Chapter Three

Contextual Influences on Compensation Practice (Laws)

Exhibit 3-1

Employers’, Employees’, and Government’s Goals

Employers

Employees (and Unions)Government

Laws Affecting Compensation Levels of Laws

» Federal, State, Local

Federal Laws: Income continuity, safety, work hours:

» FLSA, Social Security Act, Portal-to-Portal Act, Work Hours and Safety Standards Act, Local Area Wage

Pay discrimination» Equal Pay, Title VII of Civil Rights Act of 1964, ADEA (and

OWBPA), Executive Orders, Accommodating disabilities and family needs

» Pregnancy Discrimination Act, ADA, FMLA Prevailing wage laws

Income continuity, safety, work hours: Fair Labor

Standards Act

Income continuity, safety, work hours: Fair Labor

Standards Act Minimum wage Hours of work (overtime provisions) Also: Child labor laws, Equal pay laws*

Covered and not-covered companies Exempt vs. non-exempt positions

» Most positions are non-exempt» Executives, administrative, professionals, and

some others are exempt

Exhibit 3-2

Differences Between Annual Minimum Wage Earnings and Annual Poverty Thresholds for

Selected Years

YEARFED. MINIMUM

HOURLY WAGE

ANNUAL MINIMUMWAGE EARNINGS(hourly min. wage

x 40 hr/week x52 weeks)

AA

ANNUAL POVERTYTHRESHOLD

(family of three)BB

DIFFERENCEA - BA - B

198019861989199019921994

$3.10$3.35$3.35$3.80$4.25$4.25

$6,448$6,968$6,968$7,904$8,840$8,840

$6,565$8,737$9,885

$10,419$11,186$11,542

-$ 117-$1,769-$2,917-$2,515-$2,346-$2,702

Source: US Dept. of Commerce, Statistical abstracts of the US, 115th ed. (Washington, DC: US Government Printing Office, 1995).

Exhibit 3-10

Average Weekly Earnings by Industry Group,

1980 to 1994

Construction

Manufacturing

Transportation, public utilities

Wholesale trade

Mining

Finance, insurance, real estate

Service

Retail trade

1980

$397

$368

$351

$267

$235

$210

$191

$147

1985

$520

$464

$450

$351

$299

$289

$257

$175

1990

$603

$526

$505

$411

$345

$357

$319

$194

1993

$647

$552

$540

$448

$374

$406

$351

$210

1994

$666

$570

$554

$460

$385

$424

$360

$216

Source: U.S. Dept. of Commerce, Statistical abstracts of the United States, 115th ed. (Washington, D.C.: U.S. Government Printing Office, 1995).

INDUSTRY

Exhibit 3-5

Compensable Activities That Precede and Follow Primary Work Activities

The time spent on the activity was for the employee’s benefit. The employer controlled the amount of time spent. The time involved is categorized as “suffered and permitted,”

meaning that the employer knew the employee was working on incidental tasks either before or after the scheduled tour of duty.

The time spent was requested by the employer. The time spent is an integral part of the employee’s principal

duties. The employer has a union contract with employees providing

such compensation, or, as a matter of custom or practice, the employer has compensated the activities in the past.

Exhibit 3-4

FLSA Exemption Criteria for Executive, Administrative, and Professional

Employees (1 of 3)

Executive Employees» Primary duties include managing the organization» Regularly supervise the work of two or more full-

time employees» Authority to hire, promote, and discharge

employees» Regularly use discretion as part of typical work

duties» Devote at least 80 percent of work time to fulfilling

the previous activities

Exhibit 3-4

FLSA Exemption Criteria for Executive, Administrative, and Professional

Employees (2 of 3)

Administrative Employees» Perform nonmanual work directly related to

management operations» Regularly use discretion beyond clerical duties» Perform specialized or technical work, or perform

special assignments with only general supervision» Devote at least 80 percent of work time to fulfilling

the previous activities

Exhibit 3-4

FLSA Exemption Criteria for Executive, Administrative, and Professional

Employees (3 of 3)

Professional Employees» Primary work requires advanced knowledge in a

field of science or learning, including work that requires regular use of discretion and independent judgment, or

» Primary work requires inventiveness, imagination, or talent in a recognized field or artistic endeavor

Source: 29 Code of Federal Regulations, Sec. 541.3 29; Sec. 541.1.

Exhibit 3-3

Six Defining Factors of Trainee for the FLSA

The training, even though it includes actual operation of the employers’ facilities, is similar to that which would be provided in a vocational school.

The training is for the benefit of the trainee. The trainee does not displace regular employees but works under closer

supervision. The employer providing the training gains no immediate advantage from

the trainees’ activities; on occasion, the employer’s operation may in fact be hindered.

The trainee is not guaranteed a job at the completion of the training. The employer and the trainee understand that the employer is not

obligated to pay wages during the training period.

Source: J.E. Kalet, Primer on wage and hour laws (Washington, DC: Bureau of National Affairs, 1987).

Pay DiscriminationPay Discrimination

Equal Pay Act 1963 - Equal Jobs

Equal Pay Act 1963 - Equal Jobs

“Equal pay for equal work:” Equal pay for men and women performing substantially equal work.» Skill: Experience, training, education, ability» Effort: Mental or physical, amount (not type)» Responsibility: Accountability» Working conditions: Physical surroundings and

hazards--inside/outside, heat, cold, poor ventilation» Skill/effort/responsibility must be substantially greater,

tasks must consume a significant amount of time for all employees, must have a value commensurate with pay differential

» Based on job contents, not title or job description

Exhibit 3-6

U.S. Department of Labor Definitions of Compensable Factors

Source: U.S. Department of Labor, Equal pay for equal work under the Fair Labor Standards Act (Washington, D.C.: U.S. Government Printing Office, December 31, 1971).

FactorFactor

Skill

Effort

Responsibility

Workingconditions

DefinitionDefinition

Experience, training, education, and ability as measured by the performance requirements of a job

The amount of mental or physical effort expended in the performance of a job

The degree of accountability required in the performance of a job

The physical surroundings and hazards of a job, including dimensions such as inside versus outside work, heat, cold, and poor ventilation

EPA’s Affirmative DefensesEPA’s Affirmative Defenses

Pay differences in equal jobs are allowable due to:» Seniority» Merit» Quality or quantity of production» Any factor other than sex: Shift differentials, temporary

assignments, bona fide training programs, differences based on ability, training, or experience, others (justified business reason).

» Reverse discrimination may occur if a new pay system is designed and not equally applied to all employees, but not if a one-time adjustment is made for past problems

Title VII of CRA of 1964 (&) --

Equal or Unequal Jobs

Title VII of CRA of 1964 (&) --

Equal or Unequal Jobs Companies with 15+ employees, employment

agencies and labor unions. Not U.S. gvt. Prohibits discrimination based on race, creed

(religion), color, national origin, sex, or pregnancy in any employment condition: hiring, firing, promotion, transfer, compensation, admission to training.

Disparate Treatment: Treating people differently (less favorably) openly or covertly based on protected class (characteristic).

Disparate Impact: Treating people equally, but the practices have a differential effect, unless justified or work-related

Disparate TreatmentDisparate Treatment

Direct discrimination Different standards for different people. Prejudiced actions Intent to discriminate inferred by behavior. Can justify actions by absence of

discriminatory intent and reasonable business judgment.

Disparate ImpactDisparate Impact

Indirect discrimination Same standards have differing consequences. Neutral, color-blind actions Discrimination shown by statistics; intent need not

be present. Can justify pay differences through business

necessity.

Gender Pay Gap Begins Early

Gender Pay Gap Begins Early

Weekly allowance of children 12-underWeekly allowance of children 12-under

$7.66$7.66 $8.87$8.87

Average weekly wageAverage weekly wage

MenMenWomenWomen

$504$504$379$379

Pay Differences by Race and Sex

Pay Differences by Race and Sex

0

100

200

300

400

500

600

White Black Hispanic

Men

Women

Average Average Weekly Weekly Earnings Earnings Full- Full-time time Workers Workers 19901990

The Pay Gap - “Male Dom”The Pay Gap - “Male Dom”

0100200300400500600700800900

MenWomen

Weekly Weekly Earnings Earnings 19901990

Pay Gap “Female Dom”Pay Gap “Female Dom”

0

100

200

300

400

500

600

700

Reg Nurse Elem Tchr Gen Office Sew Mach

Men

Women

Weekly Weekly Earnings Earnings 19901990

Management JobsManagement Jobs

0100200300400500600700800900

1000

Men

Women

Weekly Weekly Earnings Earnings 19891989

MBA’s - Top Business Schools

MBA’s - Top Business Schools

0100002000030000400005000060000700008000090000

Men

Women

Annual Annual Earnings Earnings 19901990

Bachelor’s Degree Salary Offers

Bachelor’s Degree Salary Offers

0

5000

10000

15000

20000

25000

30000

Men

Women

Marketing Marketing Job Job Offers--Offers--Annual Annual SalariesSalaries19921992

Income by Years of Schooling

Income by Years of Schooling

0

10000

20000

30000

40000

50000

60000

Men

Women

Annual Annual Earnings Earnings 19901990

Income by Education, Race, Sex

Income by Education, Race, Sex

0

5

10

15

20

25

30

35

40

Some HS HS grad 4yr Coll

W men

W women

B men

B women

H men

H women

Annual Annual Earnings Earnings 1990 1990

Changes in Pay GapChanges in Pay Gap

0

20

40

60

80

100

120

1960 1970 1980 1982 1984 1986 1988 1990

White M Black M Hisp M

White W Black W Hisp W

Explanations for the Pay Gap--Structural Characteristics

Explanations for the Pay Gap--Structural Characteristics

Earnings differ among occupations, jobs differ in value, substantial labor force segregation by sex, women disproportionally in jobs that are lower valued and paid. Accounts for 10-40% of gap.

Occupations: Clerical vs craft Jobs: Selling: apparel vs boats Glass Ceiling: Job level varies Industries: Service vs. manufacturing Firms: Large vs small Union Membership: Jobs/firms/industries

Explanations for the Pay Gap--Individual Characteristics

Explanations for the Pay Gap--Individual Characteristics

Relate pay differences to differences believed to affect a person’s productivity on the job, that make a person valuable to an employer. Accounts for 0-44%.

Experience: 31%, “return on” Seniority (tenure): 40%, “return on” Education: 2%, “return on” Behaviors, other qualifications

Together structural and individual explanations account for 30-60% of the wage gap, leaving 40-70% unexplained.

Age Discrimination in Employment Act of 1967

(ADEA) Covers private employers with 20+

employees, labor unions with 25+ employees, and employment agencies

EEOC enforces this act Protects workers age 40 and older from

illegal discrimination in employment practices» Including pay and benefits» Limits to early retirement--must be voluntary

Accommodating Disabilities and Family needs

Pregnancy Discrimination Act of 1978» Must not treat pregnancy less favorably than

other medical conditions, must treat pregnancy and childbirth as other causes of disability

» Leave: must allow credit for previous service, accrued retirement benefits accumulated seniority

Accommodating Disabilities and Family Needs, cont’d

Americans with Disabilities Act of 1990 (ADA)» Mental or physical disabilities» Reasonable Accommodation

Family and Medical Leave Act of 1993» Job protection in cases of family or medial

emergency» 12 weeks of unpaid leave

Other Influences Labor unions

» National Labor Relations Act (NLRA)– Equality of bargaining power between employees

and employers

» Compensation issues in collective bargaining– COLA– Spillover effect– Concessionary bargaining

Market Influences» Industry effects, capital-intensity