to CEO compensation.10 The 2008 collapse of
major U.S. financial institutions, which were managed by extremely well-paid executives,
only added fuel to the fire. While Merrill Lynch’s 2008 losses soared to $27.6 billion, its
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10 / Compensation: Base Pay and Fringe Benefits
Pay programs to
communicate change
A state of transition
Copyright © 2013 The McGraw-Hill Companies. All rights reserved.
Does pay matter?
45-year-old top investment officer’s 2008 pay was $33.8 million in cash and stock, a bit
less than he was awarded in 2007. In fact, while Merrill’s very survival was in question, 11
of its executives were paid more than $10 million each, and an additional 149 employees
earned more than $3 million. The issue of such rewards in the face of record losses created
public outcry, particularly when the federal government stepped in with taxpayer dollars
to cover Merrill’s losses.11
The fourth key trend is that pay programs are increasingly being used to communicate major change in organizations, particularly during and after major downsizing and reengineering
efforts. As IBM began to rebuild itself in the late 1990s, one of the key tools for change was
a complete redesign of the pay system. IBM scrapped its traditional approach to evaluating
work and its pay grade structure. It reduced the number of different jobs from 5,000 to fewer
than 1,200. It significantly increased the percentage of an individual’s pay that was directly
related to performance and created pay-at-risk programs at all levels in the organization (a big
first for IBM!).12 Although HR and compensation experts continued to design and develop
the framework of the pay program, significant day-to-day administration of the program was
W making compensation more of a management tool than an HR
transferred to line managers,
program. Compensation R
experts have traditionally argued the importance of directly aligning business strategies and compensation programs. This past decade, however, has seen a
I compensation programs play in supporting, communicating, and
rethinking of the role that
even leading the way to new
G organizational values and performance norms.
As a result, compensation programs are in a state of transition. Organizations are
H types of structures; they are allocating money differently
experimenting with different
to programs; they are questioning
the traditional (rather rigid) “job-based” approach to
T
compensation program design; they are looking for innovative ways to get more for their
, and they are putting more of a focus on long-term success
investment in compensation;
criteria.
Does pay matter? Research suggests that reward systems can influence a company’s
S
success (or failure) in three ways.13 First, the amount of pay and the way it is packaged
and delivered to employees
H can motivate, energize, and direct behavior. IBM’s compensation program redesign (described previously) was directly targeted at changing the way
E
IBMers thought about their work, focused their energies, and directed their performance.
R an important role in an organization’s ability to attract and
Second, compensation plays
retain qualified, high-performance
workers. Unless applicants find job offers to be apR
propriate in terms of the amount and type of compensation, they may not consider emY firm. Compensation strategies and practices can clearly shape
ployment with a particular
the composition of a workforce. This is especially important for firms operating in tight,
high-expertise labor markets. Microsoft, for example, sets out to hire a certain percentage of the top technical2talent that graduates each year. In addition to investing heavily
in recruiting and selection
7 activities, Microsoft offers job candidates a generous sign-on
bonus, a competitive base salary, stock options, and a flexible benefits program, which
9 the benefits and coverage that they both need and value most.
allows individuals to select
Finally, the cost of compensation
can influence firm success. On average, the over3
all cost of labor is estimated to be 65–70 percent of total costs in the U.S. economy
B elsewhere.14 Within the United States, firms that wish
and is similarly substantial
to pursue a strategy based
U on cost leadership must find ways to reduce those costs
without sacrificing quality. Organizations that compete in global marketplaces have
greater cost-competitive pressures. In 2009, average hourly total compensation costs
(cash compensation plus benefit costs in U.S. dollars) for a U.S. manufacturing worker
was $33.53, which was lower than costs in 12 European countries and Australia, but
higher than the costs of 20 other countries tracked by the U.S. Bureau of Labor Statistics (BLS). Norway reported the highest per hour manufacturing compensation
costs ($53.89), while the Philippines posted the lowest ($1.50). Mexico’s average
hourly compensation cost $5.38. Across Europe, the average hourly cost was $31.95
(21 countries tracked). Figure 10-2 presents an international comparison of hourly
compensation costs in manufacturing. The U.S. Bureau of Labor Statistics also reports
that average compensation costs (U.S. dollars) in manufacturing for China have increased from $0.62 per hour (in 2003) to $1.36 per hour (2008). In India, those costs
357
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4 / Compensating and Managing Human Resources
Figure 10-2
International comparison
of hourly compensation
costs in manufacturing
(in U.S. dollars-2009)
53.89
Norway
27.74
Spain
Denmark
49.56
Greece
19.23
Belgium
49.40
Israel
18.39
Austria
48.04
Singapore
17.50
New Zealand
17.44
46.52
Germany
Switzerland
44.29
Korea, Republic of
Finland
43.77
Portugal
11.95
Netherlands
43.50
Slovakia
11.24
14.20
France
40.08
Czech Republic
11.21
Sweden
39.87
Argentina
10.14
W
34.97R
34.62I
33.53G
30.78 H
30.36 T
29.60 ,
39.02
Ireland
Italy
Australia
United States
United Kingdom
Japan
Canada
0
20
40
Estonia
9.83
Hungary
8.62
Brazil
8.32
Taiwan
7.76
Poland
7.50
Mexico
5.38
Philippines 1.50
60
0
20
40
60
S
H
E
have increased from $0.81 (2003) to $1.17 (2007).15 While the BLS reports average
R and India, it researches and presents them sepahourly compensation costs for China
rately from European and Western Hemisphere data. This is because Chinese statistics
R
on manufacturing employment do not tend to conform to international standards, and
India’s employment statistics onlyYcover “organized manufacturing” (which represents
Source: Bureau of Labor Statistics (USDL 11-0303).
U.S. workers prefer
individual pay-forperformance
about 20 percent of India’s manufacturing sector). However, these labor cost increases
reported for both countries suggest that competitive cost advantages enjoyed by China
and India may be showing signs 2
of some erosion. In summary, then, the strategy and
structure of compensation programs
7 have important implications for businesses and their
ability to create and sustain competitive advantage.
Does compensation matter to 9
individual workers? Recent discussions suggest that
money motivates people on two basic
3 dimensions. The instrumental meaning of money
relates directly to what money buys: better houses, better educations for children, betB symbolic meaning of money concerns how wealth
ter vacations, clothe …
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