1. Contextual Influences on Compensation Practice (Laws)
Chapter Three
Contextual Influences on Compensation Practice (Laws)

2. Exhibit 3-1 Employers’, Employees’, and Government’s Goals
Employees (and Unions)
Government

3. Laws Affecting Compensation
Levels of Laws
Federal, State, Local
Federal Laws:
Income continuity, safety, work hours:
FLSA, Social Security Act, Portal-to-Portal Act, Work Hours and Safety Standards Act, Local Area Wage
Pay discrimination
Equal Pay, Title VII of Civil Rights Act of 1964, ADEA (and OWBPA), Executive Orders,
Accommodating disabilities and family needs
Pregnancy Discrimination Act, ADA, FMLA
Prevailing wage laws

4. Income continuity, safety, work hours: Fair Labor Standards Act
Minimum wage
Hours of work (overtime provisions)
Also: Child labor laws, Equal pay laws*
Covered and not-covered companies
Exempt vs. non-exempt positions
Most positions are non-exempt
Executives, administrative, professionals, and some others are exempt

5. ANNUAL MINIMUM WAGE EARNINGS (hourly min. wage x 40 hr/week x
Exhibit 3-2 Differences Between Annual Minimum Wage Earnings and Annual Poverty Thresholds for Selected Years
ANNUAL MINIMUM
WAGE EARNINGS
(hourly min. wage
x 40 hr/week x
52 weeks) A
ANNUAL POVERTY
THRESHOLD
(family of three) B
FED. MINIMUM
HOURLY WAGE
DIFFERENCE
A - B
YEAR
1980
1986
1989
1990
1992
1994
$3.10
$3.35
$3.80
$4.25
$6,448
$6,968
$7,904
$8,840
$6,565
$8,737
$9,885
$10,419
$11,186
$11,542
-$ 117
-$1,769
-$2,917
-$2,515
-$2,346
-$2,702
Source: US Dept. of Commerce, Statistical abstracts of the US, 115th ed. (Washington, DC: US Government Printing Office, 1995).

6. Exhibit 3-10 Average Weekly Earnings by Industry Group, 1980 to 1994
1985
1990
1993
1994
Construction
Manufacturing
Transportation, public utilities
Wholesale trade
Mining
Finance, insurance, real estate
Service
Retail trade
$397
$368
$351
$267
$235
$210
$191
$147
$520
$464
$450
$351
$299
$289
$257
$175
$603
$526
$505
$411
$345
$357
$319
$194
$647
$552
$540
$448
$374
$406
$351
$210
$666
$570
$554
$460
$385
$424
$360
$216
Source: U.S. Dept. of Commerce, Statistical abstracts of the United States, 115th ed. (Washington, D.C.: U.S. Government Printing Office, 1995).

7. The time spent on the activity was for the employee’s benefit.
Exhibit 3-5 Compensable Activities That Precede and Follow Primary Work Activities
The time spent on the activity was for the employee’s benefit.
The employer controlled the amount of time spent.
The time involved is categorized as “suffered and permitted,” meaning that the employer knew the employee was working on incidental tasks either before or after the scheduled tour of duty.
The time spent was requested by the employer.
The time spent is an integral part of the employee’s principal duties.
The employer has a union contract with employees providing such compensation, or, as a matter of custom or practice, the employer has compensated the activities in the past.

8. Primary duties include managing the organization
Exhibit 3-4 FLSA Exemption Criteria for Executive, Administrative, and Professional Employees (1 of 3)
Executive Employees
Primary duties include managing the organization
Regularly supervise the work of two or more full-time employees
Authority to hire, promote, and discharge employees
Regularly use discretion as part of typical work duties
Devote at least 80 percent of work time to fulfilling the previous activities

9. Administrative Employees
Exhibit 3-4 FLSA Exemption Criteria for Executive, Administrative, and Professional Employees (2 of 3)
Administrative Employees
Perform nonmanual work directly related to management operations
Regularly use discretion beyond clerical duties
Perform specialized or technical work, or perform special assignments with only general supervision
Devote at least 80 percent of work time to fulfilling the previous activities

10. Professional Employees
Exhibit 3-4 FLSA Exemption Criteria for Executive, Administrative, and Professional Employees (3 of 3)
Professional Employees
Primary work requires advanced knowledge in a field of science or learning, including work that requires regular use of discretion and independent judgment, or
Primary work requires inventiveness, imagination, or talent in a recognized field or artistic endeavor
Source: 29 Code of Federal Regulations, Sec ; Sec

11. Exhibit 3-3 Six Defining Factors of Trainee for the FLSA
The training, even though it includes actual operation of the employers’ facilities, is similar to that which would be provided in a vocational school.
The training is for the benefit of the trainee.
The trainee does not displace regular employees but works under closer supervision.
The employer providing the training gains no immediate advantage from the trainees’ activities; on occasion, the employer’s operation may in fact be hindered.
The trainee is not guaranteed a job at the completion of the training.
The employer and the trainee understand that the employer is not obligated to pay wages during the training period.
Source: J.E. Kalet, Primer on wage and hour laws (Washington, DC: Bureau of National Affairs, 1987).

12. Pay Discrimination

13. Equal Pay Act 1963 - Equal Jobs
“Equal pay for equal work:” Equal pay for men and women performing substantially equal work.
Skill: Experience, training, education, ability
Effort: Mental or physical, amount (not type)
Responsibility: Accountability
Working conditions: Physical surroundings and hazards--inside/outside, heat, cold, poor ventilation
Skill/effort/responsibility must be substantially greater, tasks must consume a significant amount of time for all employees, must have a value commensurate with pay differential
Based on job contents, not title or job description

14. The degree of accountability required in the performance of a job
Exhibit 3-6 U.S. Department of Labor Definitions of Compensable Factors
Factor
Skill
Effort
Responsibility
Working
conditions
Definition
Experience, training, education, and ability as measured by the performance requirements of a job
The amount of mental or physical effort expended in the performance of a job
The degree of accountability required in the performance of a job
The physical surroundings and hazards of a job, including dimensions such as inside versus outside work, heat, cold, and poor ventilation
Source: U.S. Department of Labor, Equal pay for equal work under the Fair Labor Standards Act (Washington, D.C.: U.S. Government Printing Office, December 31, 1971).

15. EPA’s Affirmative Defenses
Pay differences in equal jobs are allowable due to:
Seniority
Merit
Quality or quantity of production
Any factor other than sex: Shift differentials, temporary assignments, bona fide training programs, differences based on ability, training, or experience, others (justified business reason).
Reverse discrimination may occur if a new pay system is designed and not equally applied to all employees, but not if a one-time adjustment is made for past problems

16. Title VII of CRA of 1964 (&) -- Equal or Unequal Jobs
Companies with 15+ employees, employment agencies and labor unions. Not U.S. gvt.
Prohibits discrimination based on race, creed (religion), color, national origin, sex, or pregnancy in any employment condition: hiring, firing, promotion, transfer, compensation, admission to training.
Disparate Treatment: Treating people differently (less favorably) openly or covertly based on protected class (characteristic).
Disparate Impact: Treating people equally, but the practices have a differential effect, unless justified or work-related

17. Disparate Treatment Direct discrimination
Different standards for different people.
Prejudiced actions
Intent to discriminate inferred by behavior.
Can justify actions by absence of discriminatory intent and reasonable business judgment.

18. Disparate Impact Indirect discrimination
Same standards have differing consequences.
Neutral, color-blind actions
Discrimination shown by statistics; intent need not be present.
Can justify pay differences through business necessity.

19. Gender Pay Gap Begins Early
Weekly allowance of children 12-under
Average weekly wage
$7.66
$8.87
$379
$504
Women
Men

20. Pay Differences by Race and Sex
Average Weekly Earnings Full-time Workers 1990

21. The Pay Gap - “Male Dom”
Weekly Earnings 1990

22. Pay Gap “Female Dom”
Weekly Earnings 1990

23. Management Jobs
Weekly Earnings 1989

24. MBA’s - Top Business Schools
Annual Earnings
1990

25. Bachelor’s Degree Salary Offers
Marketing Job Offers--Annual Salaries
1992

26. Income by Years of Schooling
Annual Earnings 1990

27. Income by Education, Race, Sex
Annual Earnings 1990

28. Changes in Pay Gap

29. Explanations for the Pay Gap--Structural Characteristics
Earnings differ among occupations, jobs differ in value, substantial labor force segregation by sex, women disproportionally in jobs that are lower valued and paid. Accounts for 10-40% of gap.
Occupations: Clerical vs craft
Jobs: Selling: apparel vs boats
Glass Ceiling: Job level varies
Industries: Service vs. manufacturing
Firms: Large vs small
Union Membership: Jobs/firms/industries

30. Explanations for the Pay Gap--Individual Characteristics
Relate pay differences to differences believed to affect a person’s productivity on the job, that make a person valuable to an employer. Accounts for 0-44%.
Experience: 31%, “return on”
Seniority (tenure): 40%, “return on”
Education: 2%, “return on”
Behaviors, other qualifications
Together structural and individual explanations account for 30-60% of the wage gap, leaving 40-70% unexplained.

31. Age Discrimination in Employment Act of 1967 (ADEA)
Covers private employers with 20+ employees, labor unions with 25+ employees, and employment agencies
EEOC enforces this act
Protects workers age 40 and older from illegal discrimination in employment practices
Including pay and benefits
Limits to early retirement--must be voluntary

32. Accommodating Disabilities and Family needs
Pregnancy Discrimination Act of 1978
Must not treat pregnancy less favorably than other medical conditions, must treat pregnancy and childbirth as other causes of disability
Leave: must allow credit for previous service, accrued retirement benefits accumulated seniority

33. Accommodating Disabilities and Family Needs, cont’d
Americans with Disabilities Act of 1990 (ADA)
Mental or physical disabilities
Reasonable Accommodation
Family and Medical Leave Act of 1993
Job protection in cases of family or medial emergency
12 weeks of unpaid leave

34. Other Influences Labor unions Market Influences
National Labor Relations Act (NLRA)
Equality of bargaining power between employees and employers
Compensation issues in collective bargaining
COLA
Spillover effect
Concessionary bargaining
Market Influences
Industry effects, capital-intensity