HR 202 Chapter 15

1. Compensation
Chapter 15
Union Role in Wage and Salary
Administration
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Overview
Experts believe unions face their most critical challenge of a
consistent decline in membership. It may be due to:
• The changing structure of America to less unionized industries.
• Workers do not view unions as a solution to their problems.
• Reduced intensity of organizing efforts.
• Management’s increasingly hard stance against unions.
Competitive pressures triggered lower-than-normal wage
increases in unionized forms and even wage concessions.
Some union issues continue to be important to workers and
workers show an interest in forming a union when:
• Workplace relations are bad, management is untrustworthy, or when
workers feel they have little influence over decisions affecting them.

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Impact of Unions in Wage Determination
Despite efforts to lessen union impact, they still effect wages.
Four areas of union impact.
• Impact general wage and benefit levels.
• Impact the structure of wages.
• Impact nonunion firms through the spillover effect.
• Impact wage and salary policies and practices in unionized firms.

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Do Unions Raise Wages?
We can look at basic differences in wages, benefits and total
compensation between union and nonunion workers.
• To infer that union status caused the wage differences would require
confidence that workers would be paid the same with no union.
• In 2017, the union wage premium was 26% overall and 21% in the
private sector.
The best conclusion about union versus nonunion wage
differences is that:
• Unions do make a difference in wages, across all studies and all time
periods.
• The size of the gap varies from year to year.

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Exhibit 15.1: Compensation, Union versus Nonunion Employees,
United States, Worker Survey and Employer Survey

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The Structure of Wage Packages
The union’s effect on benefits far exceeds the union’s effect on
wages and salaries.
• So the effect of unions on total compensation exceeds the union effect
on wages and salaries.
A second dimension is the evolution of two-tier pay plans.
• Differentiate pay based upon hiring date.
• Management views wage tiers as a viable compensation strategy.
• Unions allowed their spread thinking they were better than wage
freezes and layoffs.
• The inequality will eventually cause employee dissatisfaction.

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Union Impact: The Spillover Effect
Union wage settlements have declined but union impact would
be understated if the spillover effect were not accounted for.
• Employers seeking to avoid unionization offer workers the wages,
benefits, and working conditions of rival unionized firms.
• The nonunion management continues to enjoy freedom from union
interference and workers receive the spillover rewards.
• This is a documented phenomenon, although the effect is diminishing
as union power diminishes.
• Providing further evidence of the continuing role played by unions in
wage determination.

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Unions and Basis of Pay
Most contract specify for hourly and overtime pay.
Many specify premiums for nonstandard shifts.
Agreements may specify a fixed daily, weekly, biweekly, or
monthly rate.
• Usually specify a day of the week as payday.
Less frequently, contracts specify some form of incentive system
as the basis for pay.
• Mostly appearing in the manufacturing industry.

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Unions and Occupation-Wage Differentials
Most contracts recognize that different occupations should
receive different wage rates.
• A single rate prevails within occupations.
Although rare, some contracts do not recognize occupational or
skill differentials.
• These contracts specify a single standard rate for all jobs covered by
the agreements.
• Usually such contracts cover a narrow range of skilled groups.

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Wage Differentials in John Deere Agreement

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Unions and Experience / Merit Differentials
Single rate agreements do not differential wages based on either
seniority or merit.
Alternatively, agreements may specify wage ranges.
• Automatic progression is movement through the range based on
seniority.
• Moving through a range based on merit is less common.
• A third method of range movement is a combination of these two.

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Experience/Merit Differentials and St. Johns
School

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Other Differentials and Vacation/Holiday Pay
One differential example is different pay to unionized employees
in different geographic areas but employed by the same firm.
• Few contracts provide for different wages under these circumstances.
• This is problematic for a company paying uniform wages indifferent to
the cost of living of the area.
Another differential is with part-time and temporary employees.
• Few contracts specify special rates for these employees.
• Those that do are equally split between paying these workers more or
less than full-time workers.
Vacation and holiday entitlements are often in union contracts.
• They are usually very specific, including guidelines for when holidays
fall on odd days of the week.

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Unions and Wage Adjustment Provisions
There is usually a wage adjustment during the contract term.
There are three major ways these are specified.
• Deferred wage increases are negotiated at the time of the contract
and amount and timing is specified in the contract.
• Reopener clauses specify that wages, and perhaps some benefits, will
be renegotiated at a specified time or under certain conditions.
• Cost of living adjustments (COLAs) or escalator clauses, involve
periodic adjustments based on changes in the consumer price index.

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Unions Role in Discipline and Other Job Aspects
Union workers cannot be fired at will, unlike nonunion workers.
• Management may feel “stuck” with an underperforming employee.
• Enhanced job security of union members can translate into a major
labor cost problem and productivity problem.
Union protection from undue discipline includes a formal
grievance process which must be followed when disciplining.
• If agreement is not reached, outside arbitration is binding.
The most common arbitration issue is discipline, followed by
discharge, seniority issues, wages, and benefits.
• This indicates management is constrained by more than just discipline.
• These limits on management discretion can have consequences for
labor costs, productivity, and other objectives.

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Unions and Variable Pay
International competition causes a problem for unions.
• Increased wage costs from unionized contract may erode market share.
• Unions are more receptive to alternative reward systems.
About 20% of agreements permit some alternative rewards.
• Lump sum, piece rate, gain sharing, profit sharing, skill-based pay.
• Willingness to use such plans is higher in highly competitive industries.
• The union usually insists on safeguards.
• Group-based performance measures with equal payouts.
• Performance measures are most often objective.
• Most rely on past performance as a gauge of realistic targets.

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Alternative Reward Systems
Lump-sum awards are a one-time cash payment typically given
rather than a permanent merit increase.
Employee stock ownership plans (ESOPs) controls base wages in
exchange for employee’s part ownership in the company.
Pay-for-knowledge plans pay employees for learning skills and
allowing greater employer flexibility in moving workers around.
Gain-sharing plans split any cost savings between the company
and the workers – streamlining operations and cutting costs.
Profit sharing plans payouts can be substantial but the labor
savings during lean years make the plans effective.

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Exhibit 15.2: Fixed and Variable Pay Components of
the Ford-UAW Contract, Tier 1 Workers

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End of Chapter 15.