Category Archives: Compensation

The enormous impact of eroded collective bargaining on wages

Source: Lawrence Mishel, Economic Policy Institute, April 8, 2021

From the summary:
A major factor depressing wage growth for middle earners and driving the growth of wage inequality over the last four decades has been the erosion of collective bargaining. Indeed, the only factor more responsible for weak wage growth for the typical worker is the excessive unemployment perpetrated by central bank policymakers’ high interest rate policies and fiscal austerity. The share of workers covered by a collective bargaining agreement fell from 27.0% in 1979 to just 11.6% in 2019 (Hirsch and Macpherson 2020). The erosion of collective bargaining has been especially harmful to men’s wages because men were far more likely than women to be unionized in 1979 (when 31.5% of men were covered by collective bargaining versus 18.8% of women). Thus men had more to lose from the subsequent attack on unions and collective bargaining.3 Rebuilding collective bargaining is a necessary component of any policy agenda to reestablish robust wage growth for the vast majority of workers in the United States, and broader unionization would lessen racial inequities and benefit women at least as much as men.

A policy manifesto for paying, protecting, and empowering essential workers

Source: Molly Kinder and Laura Stateler, Brookings Institution, Metropolitan Policy Program, March 18, 2021

….Powell and his fellow frontline employees at the hospital are strenuously working to do jobs like cleaning, taking vital signs, and spending time with patients—but without the decent pay and respect that nurses and doctors earn. “These are people who work very, very, very hard, and who make very, very, very little,” he said.

With the country on track for mass vaccinations in the coming months, the worst of the pandemic may be over. But the risks facing frontline essential workers like Powell have not ended. Many of the underlining inequities they face—including low wages, structural racism, and inadequate protections—remain.

It is long past time that we treat essential workers as truly essential. Lawmakers in Washington and around the country have the opportunity to turn their policy rhetoric into real change. The recommendations in this report lay out how federal, state, and local policymakers can—finally—give essential workers what they have always deserved: the dignity of a living wage, lifesaving protections, and power in their workplaces…..

Public Sector Compensation: An Application of Robust and Quantile Regression

Source: Salomon Alcocer Guajardo, Compensation & Benefits Review, Volume 53 Issue 2, April 2021
(subscription required)

From the abstract:
This study assesses whether the theoretical compensation framework used to explain differences in public sector pay among full-time federal and state employees may also explain differences in pay at a local government level. In doing so, this study uses ordinary least squares (OLS) regression to test the application of the theoretical framework to a specific local government. Robust and quantile regression models are used subsequently to validate the findings obtained by the OLS model. The findings reveal that the covariates used to explain differences in compensation among full-time federal and state employees have similar effects at a local governmental level. While the OLS statistical model explains 26% (R2 = .26) of the variance, the robust regression model explains 39% (R2 = .39) of the variance. The percentage of variation explained by the quantile statistical models ranges from 14% (pseudo-R2 = .14) to 50% (pseudo-R2 = .50).

Promoting Good Jobs and a Stronger Economy: How Free Collective-Bargaining States Outperform “Right-to-Work” States

Source: Illinois Economic Policy Institute (ILEPI) and the Project for Middle Class Renewal (PMCR) at the University of Illinois at Urbana-Champaign, February 9, 2021

From the press release:
In an eight-year period of national economic expansion that followed the Great Recession of 2008, the 27 U.S. states that had enacted so-called “right-to-work” laws saw slower economic growth, lower wages, higher consumer debt, worse health outcomes, and lower levels of civic participation than states that had not, according to a new study by the Illinois Economic Policy Institute (ILEPI) and the Project for Middle Class Renewal (PMCR) at the University of Illinois at Urbana-Champaign.

Public Sector Compensation: An Application of Robust and Quantile Regression

Source: Salomon Alcocer Guajardo, Compensation & Benefits Review, OnlineFirst, August 3, 2020
(subscription required)

From the abstract:
This study assesses whether the theoretical compensation framework used to explain differences in public sector pay among full-time federal and state employees may also explain differences in pay at a local government level. In doing so, this study uses ordinary least squares (OLS) regression to test the application of the theoretical framework to a specific local government. Robust and quantile regression models are used subsequently to validate the findings obtained by the OLS model. The findings reveal that the covariates used to explain differences in compensation among full-time federal and state employees have similar effects at a local governmental level. While the OLS statistical model explains 26% (R2 = .26) of the variance, the robust regression model explains 39% (R2 = .39) of the variance. The percentage of variation explained by the quantile statistical models ranges from 14% (pseudo-R2 = .14) to 50% (pseudo-R2 = .50).

CEO compensation surged 14% in 2019 to $21.3 million – CEOs now earn 320 times as much as a typical worker

Source: Lawrence Mishel and Jori Kandra, Economic Policy Institute, August 18, 2020

From the introduction:
Chief executive officers (CEOs) of the largest firms in the U.S. earn far more today than they did in the mid-1990s and many times what they earned in the 1960s or late 1970s. They also earn far more than the typical worker, and their pay—which relies heavily on stock-related compensation— has grown much more rapidly than typical worker pay. Importantly, rising CEO pay does not reflect rising value of skills, but rather CEOs’ use of their power to set their own pay. And this growing earning power at the top has been driving the growth of inequality in our country.

Notes On: Spotlighting Potential Coronavirus Wage-and-Hour Woes

Source: Lisa Milam, Labor Law Journal, Vol. 71, Issue No. 2, Summer 2020
(subscription required)

From the abstract:
…Employers are forced to make difficult decisions, often at warp speed, as they operate during the pandemic and resulting economic downturn. But making tough decisions without consulting legal counsel can invite costly litigation, and wage and hour suits—particularly class actions—are among the most expensive for employers.

In a recent Seyfarth Shaw LLP webinar on “Litigation Trends in the Post COVID-19 World,” Lynn A. Kappelman, a partner in the firm’s Boston office, discussed the wage-hour issues that arise as employers look to control payroll costs while maintaining operations, and also as they look ahead to reopening as the crisis abates. Kappelman followed up with Labor and Employment Law Daily about the common wage-hour traps that can befall employers during this unprecedented crisis.

Is Community Service Compensable? DOL Offers An Opinion

Source: Maureen Minehan, Employment Alert, Volume 36, Issue 23, November 12, 2019
(subscription required)

At Salesforce, the provider of customer relationship management solutions, volunteerism is a deeply ingrained core value. From restoring local habitats to helping children in need, Salesforce employees can participate in numerous activities on- and off-the-clock to address myriad needs in their communities. “From the beginning, giving back was the best decision we ever made—it created a culture that attracts and retains the best and the brightest, and allows our employees to be change makers in their own communities,” the company says.

Still, in keeping with the adage that no good deed goes unpunished, questions sometimes arise about the compensability of employees’ volunteer work. If a non-exempt employee volunteers during non-work hours for a company-sanctioned cause or event, are those hours compensable? Can companies offer bonuses or other inducements to encourage employees to volunteer?

CEO compensation has grown 940% since 1978 – Typical worker compensation has risen only 12% during that time

Source: Lawrence Mishel and Julia Wolfe, Economic Policy Institute, August 14, 2019

From the summary:
What this report finds: The increased focus on growing inequality has led to an increased focus on CEO pay. Corporate boards running America’s largest public firms are giving top executives outsize compensation packages. Average pay of CEOs at the top 350 firms in 2018 was $17.2 million—or $14.0 million using a more conservative measure. (Stock options make up a big part of CEO pay packages, and the conservative measure values the options when granted, versus when cashed in, or “realized.”) CEO compensation is very high relative to typical worker compensation (by a ratio of 278-to-1 or 221-to-1). In contrast, the CEO-to-typical-worker compensation ratio (options realized) was 20-to-1 in 1965 and 58-to-1 in 1989. CEOs are even making a lot more—about five times as much—as other earners in the top 0.1%. From 1978 to 2018, CEO compensation grew by 1,007.5% (940.3% under the options-realized measure), far outstripping S&P stock market growth (706.7%) and the wage growth of very high earners (339.2%). In contrast, wages for the typical worker grew by just 11.9%.

Why it matters: Exorbitant CEO pay is a major contributor to rising inequality that we could safely do away with. CEOs are getting more because of their power to set pay, not because they are increasing productivity or possess specific, high-demand skills. This escalation of CEO compensation, and of executive compensation more generally, has fueled the growth of top 1.0% and top 0.1% incomes, leaving less of the fruits of economic growth for ordinary workers and widening the gap between very high earners and the bottom 90%. The economy would suffer no harm if CEOs were paid less (or taxed more).

How we can solve the problem: We need to enact policy solutions that would both reduce incentives for CEOs to extract economic concessions and limit their ability to do so. Such policies could include reinstating higher marginal income tax rates at the very top; setting corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation; establishing a luxury tax on compensation such that for every dollar in compensation over a set cap, a firm must pay a dollar in taxes; reforming corporate governance to give other stakeholders better tools to exercise countervailing power against CEOs’ pay demands; and allowing greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation.

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