Chapter 7
Economic Issues
Industrial Wage Differentials

Reasons for Wage Differentials
– The degree of competition or monopoly in
the product market
– The value added by workers in a particular
industry
– The percentage of total product or service
cost represented by labor costs
MGMT 523 – Chapter 7
Evaluating Jobs

Job Analysis
– Job description
• Tasks, duties, and responsibilities required to perform the
job
– Job specification
• Knowledge, skills, abilities, and other factors required to
be possessed by job holders

Methods of Job Evaluation
– Ranking
– Classification
– Point system
MGMT 523 – Chapter 7
Typical Wage Structure
Job Titles
Janitor
Material handler
Shipper
Tool room keeper
Machinist B
Maintenance worker
Mechanic
Painter
Carpenter
Truck driver
Electrician
Tool and die maker
Machinist A
Labor
Grade
Points
I
II
III
IV
V
VI
VII
VIII
IX
X
XI
XII
XIII
200—249
250—299
300—399
350—399
400—449
450—499
500—549
550—599
600—649
650—499
700—749
750—799
800—849
MGMT 523 – Chapter 7
Starting Hourly
Wage Rate
$6 55
8.30
9.45
10.20
10.50
11.80
12.00
3.30
14.10
14.68
17.19
17.42
18.49
Wage Structure Preferences
Union Preferences
Include if favorable
External
Factors
Grievances
Wage
Structures
Wage Surveys
Internal
Factors
Job Evaluation
Company
Preferences
MGMT 523 – Chapter 7
Production and Incentives
Production Standards
 Goals for wage-incentive plans
 Employee Incentive Plans

– Bonuses
– Profit sharing plans
– Skill-base pay (SBP)

Group Incentive Plans
– Scanlon Plan
– Rucker Plan
MGMT 523 – Chapter 7
Wage Determination Arguments

Wage Comparability

Degree of Labor Intensity

Ability to Pay

Productivity

Cost of Living

Consumer Price Index (CPI)

Comparable Worth
MGMT 523 – Chapter 7
Example of Two-Tier Pay Scales
Job Classes and Hourly Rates for
Employees on Payroll Prior to March 1, 2003
Job Classes
0
1
2
3
4
5
6
7
Wage Rate
9.40
9.60
9.80
10.00
10.20
10.40
10.60
10.80
Job Classes and Hourly Rates for
Employees Hired After March 1, 2003
Job Classes
0
1
2
3
4
5
6
7
MGMT 523 – Chapter 7
Wage Rate
6.00
6.10
6.20
6.40
6.60
6.80
7.00
7.20
Interim Wage Adjustments

COLA

Deferring wage increases in multi-year
labor contracts
– Back-loaded: Larger wage increases later
– Front-loaded: Larger wage increases earlier
– Even-loaded: Wage increases are equal

Lump-sum pay adjustments
MGMT 523 – Chapter 7
Employer Costs per Hour
MGMT 523 – Chapter 7
Health-Care Cost Containment

PPO
– Health-care providers who agree to a
fixed/lower rate schedule of fees for their
services

HMO
– A health-care organization that contracts
with the employer to deliver services for a
fixed contract amount
MGMT 523 – Chapter 7
Other Pay

Income Maintenance
– Severance Pay
– Supplemental-Unemployment Insurance
– Work Sharing

Premium Pay
– Overtime
– Shift differential
– Reporting pay
– Call-In pay
MGMT 523 – Chapter 7
Payment for No Work

Incidental Nonwork Benefits
– Bereavement leave
– Sick leave
– Military leave
– Personal leave

Major Paid-Leave Benefits
– Holidays
– Vacations
MGMT 523 – Chapter 7
Retirement Plans

Pension Plans
– Defined benefit plan
– Defined contribution plan
401(k) Savings Plans
 Employee Stock Ownership Plan
 Cash Balance Pension Plans
 Vesting

MGMT 523 – Chapter 7
Family and Other Benefits

Family and Medical Leave Act of 1993
– Requires private employers to provide
eligible employees with up to 12 weeks of
unpaid leave.
Prepaid Legal Services
 Employee Assistance Plans

MGMT 523 – Chapter 7