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Chapter 11 - Pay Structure Decisions
Self-Assessment Exercise
Refer to the self-assessment exercise in the text.
Exercising Strategy:
Changing Compensation to Support Changes in Corporate Strategy
Corning Inc. has realigned its strategy and compensation and benefits program divesting
several business units, pursuing a growth strategy, and created an environment that bolstered
innovation, risk taking, teaming, and speed. They also streamlined their compensation system
creating a more fluid environment by decentralizing pay decisions.
Questions
1. What are the pros and cons of Corning’s new pay structure?
Student answers will vary.
2. How did shifting product market conditions affect Corning’s restructuring and its
success?
Student answers may vary. These shifting environmental conditions meant that
Managing People:
Reporting the Ratio of Executive Pay to Worker Pay: Is it Worth the Trouble?
Recent laws require covered organizations to report the ratio of annual total compensation of
the CEO to the median o the annual total compensation of all other employees. The intention
is to control what many view as exorbitant growth of executive compensation.
Questions
1. Do you believe it is an undue burden on companies to compute and report the ratio of chief executive
compensation to employee compensation?
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Chapter 11 - Pay Structure Decisions
While it does not appear to be an onerous task, many organizations believe this
2. Do you believe reporting this ratio will result in changes that benefit companies, employees, or society?
Explain.
HR in Small Business:
Changing the Pay Level at Eight Crossings
Eight Crossings employs 85 employees who work either in their Sacramento, California office
or remotely from their homes. This business model has opened them up to competition
located in low wage areas like India. This has led to clients to request lower rates from Eight
Crossings’ CEO, Patrick Maher. Since the majority of Eight Crossings cost structure was
wage based, the only way to accommodate these requests would be to cut worker wages,
which had been based about 5% above industry averages. Maher investigated ways to trip
cost and found he could reduce the transcription work of his employees by using automated
software which translated into an approximate 5% increase in lines transcribed without
reducing the effective pay to the employees. Maher communicated these changes via email
and invited questions.
Questions
1. How did the change in pay level at Eight Crossings affect its ability to attract and retain a high-quality
workforce?
This change did not impact the effective pay of the workers, it simply streamlined the
2. Do you think the company’s pay structure was better suited to its objectives before or
after the reduction in pay level? Why?
It seems that the new pay structure is more in line with the company’s objectives since
3. How would you evaluate the company’s method of communicating the change in pay
level? What improvements to that process can you suggest?
Student’s responses will vary here – some will agree, others will not. Two important
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Chapter 11 - Pay Structure Decisions
Additional Activities
Teaching Suggestions
1. One issue that may generate considerable heat and controversy is discussing in class
whether internal job evaluation results or external market-pay surveys should be used
when there is a conflict between internal and external data. It must be recognized that
the use of comparable worth is only an issue when there is conflict between the
internal job evaluation and external market-survey data. The choices are then to pay
less and follow the market data or use internal information to increase the salary grade
or pay of the job in question.
A debate could be organized to discuss this issue. The promarket side would tend to
focus on issues of competitiveness, external equity, and paying appropriately for
human resources. The prointernal side would discuss issues of internal equity,
employee perceptions of equity and motivation, and comparable worth. Students find
the concept of comparable worth highly controversial.
A library assignment to do additional readings and report to the class on the topic
would likely make the debate more lively and controversial. For example, reporting on
the Canadian province of Ontario's comparable-worth regulations and how they have
worked would be informative.
2. In 1990 a study was done of 313 firms, which followed a study done in 1987 of 323
firms, about the use of skill-based pay systems. In 1987, 40 percent of the firms used
skill-based pay, while in 1990 the percentage was 51 percent. The percentage of
employees covered remained approximately the same less than 20 percent in both
1987 and 1990. In 1990, 60 percent of the firms stated that skill-based pay was
successful in increasing organizational performance, while only 6 percent rated it as
unsuccessful and 35 percent were undecided. The study supported the hypothesis that
there would be more skill-based pay associated with companies that used total quality
management systems, experienced heavy foreign competition, and removed
management layers in recent years. Lastly, the use of skill-based pay was associated
with the use of a variety of other reward-system practices (Adapted from: E. E.
Lawler, G. E. Ledford, Jr., and L. Chang, "Who Uses Skill-based Pay and Why,"
Compensation and Benefits Review 25 no. 2, [1993], pp. 22-26.)
Questions for discussion on skill-based pay: Why do you believe that skill-based pay
was found more often in organizations that experienced a great deal of foreign
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Chapter 11 - Pay Structure Decisions
competition? In organizations that had removed management levels in recent years? In
organizations that also used a variety of other reward strategies?
Do you believe that the use of skill-based pay will continue to increase? Why or why
not?
3. One interesting assignment, if you teach in a school where salaries are public
information, is to have students look at the differences in salaries for different
disciplines within the university and discuss the fairness and rationale for these
differences. My students are often interested in looking at the differences between
professors in the College of Business and professors in the Arts and Sciences. Also, we
discuss the differences in the salaries for professors in the college and the market
salaries. In my institutions, the professors' salaries are significantly below the market,
and we discuss the issue of wage compression, why this is a problem, and what
alternatives organizations have to deal with this issue.
4. Are CEOs paid too much? This is an issue that students could debate. One article that
does a good job of covering both sides is "Contrasting Perspectives—The Growing
Pay Gap: Are CEOs Paid Too Much Relative to Other Employees" by G. Crystal and
F. Cook, American Compensation Journal, Summer 1996, pp. 22-29. Another very
informative article on the subject is "Executive Pay Trends: Where Have We Been . . .
Where Are We Going" by P. Meyer, American Compensation Association News, June
1996, pp. 16-18.
Twitter Focus
Eight Crossings provides transcription services for physicians, attorneys, and health care
facilities. Employees work at the company’s office or in their homes. Sending files
electronically provided a competitive advantage that helped grow the business at a
tremendous pace. The downside to using electronic files was that it exposed Eight Crossings
to increased competition from low-wage locations such as India. To keep competitive with
off-shore vendors, Eight Crossings told its employees they would not be paid for “boilerplate
text” that appeared in most documents, which was generated automatically by transcription
software. This cut brought pay levels down to the market rate and kept the company
competitive.
Question:
If you were a transcriptionist for Eight Crossings, how would you react to being told that you
wouldn’t be paid for “boilerplate text?”
Manager’s Hot Seat Exercise: Negotiation: Thawing the Salary Freeze-Please
refer to the Asset Gallery on the OLC for Hot Seat videos and notes.
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Chapter 11 - Pay Structure Decisions
I. Introduction
This scenario depicts a negotiation between labor and management. For an Organizational
Behavior or Management course, this vignette will stimulate a discussion on negotiation skills
and, potentially, ethics. Instructors of HR-related courses will find this vignette useful in
discussing the labor-management negotiations process.
II. Learning Objectives
1. To assess students’ understanding of the negotiation planning process and effective
execution.
2. To analyze a negotiation and identify effective and ineffective strategies and behaviors
that occurred during the negotiation.
3. To have students identify key issues related to labor-management negotiations and the
legal and managerial implications, therein.
III. Scenario Description:
Overview: An upper management executive of a magazine publishing company, JBL
Publishing, is negotiating with a Union representative regarding production workers’
contract. The main issues are salary increases, health benefits, and flexible work
schedules. The Union representative is irate, because she just found out, prior to this
meeting, that the executive board has received enormous bonuses for the year, at the
same time they are refusing to budge on salary increases for the production workers.
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Chapter 11 - Pay Structure Decisions
Profile:
Katherine Knudsen has a degree in Marketing and Management and a law
degree. At JBL Publishing she is Vice President of Production, managing
operations and production. In addition to overseeing these departments,
Katherine handles all contract negotiation and labor relations.
Alisa Jackson holds a Bachelor of Arts degree in Sociology. She has been a
union organizer and representative for over eight years, with efforts focused
on re-negotiation at the local level. Alisa has a renegotiation success rate of
95%, winning better terms in one or more categories per contract. The
renegotiation with JBL publishing is her first in the printing industry.
References: The references included in the DVD are:
Bargaining Zone for Negotiation (PPT 3-3)
Concepts in Negotiating (PPT 3-5)
Integrative Bargaining Strategy (PPT 3-6)
Key Negotiator Behaviors (PPT 3-11)
Back History: Knudsen and Jackson have been meeting and talking frequently
regarding the contract renegotiation for the unionized labor force working in the
printing press/production building. Jackson is a new representative for Local 1087,
coming from an airline workers union where there were always very tough negotiation
meetings. Knudsen has been the VP of Production at JBL for 10 years and has
negotiated all the contracts over that time.
The renegotiation thus far has addressed the following issues:
A 7% wage increase for workers with seniority
An improved benefits package across the board
More personal days and schedule flexibility to accommodate family needs
Knudsen has said flat out “no” to the wage increase – the company has a salary freeze
for all employees – labor and management included. Knudsen has slightly improved
the health package and is considering the schedule issues.
Scene Set-up: Jackson has called an immediate meeting. She wants to discuss the
executive bonuses and win more money for the union employees.
Scene Location: Knudsen’s Office; JBL Publishing; Wednesday 3:00pm
The Meeting - Summary: Alisa described her surprise that executives were receiving
large bonuses when Katherine had said there was no money for salary increases. She
immediately threatens to go the newspapers with this perceived inequity. Katherine
explained that the money allocated for bonuses was based on last year’s performance
even though the checks were cut this year. Alisa comes close to accusing Katherine of
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Chapter 11 - Pay Structure Decisions
not disclosing this information that she feels is pertinent to the current contract.
Katherine explains that it is not pertinent to the current contract because that money
was budgeted last year and does not pertain to this year’s cash flow situation. Alisa
then pursues the option of reallocating the bonus money so that the workers may
receive a share of the money currently allocated only to upper management.
Katherine agrees to draft a bonus distribution plan and present it to Alisa within the
week. The two shake hands and are gracious to each other at the conclusion of the
meeting.
Afterthoughts – Summary: Katherine admits that the executive bonuses were more
relevant to the current negotiation than she let on. She had held out on mentioning the
bonus distribution option because she represents the company and didn’t want to have
to do that unless it was absolutely necessary because that was the only concession she
had to make. Alisa’s threat to go to the press to disparage the company concerned
Katherine but she did not want give up too much. Now that they will create a
bonus-sharing plan, Katherine says she will work very hard to make that solution work
because she recognizes the value of hourly workforce to the revenue of the company
and strongly believes in working towards a fair solution that will reward the
employees if the company does well.
Dossier: The specific artifacts included in the DVD are:
1. Email Summary of Knudsen and Jackson’s previous meeting
2. Email sent to Jackson re: the ‘sweet deal’ JBL Execs will be receiving
3. Excerpts from previous contract
IV. Discussion Questions:
The References and related Discussion Questions may be found in PowerPoint slides 3-1 to
3-12 on the instructor’s side of the text’s Website.
Learning Objective #1: To assess students’ understanding of the negotiation planning process.
1. The “Bargaining Zone for Negotiation” (PPT 3-3) shows where the potential area of
agreement may be. However, without planning and determination of one’s initial
offer, target point, and resistance point, a negotiator may be at a disadvantage during
the negotiation. What evidence of planning was demonstrated by Alisa and
Katherine?
2. For both Alisa and Katherine, describe how planning impacted their ability to
successfully negotiate.
Alisa received an email from a friend saying that he heard that executives at
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Chapter 11 - Pay Structure Decisions
JBL Publishing were receiving large bonuses. She planned to use this
From the “Afterthoughts” it was clear that Katherine had investigated every
option that she would have during the negotiation process. Because she did
Learning Objective #2: To analyze a negotiation and identify effective and ineffective
strategies used and behaviors that occurred during the negotiation.
1. What aspects of the distributive and integrative bargaining approaches (see PPT 3-5 &
3-6) did Katherine demonstrate during the negotiation? Justify your answer with
examples from the scenario.
While in the end Katherine supports an integrative approach that is fair to all
employees, she initially takes a distributive approach because she wants to give
1. What strategy should Katherine take?
A. Continue to clarify
B. Apologize for omission
C. Change subject
Katherine should continue to clarify the situation. Apologizing for the
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Chapter 11 - Pay Structure Decisions
2. Why does Katherine offer to show her pay stub?
5. Why didn’t Katherine offer this [bonus distributions] earlier?
2. What aspects of the distributive and integrative bargaining approaches (see PPT 3-5 &
3-6) did Alisa demonstrate during the negotiation? Justify your answer with examples
from the scenario.
Alisa’s goal is to get more money for the workers she represents. While
4. What should Alisa argue?
A. To split bonus money
B. Union will strike
C. Get better benefits plan
The union could strike on a mandatory issue, which salary and benefits are.
This, however, would emphasize the union’s position, rather than the common
3. What is the superordinate goal (see PPT 3-5) in this situation? How would a
discussion of this goal aid the negotiation process?
The superordinate goal is the company’s success. If the company is not
successful, neither management nor the union will have jobs. Establishing a
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Chapter 11 - Pay Structure Decisions
Learning Objective #3: To have students identify key issues related to labor-management
negotiations and the legal and managerial implications, therein.
1. Katherine discussed a potential solution (bonus sharing) that had not previously been
discussed before. Is this an example of “unlawful circumvention” according to labor
laws? Why or why not?
No, because she was discussing this with the union representative. If Alisa had
2. Assume Katherine refused to make a concession to Alisa’s request. According to the
National Labor Code, could Alisa organize a strike?
3. Refer to the “Key Negotiator Behaviors” (PPT 3-11). Assume you are representing
management (like Katherine in this scenario). What exactly would you do in this
situation? Indicate a specific example for each of the key negotiator behaviors.
1. Katherine is accused of lying. She should:
A. Demand apology
B. End negotiation
C. Refute accusation
6. In this negotiation….
A. JBL gave too much
B. JBL gave too little
C. Nothing was resolved
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Chapter 11 - Pay Structure Decisions
HRM Failures
Top
Case 11: Paying for the Actual Position
After Ronald Stillman was hired as a sales manager in a Staples store, he spent much of his
In a 2009 decision in Stillman v. Staples, Inc., a jury awarded Stillman and about 350 other
From 2000 to 2004, senior management at Staples had studied the sales manager position
Also, sales managers had no authority to adjust associates’ pay or discipline them without
During the trial it was learned that Staples’s HR department was unaware that the company
Question
If you were the employer, what would you have done to avoid this situation?
Possible answers
Before identifying whether or not a job is exempt from overtime pay, carefully test
Maintain open communication across all corporate functions (for example, Finance,
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Chapter 11 - Pay Structure Decisions
Consult your company’s legal department for guidance; if you have no in-house
Case: Stillman v. Staples, Inc., Civil Action No. 07-849 (KSH), U.S. Dist., New Jersey
(Lexis 42247)
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