Epilogue

Challenges Facing Compensation Professionals

Learning Objectives

E-1. Explain the issues associated with a possible increase to the federal minimum wage rate.

E-2. Summarize the trends in performance appraisal and the relationship to compensation practices.

E-3. Describe the compensation-productivity gap issues.

E-4. Discuss the gender pay gap.

E-5. Explain the issue of pay transparency.

Outline

I. Overview

II. Possible Increase to the Federal Minimum Wage Rate

III. Trends in Performance Appraisal

IV. The Compensation-Productivity Gap

V. Gender Pay Gap

VI. Pay Transparency

VII. Key Terms

VIII. Discussion Questions and Suggested Answers

IX. Assisted-Graded Questions

X. Additional Cases from the MyLab Management Website; Instructor Notes, and Questions and Suggested Student Responses

Lecture Outline

I. Overview

A. Five key issues among many more have created persistent challenges for compensation and HR professionals:

1. Possible increase to the federal minimum wage rate

2. Performance appraisal trends

3. Compensation-productivity gap

4. Gender pay gap

5. Pay transparency

II. Possible Increase to the Federal Minimum Wage Rate

A. Raising the Minimum Wage

1. Many public campaigns have called for increasing minimum wage

2. Many states plus D.C. enacted minimum wage laws and pushes for increases have taken hold in some states

3. Some argue that increasing minimum wage could lead to lay-offs and have negative ripple effects throughout the U.S. economy

4. Another study suggest that raising the minimum wage will bring nearly 1 million workers above poverty levels

5. Different minimum wage levels is challenging for compensation professionals with employees in different states

6. Many retailers have chosen to raise their minimum starting wage as they are finding it difficult to hire well-qualified workers

7. Creates challenges for companies with employees distributed across state lines, and also could compress pay structures

8. Raising minimum wage may lead to some companies needing to reduce benefits, resulting in no change to total compensation

III. Trends in Performance Appraisal

A. Overview

1. In recent years many have questioned the value of traditional annual performance appraisals

2. Some have transitioned to ongoing reviews that entail more frequent, developmental feedback, making pay and promotion decisions separately

3. Some companies are using technology to facilitate more frequent feedback

4. Despite these shifts, many companies still utilize traditional methods a. Rely on as a factor in pay raise decisions b. Concerns with managers’ skills in performance discussions

IV. The Compensation-Productivity Gap

A. Overview

1. The compensation-productivity gap refers to the difference between real hourly compensation and labor productivity

2. Labor productivity is the real output per hour worked, or how efficiently labor is used in producing goods and services

3. Increases in productivity growth indicate companies’ investments in capital equipment and information technology

4 Since the 1970’s, real hourly compensation has lagged behind labor productivity growth

5. An important determinant in the gap is labor share of income, which refers to the part of economic output that goes to workers as compensation in return for their labor

6. A widening compensation-productivity gap undermines intent of pay-forperformance

V. Gender Pay Gap

A. Overview

1. The gender pay gap refers to the proportion of women’s earnings relative to men’s earnings

2. A gender-based pay gap has endured for over 150 years

3. Although it has decreased in recent decades, it is still substantial a. In 2016 women earned about 81.9 cents for every $1 earned by men

4. Comparable growth debate a. An important question in this debate is, why are jobs that are typically held by women paid substantially less than comparable jobs that men tend to occupy? b. Many comparable worth advocates argue that discrimination against women explains the pay differential, contextual factors that contribute: i. Increase in employment among women ii. Segregation of women from men in the work place based on jobs and industry c Job evaluation that uses different systems to evaluate male-dominated jobs and female-dominated jobs can impact d Asking job candidates about salary history has been implicated in perpetuating the gender pay gap e Some companies prohibit salary negotiations to attempt to reduce the pay gap

VI. Pay Transparency

A. Overview

1. Pay transparency refers to the extent to which companies make available information about one or more elements of the compensation system including: a. All employees pay or the formula for all pay decisions b. Pay grades and ranges c. The process and criteria for setting base pay and pay increase amounts

2. Transparent pay policies can promote motivation and higher performance over the long run

3. Partial pay transparency could compromise motivation and performance as it could lead to questions and concerns about unfair treatment

4. A downside is individuals often believe their contributions are higher than they actually are

5. Pay transparency could help address the gender pay gap

End of Chapter

VII. Key Terms

Compensation-productivity gap: The difference between real hourly compensation and labor productivity

Labor productivity: The real output per hour worked, or how efficiently labor is used in producing goods and services

Labor share of income: The part of economic output that goes to workers as compensation in return for their labor

Gender pay gap: The proportion of women’s earnings relative to men’s earnings

Comparable worth: A proposed remedy to address the gender pay gap that involves providing comparable pay for jobs with comparable worth

Pay transparency: The extent to which companies make available information about one or more elements of the compensation system

VIII. Discussion Questions and Suggested Answers

E-1. Discuss at least one advantage and one disadvantage of increasing the minimum wage. Consider this action’s impact on the company.

While increasing the minimum wage mostly benefits the worker, it could also help reduce employee turnover with companies. However, some economists believe that raising the minimum wage could result in increased prices on goods and services and also potential lay-offs due to the increased financial burden on companies. Companies may also need to reconsider their total compensation offerings, determining what benefits to offer given the increased payroll costs.

Learning Objective: E-1. Explain the issues associated with a possible increase to the federal minimum wage rate.

AACSB: Analytical thinking

E-2. What are some of the considerations associated with changing from the use of employee ratings to continuous discussions in appraising employee performance?

Many companies are transitioning to providing continuous feedback to employees instead of traditional annual performance appraisals. This practice helps address performance concerns in a timely manner and has benefits for employees in receiving ongoing feedback. It also reduces the time managers spend on reviews. However, this approach can create challenges for companies in their compensation practices. Many companies rely upon the qualitative and quantitative approaches of traditional performance appraisals as a basis for pay raises.

Learning Objective: E-2. Summarize the trends in performance appraisal and the relationship to compensation practices.

AACSB: Analytical thinking

E-3. From a total compensation perspective, what can companies do toward minimizing the negative impact of the compensation-productivity gap? (Note: Please think of something other than providing permanent pay increases.)

To address the negative impact of the compensation-productivity gap, compensation professionals should develop and implement pay-for-performance systems. Merit pay in particular can help companies increase compensation in line with the increased productivity of employees. Compensation professionals should make sure that merit pay increases are also substantial enough to exceed rises in the cost of living to offset the growing gap.

Learning Objective: E-3. Describe the compensation-productivity gap issues.

AACSB: Analytical thinking

E-4. Do you agree or disagree with comparable worth advocates’ perspectives on the gender wage gap? Explain.

Student responses will vary depending on their views. Those that agree may state that there are several reasons for the pay differential between men and women. It could be based upon discrimination against women, as well as job segregation based on gender. Many jobs traditionally held by women have been devalued. Those who advocate for comparable worth believe that job evaluation and compensation surveys have impacted the pay differential. Those who disagree with comparable worth advocates views may not see the differences in pay between men and women. Or, they may believe that focusing on equal pay for equal work should address the gender pay gap.

Learning Objective: E-4. Discuss the gender pay gap.

AACSB: Analytical thinking

E-5. Should companies make their pay systems transparent? Explain.

Pay transparency refers to the extent to which companies make available information about one or more elements of the compensation system. Sharing information about the process or formulas used to determine pay and pay increases can promote motivation and higher performance over the long run. More pay transparency could also help address the gender pay gap, as the gender pay differential will be more closely scrutinized. However, as many individuals believe that their performance or contributions are higher than they are, pay transparency may lead to unrealistic expectations that they be paid more.

Learning Objective: E-5. Explain the issue of pay transparency.

AACSB: Analytical thinking

E-6. This chapter discusses five important issues that will shape compensation professionals’ work for years to come. Which of these issues stands to create the greatest uncertainty for compensation professionals? Explain your answer.

The possible increase of the minimum wage could create uncertainty for compensation professionals because they do not have control over government regulations and therefore they are unable to determine if a raise to the federal minimum wage will occur. While the concerns with performance appraisal trends, the compensation-productivity gap, the gender pay gap, and pay transparency are important issues for compensation professionals, these are all concerns that the compensation professional can have more control over as their impact can be influenced by decision-making within the company.

Learning Objective: All of the learning objectives for this chapter apply.

AACSB: Analytical thinking

IX. Assisted-Graded Questions

E-7. Concisely summarize the five challenges discussed in this chapter.

Answer to this question can be found in the MyLab Management

E-8. As minimum wage continues to rise, how might companies adjust staffing to minimize increased costs?

Answer to this question can be found in the MyLab Management

E-9. MyLab Management Only – comprehensive writing assignment for this chapter.

X. Additional Cases from the MyLab Management Website; Instructor Notes, and Questions and Suggested Student Responses

Case: Expatriate Problems at Global Appliance

Instructor Notes:

There are many human resource management practices that affect the success of international assignments including the selection and training of expatriates. The design of the compensation package also has a significant effect on the success of international assignments. There must be incentives for employees to take international assignments and also financial risk to the employee should be minimized. In ensuring the success of expatriates, careful attention should be paid to the pay and benefits given to those asked to work in an international assignment. In this case, the Human Resources Director most likely needs to speak with more employees and current expatriates to understand their concerns, but initially examining their compensation program is a good first step.

Questions and Suggested Student Responses:

E-10. How can compensation practices affect the willingness of executives at Global Appliance to take international assignments?

Easing financial concerns helps make an international assignment more attractive. Often, an employee may respond positively to incentives, but at a minimum does not want an international assignment to affect him or her negatively from a financial aspect. Employers must also consider the effects on the employee’s family while on an international assignment. As Global’s expatriate compensation program has changed over the years, it is reasonable to suspect that those changes may have impacted satisfaction with international assignments.

AACSB: Analytical thinking