McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

15-1

Union Role in Wage and

Salary Administration

Chapter

15

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

15-3Median Weekly Earnings of full-time wage and salary workers by union

affiliation and industry, 2005Union Nonunion

Private wage and salary 757 615(23% premium)

Mining 905* 865*Construction 933 590Manufacturing 722 667Transportation and utilities 864 676Wholesale and retail trade 615 562Government 850 692* (2004 data)Percentage increase, 2004-05, private sectorUnion: 2.4%Nonunion: 1.8%

Source: U.S. Department of Labor, Bureau of Labor Statistics, January 2006.

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

15-4

Union Impact on General Wage Levels

Unions do make a difference in wagesUnion workers earn between 8.9% and

12.4% more than nonunion workersSize of gap varies from year to year

During periods of higher unemployment, impact of unions is larger

During strong economies, union-nonunion gap is smaller

Union-nonunion wage differentials in public sectorUnion employees earn about 16 – 19%

more than their nonunion counterparts

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15-5

Structure of Wage Packages

Three dimensions related to wage structure

Division between direct wagesand employee benefits

Evolution of two-tier pay plans

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

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15-6

Wage Structure: Two-Tier Pay Plans

Two-tier pay structures are a phenomenon of union sector Contract differentiates pay based upon hire date Employees hired after a target date will receive lower wages

than their higher-seniority peers in similar jobsFrom management’s view, wage tiers are a viable

alternative pay strategy Cost control strategy to allow expansion or investment Cost-cutting device to allow economic survival

From a union’s perspective, wage tiers are viewed as less painful than Wage freezes Staff cuts among existing employees

However, tradeoff bargained away equivalent wage treatment for future employees

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15-7

Two-Tier Pay Plans Recent two-tier agreements

Delphi, Visteon/UAW Caterpillar/UAW S. Cal grocery ers/UFCW

Workers on lower tier have more negative attitudes Effects of permanent and temporary plans differ Perceived employment mobility moderates attitudes

Low mobility workers had more positive attitudes than high mobility

Source: Townsend and Partridge (1999)

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

15-8

Union Impact: The Spillover Effect

Employers seek to avoid unionization by offering workers wages, benefits, and working conditions won in rival unionized firms

Outcomes

Nonunion management continuesto enjoy freedom from union“interference” in decision making

Workers receive “spillover” of rewards obtained by unionized counterparts

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15-9

Role of Unions in Wage andSalary Policies and Practices

Role of unions in administering compensation is outlined in contract

Basis of payRegular payOvertime payPay for nonstandard shifts Incentive pay

Occupation-wage differentialsExperience/merit differentials

Automatic progression based on seniorityMeritCombination of automatic and merit progression

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

15-10Role of Unions in Wage andSalary Policies and Practices

(cont.)

Other differentialsPay to unionized employees employed by

firm in different geographic areasPart-time and temporary employees

Vacations and holidaysWage adjustment provisions

Deferred wage increasesRe-opener clausesCost-of-living adjustments (COLAs) or

escalator clauses

McGraw-Hill © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

15-11

Unions and Alternative Reward Systems

When employers face extreme competitive pressures, unions are receptive to alternative reward systems linking pay to performance

Union stipulationsEquity issue involves use of group-based

measures with equal payoutsMinimize bias

Use of objective performance measures in unionized firms

Use of measures based on past performance20 percent of all U.S. collective bargaining agreements permit some alternative reward system

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15-12

Types of Alternative Reward Systems

Lump-sum awards Given in lieu of merit increases

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

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

different jobs or skillsGain-sharing plans

Align workers and management in efforts to streamline operations and cut costs

Profit sharing plans Allows union members to share wealth with more

profitable firms