978-0078112768 Chapter 11 Solution Manual Part 3

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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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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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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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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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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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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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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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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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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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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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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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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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