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CHAPTER 15
Challenges Facing Compensation Professionals
Learning Objectives
15-1. Explain the issues associated with a possible increase to the federal minimum wage rate
and strengthening overtime pay protections.
15-2. Discuss the issue of rising wages in China.
15-3. Describe the issue of underemployment and the compensation–productivity gap.
15-4. Explain the influence of changing workforce demographics on employee benefits
practice.
Outline
I. Overview
II. Possible Increase to the Federal Minimum Wage Rate and Strengthening Overtime Pay
Protections
III. Rising Wages in China
IV. Underemployment and the Compensation-Productivity Gap
V. Workforce Demographic Shifts
VI. Key Terms
VII. Discussion Questions and Suggested Answers
VIII. End of Chapter Case; Instructor Notes, and Questions and Suggested Student Responses
IX. Crunch the Numbers! Questions and Suggested Student Responses
X. Assisted-graded Questions
Lecture Outline
I. Overview
A. Four key issues that will shape the work of compensation professionals:
1. Possible increase to the federal minimum wage rate and strengthening overtime
pay protections
2. Rising wages in China
3. Underemployment and the compensation-productivity gap
4. Workforce demographic shifts
II. Possible Increase to the Federal Minimum Wage Rate and Strengthening Overtime
Pay Protections
A. Raising the Minimum Wage
1. President Obama has argued that minimum wage needs increased
2. More than half the 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 challenging for compensation professionals with
employees in different states
6. Possible increases also create budgeting challenges
7. Raising minimum wage may lead to some companies needing to reduce benefits
resulting in no change to total compensation
B. Strengthening Overtime Pay Protections
1. In 2015 the U.S. Department of Labor announced a plan to support President
Obama’s call for strengthening overtime pay protection
2. In principle, raising the overtime pay threshold could create an economic advantage
for employees and companies due to increased spending and higher revenue for
companies
3. However, it could have some negative unintended consequences
a. Managers would schedule more cautiously to avoid higher payroll costs
b. Could undermine a culture of trust because the employer would increase
monitoring of nonexempt employees
4. Responding to overtime pay changes could create a competitive disadvantage
because not all employers will follow suit
III. Rising Wages in China
A. Overview
1. Many U.S. companies relocated manufacturing facilities from the United States to
other countries such as China due to lower their labor costs
2. Rising costs are reducing the competitive advantage gained from relocating
manufacturing facilities to China
3. Among developing Asian countries, China’s average pay rate is highest
4. Minimum wage rose rates an average of 24 percent
5. Average monthly income for migrant workers increased 13 percent
6. Chinese policy makers are supportive of increased wages
a. Encouraging higher wages promotes domestic consumption
b. Increased domestic consumption will decrease the country’s reliance on exports
to sustain growth
c. Reduced reliance on exports is necessary as labor costs within China increase
rapidly
7. Labor shortages contributed to wage increases in China
a. One-child policy led to a rapidly aging Chinese population
IV. Underemployment and the Compensation-Productivity Gap
A. Overview
1. Exploring the enduring effects of the so-called great Recession which took hold
during the December 2007-June 2009 period
2. Economic recession refers to a general slowdown in economic activity
B. Underemployment
1. Underemployment refers to employees who wish to work full-time but are forced
to work part time for economic reasons such as poor business conditions or
inability to find a job
2. It is more difficult for the underemployed to find full-time employment
3. Underemployment results in low earnings compared to those not underemployed
4. Malemployment occurs when job holders possess greater education, skills, or
knowledge than is required to perform their jobs
5. Longer term implications of underemployment
a. Underemployed workers are likely to have lower future earnings
i. Employers provide less or no training
b. Underemployment may slowdown the economic recovery from recession
i. Lower current pay and anticipated lower future earnings will likely reduce
the consumption of goods and services
ii. Holds back increases in spending, business production, and employment
levels
C. The compensation-productivity gap
1. The gap between real hourly compensation and labor productivity shows whether
workers’ pay is keeping up with productivity
2. Productivity growth promotes rising living standards
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. Two reasons may explain the compensation-productivity gap
a. High unemployment following recessions leave employees with relatively
lower power to bargain for higher pay
b. Most companies lose profit during economic recessions, and generally
increase their profits following recessions
V. Workforce Demographic Shifts
A. Labor Force Diversity
1. Labor force diversity will continue to increase based on age, gender, race, and
ethnicity
2. The projected growth of the labor force will be affected by the aging of
baby-boom generation
a. Born between 1946 and 1964
b. Will be 59-76 years old in 2022
3. Labor force participation rate during the period 2012-2022
a. Younger workers expected to decline
b. Number of women and men expected to grow at same rate
c. Ethnicity
i. Hispanic labor force is expected to grow
ii. White non-Hispanics will still far outnumber the Hispanics
B. Relevance for employee benefits
1. An employer-sponsored benefits program is most effective when the needs and
preferences of the workforce are similar
2. Differences in employee preferences and needs necessitates flexible benefit
offerings
3. Part-time or full-time status could be considered a relevant dimension for further
defining diversity
3. Benefits professionals may use surveys to gather information about employee
a. Demographics
b. Needs
c. Preferences
d. Recent or anticipated life changes
e. Preference on benefits
4. Current offerings can be compared with the survey results
End of Chapter
VI. Key Terms
Economic recession: Refers to a general slowdown in economic activity
Underemployment: Refers to employees who wish to work full-time, but are forced to work
part-time for economic reasons, such as poor business conditions or the inability to find a job
Malemployment: occurs when job holders possess greater education, skills, or knowledge than
is required to perform their jobs
