PART THREE: COST OF LABOR CONTRACTS
CHAPTER 7: WAGE AND SALARY ISSUES
LABOR NEWS: OVERTIME CASES WON BY WORKERS
Chapter 7: Outline
I. Union Wage Concerns
A. Pay level is related to employee expectation.
2. Cost of living increases
B. Internal Pay Equity
2. Labor agreements typically provide for different job classifications with
different pay scales dependent on level of skill and type of work. Case
3. Table 7-1: Job Classifications and wage rates
4. Union Wage Objectives: eight dimensions of union wage negotiations.
C. Industrial Differentials
1. Relationship for individual employers dependent upon relationship
between labor and total production costs.
2. Profile 7-1, Pay Equity in Company Mergers
D. Worker/CEO pay gap
1. Differences between worker and management pay strains management-
union relations
E. Union Wage Objectives
1. Union–nonunion wage differential
3. Union wage rigidity and wage concessions
5. Form of compensation
6. Pattern bargaining
II. Management Wage Concerns
A. Maintaining Competitive Position
2. Need to assess competitor’s wages and payroll costs.
3. Pattern bargaining
B. Value-Added Theory
2. Keep value added in proportion with wages paid.
C. Wage Laws
1. Fair Labor Standard Act affects negotiated wages by establishing
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2. Overtime compensation: Ninety-eight percent of contracts provide for
4. Mandatory overtime has become a target for unions because it keeps
5. In 2005, Department of Labor approved prepayment plans that pay
6. Davis–Bacon Act requires federal contractors with construction money
7. Walsh–Healy Act requires federal contractors to pay time and one half
for any time worked over an eight-hour day.
III. Negotiated Wage Adjustments
A. Standard Rate, Pay Range Systems
1. Standard or flat rate of pay for each job classification
2. Pay range for each job
a. This allows for merit increases.
B. Piece–Rate System—most common incentive plan
1. Standard Piece Rate. Employee paid standard rate per unit produced.
2. Falling Piece Rate. Employee paid standard rate per unit. If employee
3. Rising Piece Rate. Employee paid standard rate per unit. If employee
4. Table 7-2 shows comparison of piece–rate plans.
C. Deferred Wage Increases
1. Provide increases in pay to take effect at some future date in multi-year
contract. (Figure 7-1 Deferred Wage Agreement)
3. Helpful to union to increase workers’ incomes.
4. Types of years
a. Evenly distributed over life of contract—preferred by
5. Wage reopener clause allows reopening of contract talks to discuss wage
issues.
D. Cost of Living Adjustment (COLA) (Figure 7-2)
1. Items to specify in COLA
a. Inflation index specified
b. When and how often increase is to be made
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c. Will increase be treated as a change in base pay or as a benefit?
d. Is there a maximum COLA increase?
3. History indicates that percentage of workers covered by COLA is likely
to increase in three-year period following a period of high inflation.
E. Profit Sharing
1. Payments made only if profit.
2. Payments not tied to inflation.
5. Variable Wage Formula
a. Used in some public sector plans
b. Links future pay increases to increases in tax receipts
F. Scanlon Group Incentive Plans
1. Departmental committee of union and management meet to discuss cost
G. Two-Tier Wage Systems: Table 7-3 Pros and Cons
2. UAW agreed to dramatic two-tier system in 2007 to aid the struggling
auto industry.
4. Higher wages are paid to current employees, reduced wages are paid to
future employees.
6. Morale problems develop as more lower-tier workers are hired.
8. Lower-tier employees can usually move to higher tier.
H. Lump-sum Payments
2. Management prefers—can predict cost, not added to base wages.
4. Table 7-4, Wage trends.
IV. Concession Bargaining
A. Concession bargaining may be necessary to guarantee employment levels.
1. Both labor and management required to make concessions.
3. Economic slump of 2000-2003 brought a new wave of concessions.
5. Table 7-5 lists areas where employers seek concessions.
6. Profile 7-2 outlines recent concessions required of public sector
employees.
B. Unions’ highest priorities are items providing economic security.
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2. Job security
4. Pensions
5. Executive compensation has also become an issue when concessions of
workers are being requested.
C. Employers try to protect investments they make in employees.
1. Payback agreements require an employee who quits before a specified
period to repay the employer for certain benefits.
D. Caused by economic hardship
2. Most common giveback: paid holidays, health care, paid leaves.
E. Employers must pay price of concessions through one or more of the following:
2. Increased financial disclosure
4. Equality of sacrifice
5. Participation in decision making
F. Essence of concession bargaining is trust and respect
F. Executive Pay
1. Union members want management to share the pain
G. Payback Agreements
1. Requiring employee to repay certain benefits or training costs if quit within
a particular time period
H. Employer concessions
1. Increased job security
3. Profit-sharing plans
5. Participation in decision making
V. Wage Negotiation Issues
A. Productivity Theory
1. Employees shall share in profits caused by greater employee
productivity.
B. Ability to Pay
1. Unions don’t stress ability to pay in hard times.
3. Hard to estimate future costs.
4. Table 7-5 estimates profits available under a new sample contract.
C. Job Evaluation
1. Used to determine worth in company—job classification.
3. Job classification methods
a. Are common and can be changed by management, but may be
grieved by the union.
D. Wage Surveys
1. Obtain information on external labor market conditions.
3. “Tips from the Experts” discusses wage negotiation issues.
VI. Costing Wage Proposals (Figure 7-3)
A. Critical aspect of collective bargaining
B. Reducing economic provisions to money
C. Important considerations
c. Cents/hour
2. Base (Figure 7-4)
a. How much will a percent increase cost the company?
3. Roll-up
D. Total Negotiated Cost
1. Determine whether additional negotiated items would increase total cost
2. Table 7-7 estimates cost of a negotiated wage and benefits increase.
E. Tips for the Experts: Union—three wage issues to look at; Management—wage
concessions to give?
CHAPTER 7: CASE DISCUSSION
Case 7.1: Wages: Extra Compensation
1. Explain why you agree or disagree with the court’s ruling that it did not commit an
unfair labor practice by requiring unit drivers to continue to perform dispatch and
telephone duties after managers were hired at the suburban center locations.
Agree: The company acted consistently with the contract when it asked the union
2. Explain why you agree or disagree with the court’s ruling that the employer need not
pay new drivers performing the same tasks as other drivers, plus dispatch and
telephone duties, the extra $1.00 an hour, and that failing to do so was not an unfair
labor practice.
Case 7.2: Reclassification of Jobs
1. How is it relevant that the company’s changed operation caused the substitution of
fiberglass installation for foil?
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2. Do you agree with the arbitrator? Explain your answer.
CHAPTER 7: END CASE DISCUSSION
Case Study 7.1: Premium Pay Rates
Decision:
The judge noted that both parties relied upon provisions of the CBA to support their positions and
that both provisions were clear and nonambiguous. Therefore, it was the court’s duty to try and
determine the intent of the parties in entering into those provisions. The court determined that the
weight of the evidence supported the conclusion that the union, knowing that the CBA did not
grant 5/8 of employees double overtime, intended to protect this past practice by its “no
reduction” clause. And there was no evidence that the company intended the negotiation on the
CBA language concerning overtime to be used to negate a past practice. Therefore, the court
found that the company had violated the “no reduction” clause by changing the overtime
provision.
Questions for Discussion
1. What do you think would be the “fair” way to resolve this case?
The 5/8 of employees should continue to receive the overtime pay until the next contract
is negotiated.
Should the company be required to pay 5/8 of employees double time even though that
benefit has never been negotiated, so arguably, the company has never received any
exchange for this benefit? Or, should those employees who have in good faith accepted
overtime work believing they would be paid double time, even though their contract did
not say they would, have to give up this benefit while getting nothing in return?
2. Should the company have waited to bring up this issue when the CBA was being
renegotiated?
Does it change your answer to know that the CBA was not to be renegotiated for three
years?
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3. The parties did not know why the company began paying double time to the 5/8
employees. If the practice began as an error on the part of a payroll clerk, would that fact
change your opinion as to how to decide this case?
CHAPTER 7: REVIEW QUESTIONS
1. What is the general wage concern that management and employee representatives bring
to the negotiating table?
Union wage concerns include:
a. The ability to maintain the current standard of living, provide for future
economic growth, and have a comfortable retirement.
b. Compensation is seen as a measure of the organization’s goodwill to its
employees.
c. Unionism changes the dispersion of wages; raising members’ average wages over
nonunion members, but also standardizing wage rates within the union
organization.
d. Unions expect “a fair day’s pay for a fair day’s work.”
Management wage concerns include:
a. Often wages represent the largest single cost factor on its balance sheet.
2. Why have profit-sharing plans replaced COLAs in some recently negotiated agreements?
COLAs are less desirable to union negotiators in years of low inflation rates. Union
3. How can wage surveys be effectively used in collective bargaining?
4. Why are labor and management negotiators likely to respond to consideration of the
company’s ability to pay higher wages?
5. Why must labor and management be able to accurately determine the cost of wage
proposals?
Both sides need to be able to estimate accurately the cost of the contract provision in
6. How should negotiators treat the roll-up costs when negotiating wage changes?
7. Why might union negotiators favor front-end loaded deferred wage increases? Are there
potential drawbacks?
8. Why do you think profit-sharing and lump-sum provisions have increased in usage in
recent years, whereas COLAs and wage reopeners have decreased in use?
Several reasons:
Unions: Like to give members a lump-sum at the start of a new contract
Management: Prefers the predictability of lump-sum to COLA
9. Why have unions and employers negotiated more wage concessions in recent years?