978-0134320540 Chapter 15 Lecture Notes

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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