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Chapter 12 - Dealing with Employee–Management Issues and Relationships
72
total recovery almost entirely out of the picture, many men are on a path of joblessness that could go well
into the future. As they remain on the bench indefinitely they begin to lose skills, confidence, and con-
tacts, making it harder and harder to reenter the workforce.
The situation could be even worse for young black men. The jobless rate for black male teens
shot up to more than 40% in March, preventing many from so much as getting a foot in the door let alone
a career off the ground. Older workers have had it rough as well. Of those aged 55 to 64 who lost their
jobs between 2007 and 2009, 21% were out of the workforce entirely by January 2010. All this led to a
0.7% shrinking of the male workforce since unemployment hit its peak in October 2009. One silver lining
may exist in the fact that the percentage of employed males has rebounded more than women since the
employment trough. But since male employment fell off so much to begin with, it’s little more than an
empty consolation.v
Chapter 12 - Dealing with Employee–Management Issues and Relationships
73
critical
thinking exercises
Name: ___________________________
Date: ___________________________
critical thinking exercise 12-1
ARE UNIONS GOOD OR BAD FOR BUSINESS?
What do managers and workers think about unions? Find out by interviewing one manager of a
business that is organized by a labor union and one union member (this exercise is more interesting if the
manager and union member work for the same company.) Use the following questions as a guideline.
Compare your results with your classmates’ findings.
MANAGER
UNION MEMBER
1. What do you think is good about
management’s relationship with the
union?
1. What do you think is good about the
union’s relationship with manage-
ment?
2. What do you think is bad about the
relationship?
2. What do you think is bad about the
relationship?
3. How are things different in the com-
pany now than before the union was
organized?
3. How are things different in the com-
pany now than before the union was
organized?
Chapter 12 - Dealing with Employee–Management Issues and Relationships
74
notes on critical thinking exercise 12-1
This exercise is especially interesting in a town dominated by union workers or one that is having
union difficulties. In any case, it gets students involved with talking with real people about real percep-
tions and takes learning out into the real world. Classroom discussions can only supplement, not replace,
learning on your own.
Chapter 12 - Dealing with Employee–Management Issues and Relationships
75
Name: ___________________________
Date: ___________________________
critical thinking exercise 12-2
UNION NEGOTIATIONS
Let’s get a feel for how employee–management negotiations work. Divide the class into three
groups: managers, union representatives, and observers. The task of the managers and the union repre-
sentatives is to agree on salary rates for the next contract. The task of the observers is to “critique” the
negotiation process used (Did one group make an error? Could a particular confrontation been handled a
better way?).
Here’s the situation:
You work for Frigid Refrigerator Enterprise Systems. Employees of FRES earn 15% above the
average of other workers in the industry. Management feels FRES is losing its ability to compete because
its labor costs are too high. The obvious solution: ask labor to reduce labor costs either by reducing sala-
ries, reducing the number of workers, or a combination of both. Now it’s time to reach an employee–
management agreement. Keep in mind that “frozen” negotiations will mean an arbitrator (your professor)
will make a binding decision that both groups must accept—things will go better for you if you settle
these yourselves!
MANAGEMENT
DEMANDS
COMPROMISED
SETTLEMENT
UNION
DEMANDS
Chapter 12 - Dealing with Employee–Management Issues and Relationships
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notes on critical thinking exercise 12-2
The instructor should stay out of this as much as possible to let the students decide the issues and
resolve them. The instructor can assume the arbitrator position only at the end, not along the way. See
how many options the groups can come up with to be sure that everyone feels they are being treated fair-
ly. Be sure that the students act out the role assigned and aren’t too wishy-washy in their demands.
Chapter 12 - Dealing with Employee–Management Issues and Relationships
77
Name: ___________________________
Date: ___________________________
critical thinking exercise 12-3
EXECUTIVE PAY WATCH
Visit the AFL–CIO website at www.aflcio.org.vi Navigate through the site and find information
regarding salaries of CEOs of major corporations in the United States. (Sometimes the Web address for a
location changes. You might need to search to find the exact location mentioned.)
1. What is the average CEO compensation for the latest year?
2. Which CEO received the largest total compensation package? How much?
3. Who is the highest-paid CEO in the information technology industry? In the financial industry? In
the industrial industry?
4. List the top three executive retirement packages.
5. The text states that the average CEO of a major corporation makes 180 times as much as the av-
erage hourly worker. What is the current ratio of average hourly workers to CEO pay rates?
Chapter 12 - Dealing with Employee–Management Issues and Relationships
78
bonus
cases
bonus case 12-1
DO RIGHT-TO-WORK LAWS HELP STATES?
The year is 1947 and the U.S. Senate and House of Representatives are considering legislation to
deal with an unsettled labor–management situation affecting the U.S. economy. Since the end of World
War II, organized labor and employers have experienced a host of problems. Strikes in the oil, automo-
bile, steel, and coal industries have occurred, causing President Harry Truman to call a national labor–
management conference to find a formula for industrial peace. Still, this unsettled labor–management sit-
uation greatly strengthened opposition to the Wagner Act Congress passed in 1935.
Since the passage of the Wagner Act, labor unions had insisted on the legality of the closed shop
(which demanded that workers be members of a labor union before obtaining a job). Senator Robert Taft
of Ohio and Congressman Fred Hartley of New Jersey argued that the equity between organized labor and
management intended by the Wagner Act was out of balance. Together they proposed the Labor Man-
agement Relations Act to counter what was perceived as the growing power of labor unions. Organized
labor vigorously opposed the legislation and President Truman promised to veto the bill. However, on
June 23, 1947, after overriding a presidential veto, the Taft-Hartley Act became law.
The concept of reaching a balance between labor and management led to provisions in the bill
that dealt with “unfair labor practices” that applied to unions and management. Practices such as refusing
to bargain in good faith, engaging in secondary boycotts, stopping work over jurisdictional or interunion
disputes, and charging excessive initiation fees to keep members out of a union were considered unfair
labor practices. Special rules that allowed the president to call for a “cooling-off” period or waiting period
were also written into the law for handling controversies or strikes that could threaten national health or
safety. The Taft-Hartley Act also made the closed shop illegal.
Organized labor denounced the entire Taft-Hartley Act as a “slave labor” law. However, unions
were particularly troubled with Section 14(b) of the legislation. Section 14(b) enabled states to pass right-
to-work laws that would permit limitations on union shop and union security agreements. Labor “affec-
tionately” called the provision “right-to-wreck” laws and promised to fight such legislation in states
where it was proposed. To date, 22 states have passed legislation authorizing the open shop agreement in
the workplace. Oklahoma was the last state to pass right-to-work legislation in 2001.
A major question that’s been debated since passage of the Taft-Hartley Act is, Does passage of
right-to-work laws make a difference in a state’s economy? Former Governor Frank Keating of Oklaho-
ma, who supported the right-to-work legislation in his state, says Oklahoma experienced “a blizzard of
interest after passage of the right-to-work law.” A study by the Mackinac Center for Public Policy in
Michigan states, “right-to-work laws increase labor productivity by requiring labor unions to earn the
support of each worker since workers are able to decide for themselves whether or not to pay dues.” Den-
nis Donovan, a corporate-location consultant in Edison, New Jersey, says that among manufacturers
choosing facilities among numerous states, having a right-to-work law is a precondition for about one-
third of the companies. Labor unions take an opposite view and claim that workers in right-to-work states
earn on average less than union employees and work under less worker-friendly conditions. Unions claim
the real purpose of right-to-work laws is to roll back the achievements earned by organized labor. This
issue promises to be strongly debated in the 21st century.vii
Chapter 12 - Dealing with Employee–Management Issues and Relationships
79
discussion questions for bonus case 12-1
1. If given a choice, would you elect to join a labor union or not join? What are the reasons for your
decision?
2. With today’s protections under the law available to workers, do you believe that unions have out-
lived their usefulness?
3. Is your home state or the state in which you now live a right-to-work state? How do you feel
about economic development and growth in your state? If your state is not a right-to-work state,
would you support a right-to-work law if it were put to a popular vote?
notes on the discussion questions for bonus case 12-1
1. If given a choice, would you elect to join a labor union or not join? What are the reasons for your
decision?
This may or may not be a critical case in your class, depending on the unionization of the work-
2. With today’s protections under the law available to workers, do you believe that unions have out-
lived their usefulness?
Unions are still popular among those who feel they are being poorly paid and mistreated. That’s
3. Is your home state or the state in which you now live a right-to-work state? How do you feel
about economic development and growth in your state? If your state is not a right-to-work state,
would you support a right-to-work law if it were put to a popular vote?
This is a major issue in some states and a nonissue in others. Depending on the circumstances, let
Chapter 12 - Dealing with Employee–Management Issues and Relationships
80
bonus case 12-2
PENSION PLANS UNDER ATTACK
The U.S. airline industry has never recovered from 9/11. Since the terrorist attacks, the industry
has been in a free fall. Record fuel costs, the lowest fares since the early 1990s, and stiff competition have
caused the air carriers to lose billions of dollars. The industry as a whole has lost $30 billion. To keep the
carriers from economic collapse, labor unions have agreed to millions of dollars in concessions and wage
cutbacks.
Hardest hit is United Airlines, which has lost $10 billion by itself. But even the labor concessions
were not enough to keep United out of bankruptcy court. Looming large in the equation are the pension
obligations to retiring flight attendants, mechanics, and pilots. When it faced the bankruptcy judge in
2002, United had pension obligations of $9.8 billion. This staggering sum was owed to present and future
retirees under the terms of their contracts.
United argued that it was financially unable to pay these benefits, and the bankruptcy court
agreed. The airline walked away from the pension obligation, the equivalent of taking $267,000 from
each pilot, flight attendant, and mechanic.
The Pension Benefit Guaranty Corporation (PBGC), the government agency created in 1975 to
bail out domestic companies that default on pension obligations, will pick up the tab for United’s pension
plans. The PBGC is funded through an employer premium that is essentially a tax on employers to fund
pension plans. PBGC believes that U.S. pension plans are underfunded by more than $450 billion, with
companies in financial trouble liable for nearly $100 billion of this amount. The PBGC collects roughly
$560 million a year from the private sector, far short of the amount needed to pay the pensions of compa-
nies that have fallen on hard times. The agency’s resources will be exhausted within a few years.
Because of the United pension fiasco, some members of Congress warned that taxpayers may
someday have to bail out the deficit-riddled government pension agency. “Taxpayers had better buckle
up, because we will be in for a bumpy ride of bailout after bailout, as more and more corporations dump
their pension plan obligations on the PBGC,” said U.S. Representative Jan Schakowsky. The PBGC is
already operating at a deficit of more than $23 billion.
While preserving some of United’s pension benefits, the bankruptcy settlement hit workers and
retirees hard. Federal regulations limit the amount of pension payments the PBGC can make to a maxi-
mum of about $45,000 a year. The highest-paid United workers, such as pilots, face pension cuts of up to
50%. The pilots also face a catch-22: Under one federal law, they are not allowed to work after age 60;
under another, the proportion of their pension guaranteed by the PBGC is sharply reduced if they retire
before age 65.
The former United pension plan covers 120,000 current and retired United workers. Bankruptcy
Judge Eugene Wedoff approved the pension plan over the objections of several unions. He called it “the
least bad” of the available choices, since it gives unprofitable United the best chance to keep functioning.
United’s CFO, Jake Brace, said the verdict was important but that it “was not a joyous day” for the air-
line.
Employees and retirees are bitter about what they perceive as an inequity of sacrifice. While
workers take huge cuts in pension benefits, United CEO Glen Tilton has a $4.5 million annual pension
guaranteed by his employment contract with the company.viii
Chapter 12 - Dealing with Employee–Management Issues and Relationships
81
discussion questions for bonus case 12-2
1. What ethical and economic issues are raised by this case?
2. Since Social Security will not be fully funded in the future and company pensions may be in
doubt, what should a student do to prepare for retirement? Is this a union–management issue that
is easily resolved?
3. Does the government backing of pension programs create a “moral hazard”? What is a moral
hazard anyhow?
notes on discussion questions for bonus case 12-2
1. What ethical and economic issues are raised by this case?
It may not seem ethical for a company to not pay its pension obligations, but United was bank-
rupt. It had no choice. The government has assumed the role of backup in such cases, but is it ethical for
2. Since Social Security will not be fully funded in the future and company pensions may be in
doubt, what should a student do to prepare for retirement? Is this a union–management issue that
is easily resolved?
Students should not rely on Social Security or pensions for their secure retirement. Instead, they
3. Does the government backing of pension programs create a “moral hazard” What is a moral
hazard anyhow?
Students should learn what a moral hazard is, so this is as good a time as any to discuss it. A mor-
al hazard occurs when an attempt to do good encourages bad behavior from others. For example, forgiv-
Chapter 12 - Dealing with Employee–Management Issues and Relationships
82
endnotes
i Sources: Brad Tuttle, “Meet America’s Most Beloved CEO—Too Bad He Just Got Fired,” Time, July 23, 2014;
Lara Salahi and Adam Vaccaro, “Market Basket Protests Persist on Day of Deadline to Return to Work,” Bos-
ton.com, August 15, 2014.
ii Source: Brian Solomon, “The Wal-Mart Slayer: How Publix’s People-First Culture is Winning the Grocer War,”
Forbes, August 12, 2013.
iii Source: Emily Lambert, “The Right Way to Pay,” Forbes, May 11, 2009.
iv Source: Scott Sayare, “In France, A Move to Limit Off-the-Clock Work Emails,” The New York Times, April 11,
2014.
v Source: Peter Coy, “The Hidden Job Crisis for American Men,” Bloomberg Businessweek, April 7, 2011.
vi The Internet is a dynamic, changing information source. Web links noted of this manual were checked at the time
of publication, but content may change over time. Please review the website before recommending it to your stu-
dents.
vii Sources: Kathy Chen, “Wooing Companies: Do ‘Right-to-Work’ Laws Make a Difference?” The Wall Street
Journal, July 10, 2002, p. B3; Ashley Friedman, “University of Michigan Study Shows ‘Right-to-Work’ Laws Help
States,” University Wire, June 10, 2002.
