Chapter Three
Contextual Influences on
Compensation Practice (Laws)
Exhibit 3-1
Employers’, Employees’, and Government’s Goals
Employers
Government
Employees (and Unions)
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
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
Exhibit 3-2
Differences Between Annual Minimum Wage Earnings
and Annual Poverty Thresholds for Selected Years
YEAR
1980
1986
1989
1990
1992
1994
ANNUAL MINIMUM
WAGE EARNINGS
(hourly min. wage ANNUAL POVERTY
x 40 hr/week x
THRESHOLD
52 weeks)
(family of three) DIFFERENCE
FED. MINIMUM
A
B
HOURLY WAGE
A-B
$3.10
$3.35
$3.35
$3.80
$4.25
$4.25
$6,448
$6,968
$6,968
$7,904
$8,840
$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).
Exhibit 3-10
Average Weekly Earnings by Industry Group,
1980 to 1994
INDUSTRY
1980
1985
1990
1993
1994
Construction
Manufacturing
$397
$368
$520
$464
$603
$526
$647
$552
$666
$570
Transportation, public utilities
Wholesale trade
Mining
Finance, insurance, real estate
Service
$351
$267
$235
$210
$191
$450
$351
$299
$289
$257
$505
$411
$345
$357
$319
$540
$448
$374
$406
$351
$554
$460
$385
$424
$360
Retail trade
$147
$175
$194
$210
$216
Source: U.S. Dept. of Commerce, Statistical abstracts of the United States, 115th ed. (Washington, D.C.: U.S. Government
Printing Office, 1995).
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.
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 fulltime 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
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
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. 541.3 29; Sec. 541.1.
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).
Pay Discrimination
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
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).
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
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
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.

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.
Gender Pay Gap Begins Early
Weekly allowance of children 12-under
Average weekly wage
$7.66
$8.87
$379
$504
Women
Men
Pay Differences by Race and Sex
Average
Weekly
Earnings
Full-time
Workers
1990
600
500
400
300
200
Men
100
0
Women
White
Black
Hispanic
The Pay Gap - “Male Dom”
900
800
700
600
500
400
300
200
100
0
hr
Tc
C
ol
l
C
on
s
tr
uc
tio
n
g
En
h
ec
M
Fi
n
M
gr
Weekly
Earnings
1990
Men
Women
Pay Gap “Female Dom”
Weekly
Earnings
1990
700
600
500
400
300
Men
200
Women
100
0
Reg Nurse
Elem Tchr
Gen Office Sew Mach
Management Jobs
Weekly
Earnings
1989
1000
900
800
700
600
500
400
300
200
100
0
Rel
Mgt
Med
d
Ed A
Mkt
P/LR
Fin
Ad
Pub
Exe A
d
Men
Women
MBA’s - Top Business Schools
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
Annual
Earnings
1990
Corn
Berk
Mich
Dart
Stan
Roch
Colum
UCLA
Va
MIT
Men
Women
Bachelor’s Degree Salary Offers
30000
Marketing
Job
Offers-Annual
Salaries
1992
25000
20000
15000
10000
Men
5000
Women
s
Sale
h
Purc
R
Mkt
Buye
r
d
Bran
Adv
0
Income by Years of Schooling
60000
50000
Annual
Earnings
1990
40000
30000
20000
Men
10000
Women
l
>Col
Col D
eg
Som
e Co
l
HS
Som
e HS
Elem
0
Income by Education, Race, Sex
Annual
Earnings
1990
40
35
30
25
W men
20
W women
15
B men
10
B women
H men
5
0
H women
Some HS
HS grad
4yr Coll
Changes in Pay Gap
120
100
80
60
40
20
White M
Black M
Hisp M
White W
Black W
Hisp W
0
1960
1970
1980
1982
1984
1986
1988
1990
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
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.
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
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
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
Other Influences

Labor unions
» 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