Category Archives: Compensation

Laws Enabling Public-Sector Collective Bargaining Have Not Led to Excessive Public-Sector Pay

Source: Jeffrey Keefe, Economic Policy Institute (EPI), Briefing Paper #409, October 16, 2015

From the summary:
Unlike many other countries, when the United States enacted its private-sector labor law, the National Labor Relations Act, in 1935, it did not include public employees within the same or similar framework for collective bargaining. Not until the late 1950s and 1960s did state and local governments grapple with a labor law to govern their rapidly growing public-sector labor forces. No state or local government chose to transplant the private-sector model of collective bargaining; instead they adopted some parts of it, chose to create no bargaining framework at all, or prohibited collective bargaining. This paper describes the rapid growth of labor laws that have enabled public-sector collective bargaining, and examines the effects of various labor law frameworks on public employee wages.
• Only 2 percent of the state and local public-sector workforce in 1960 had the right to bargain collectively. By 2010, that share had grown to 63 percent.
• While early on, many policymakers were concerned about the right to strike, a number of states did eventually extend the right to strike to more than 20 percent of public employees; however, all of these employees are in non–public safety positions. Thus the right to strike has not had catastrophic results in terms of threats to public safety or welfare.
• The right to strike has also not led to massive wage increases: Employees covered by the right to strike earn about 2 percent to 5 percent more than those without it.
• Public safety employees are effectively covered by binding interest arbitration, which has prevented strikes and has resulted in cost-effective and widely accepted settlements by the participants.
• This research finds no wage effect for public employees covered by collective bargaining attributable to binding interest arbitration when compared with mediation.
• Fact-finding, the most widely employed final dispute-resolution procedure, tends to favor the public employer, resulting in significantly lower wages for public employees, in the range of 2 percent to 5 percent less than other dispute resolution procedures.

Union security provisions, which require employees to contribute to the financial support of the union that has the exclusive right to represent them with respect to terms and conditions of employment, vary by state, locality, and various occupations.
• Dues checkoff, which is widespread in the public sector, has a small positive effect on wages, ranging from 0 percent to 3 percent; however, we suspect it has a major effect on union membership.
• Open-shop laws, which prohibit union security agreements, are associated with significantly lower public-employee wages, with estimates ranging from -4 percent to -11 percent, compared with no policy on union security.
• Agency-shop provisions, which require the payment only of a fee narrowly tailored to support a union’s collective bargaining activities, its contract enforcement, and employee grievance processing, are associated with significantly higher wages, ranging from 2 percent to 7 percent for public employees.

In summary, it is difficult to conclude that the relatively small wage effects of collective bargaining have led to serious distortions in the democratic process. Collective bargaining has resulted in higher public-employee wages in the range of 5 percent to 8 percent. There is some indication that collective bargaining has offset employer monopsony power in the public sector (Keefe 2015; Lewin, Kochan, and Keefe 2012), thus not producing excessive or distorted public-employee compensation, and has promoted internal equity (Keefe 2015, forthcoming).
Related:
Press release

Fining McWalmart: Charging Employers for the Social Costs of Poverty Wages

Source: Erica Smiley, New Labor Forum, Vol. 24 no. 3, Fall 2015
(subscription required)

From the abstract:
… The “low-wage employer fee” is actually any strategy that attempts to win back the resources workers lose when large, low-wage corporations transfer their costs to the public while continuing to increase their own profits…. Once such a fee is implemented, low-wage employers can either negotiate directly with workers over wages and conditions of the industry or they can pay the low-wage employer fee that workers will appropriately allocate to subsidize the community’s assumed costs of low-wage work. How they pay the fee, and how often, would be set based on the local context—either in a lump sum or in intervals throughout the year. The hope is that it ultimately expands workers’ ability to collectively define industry standards—either directly with employers or around them via smartly crafted state interventions. ….

TSR, Executive Compensation, and Firm Performance

Source: Hassan Enayati, Kevin Hallock, and Linda Barrington, Cornell University, A Brief Prepared by the Institute for Compensation Studies ILR School, September 29, 2015

– Particularly since the recent recession, the general public and policy makers have been interested in aligning the incentives of executives with the incentives of shareholders.
– Embedding Total Shareholder Return (TSR) target metrics into top executive compensation plans have been described as a simple and direct tool to align incentives.
– Despite the increased popularity of such TSR plans, the empirical evidence supporting the expansion of this compensation strategy is limited.
– This brief aims to shed light on whether the inclusion of TSR measures in long-term incentive plans result in improved firm performance.
Related:
Paying CEOs fat bonuses for stock performance doesn’t work — Cornell study
Source: Lawrence Lewitin, Yahoo Finance, October 2, 2015

Why everybody knows CEOs are overpaid, but nothing happens

Source: David Peetz, The Conversation, October 4, 2015

That CEOs are overpaid is something, as Leonard Cohen would say, “everybody knows”; including the directors and shareholders who ultimately decide their pay. Yet firms are unwilling to do anything about it, because to do so would damage internal relations, undermine status and run against the norms of the system. Across Europe, the US and Australia, four fifths of people believe business leaders in their countries are overpaid and/or that executive salaries should be capped. ….
Related:
An institutional analysis of the growth of executive remuneration
Source: David Peetz, Journal of Industrial Relations, Early View, Published online before print August 27, 2015
(subscription required)

From the abstract:
This article develops a framework for understanding growth in executive remuneration and its increasing divergence from average earnings since a 1980s turning point, drawing on studies from a range of countries but with a special focus on Australian evidence. This framework emphasises the central roles played by company size, to which power is intrinsically related; the distinct, asymmetric nature of the ‘bargaining’ relationship in executive labour markets; and institutions that reflect seven rules. A corporation’s status depends in part on its chief executive officer’s status and pay. Chief executive officers’ ability to extract rents is influenced by their social capital. Chief executive officer pay is heavily influenced by relative pay deprivation. Institutions emerge to facilitate dual-asymmetric pattern bargaining. The incentive structure of executive pay adjusts over time to minimise downside risk, justify high growth and deflect shareholder concerns. Different norms shape pay in different segments, though cross-segment references will be made to justify increases. Finally, chief executive officers’ ability to ratchet pay upwards is contested, leading to cycles of asymmetries reflecting the social, political and economic climate and balance of power.

Most People Have No Idea Whether They’re Paid Fairly

Source: Dave Smith, Harvard Business Review, October 5, 2015

Managers know that engaged employees are more effective. But despite the vast amount of employee engagement research out there, very little of it focuses on a person’s primary reason for employment in the first place: getting paid. PayScale, the compensation software company where I work, surveyed 71,000 employees to study the relationship between pay and employee engagement. The study results revealed that one of the top predictors of employee sentiment, including “satisfaction” and “intent to leave,” was a company’s ability to communicate clearly about compensation. In fact, open and honest discussion around pay was found to be more important than typical measures of employee engagement, such as career advancement opportunities, employer appreciation and future enthusiasm for the company. Pay is a crucial component of engagement because it’s not just a number; it’s an emotional measure reflecting how valued an employee feels by their employer. And it turns out, how people feel about their deal plays a huge role in how engaged they are in their work. While there’s still a lot to learn about the connection between the perception and reality of compensation, and how both relate to engagement, we identified a few interesting data points that may change how you talk to your employees about pay. ….

Income, Poverty and Health Insurance Coverage in the United States: 2014

Source: U.S. Census Bureau, Press Release, Release Number: CB15-157, September 16, 2015

The U.S. Census Bureau announced today that in 2014, there was no statistically significant change from 2013 in either real median household income or the official poverty rate. At the same time, the percentage of people without health insurance coverage declined. Unless otherwise noted, the following results for the nation were compiled from information collected in the 2015 Current Population Survey Annual Social and Economic Supplement.

The nation’s official poverty rate in 2014 was 14.8 percent, which means there were 46.7 million people in poverty. Neither the poverty rate nor the number of people in poverty were statistically different from 2013 estimates. This marks the fourth consecutive year in which the number of people in poverty was not statistically different from the previous year’s estimate.

Median household income in the United States in 2014 was $53,657, not statistically different in real terms from the 2013 median income. This is the third consecutive year that the annual change was not statistically significant, following two consecutive annual declines.

The percentage of people without health insurance coverage for the entire 2014 calendar year was 10.4 percent, down from 13.3 percent in 2013. The number of people without health insurance declined to 33.0 million from 41.8 million over the period.

These findings are contained in two reports: Income and Poverty in the United States: 2014 and Health Insurance Coverage in the United States: 2014. The Current Population Survey Annual Social and Economic Supplement was conducted between February and April 2015 and collected information about income and health insurance coverage during the 2014 calendar year. The Current Population Survey, sponsored jointly by the U.S. Census Bureau and U.S. Bureau of Labor Statistics, is conducted every month and is the primary source of labor force statistics for the U.S. population; it is used to calculate the monthly unemployment rate estimates. Supplements are added in most months; the Annual Social and Economic Supplement questionnaire is designed to give annual, calendar-year, national estimates of income, poverty and health insurance numbers and rates.

Another Census Bureau report, The Supplemental Poverty Measure: 2014, was also released today. With support from the Bureau of Labor Statistics, it describes research showing a different way of measuring poverty in the United States. The supplemental poverty measure serves as an additional indicator of economic well-being and provides a deeper understanding of economic conditions. The Census Bureau has published poverty estimates using this supplemental measure annually since 2011. Today marks the first time the official poverty measure and the supplemental poverty measure have been released simultaneously.
Related:
Online Webinar, Wednesday, Sept. 16, 10 a.m. EDT
Presentation
Presentation with Plot Points
Remarks

Reports and Data Tables
Income and Poverty in the United States: 2014
Source: Carmen DeNavas-Walt and Bernadette D. Proctor, U.S. Census Bureau, Current Population Reports, P60-252, September 2015
Health Insurance Coverage in the United States: 2014
Source: Jessica C. Smith and Carla Medalia, U.S. Census Bureau, Current Population Reports, P60-253, September 2015
The Supplemental Poverty Measure: 2014
Source: Kathleen Short, U.S. Census Bureau, Current Population Reports, P60-254, September 2015
Complete set of poverty thresholds
Health Insurance Coverage Data
Income data
Poverty data

College Calculus: What’s the real value of higher education?

Source: John Cassidy, New Yorker, September 7, 2015

….No idea has had more influence on education policy than the notion that colleges teach their students specific, marketable skills, which they can use to get a good job. Economists refer to this as the “human capital” theory of education, and for the past twenty or thirty years it has gone largely unchallenged. If you’ve completed a two-year associate’s degree, you’ve got more “human capital” than a high-school graduate. And if you’ve completed a four-year bachelor’s degree you’ve got more “human capital” than someone who attended a community college. Once you enter the labor market, the theory says, you will be rewarded with a better job, brighter career prospects, and higher wages. There’s no doubt that college graduates earn more money, on average, than people who don’t have a degree. And for many years the so-called “college wage premium” grew…. During the past decade or so, however, a number of things have happened that don’t easily mesh with that theory. If college graduates remain in short supply, their wages should still be rising. But they aren’t. …. Many students and their families extend themselves to pay for a college education out of fear of falling into the low-wage economy. That’s perfectly understandable. But how sound an investment is it? ….

Related:
We Are Living in the Era of Job Gentrification
Source: Brentin Mock, Citylab, September 3, 2015

Employers increasingly want Ivy League grads for minor-league jobs.

More education still means more pay in 2014
Source: Bureau of Labor Statistics, U.S. Department of Labor, The Economics Daily, September 2, 2015

Better Information for Better College Choice & Institutional Performance
Source: U.S. Department of Education, September 2015

…..This paper describes the measurements included in the updated College Scorecard and explores how the data can be combined to measure the tradeoffs that exist among outcomes and costs of different institutions of higher education. It accompanies a technical paper that describes the data, and explores
their use and limitations in greater detail. ….

Pay protection during temporary absences from work: what we know and what we don’t know

Source: William J. Wiatrowski, U.S. Bureau of Labor Statistics, Monthly Labor Review, September 2015

From the abstract:
Employer-provided sick leave plans generally provide pay protection to ill or injured workers. Data from the Bureau of Labor Statistics show that other benefits also may be used to protect workers from loss of income. This article explores the range of benefits available for pay protection and looks at how certain unique plans are treated in the BLS statistics. Further, the article examines the uses of sick leave and other pay protection plans, especially for family leave issues. What is known about various pay protection benefits is identified, as is a series of unknowns: issues related to pay protection that aren’t currently identified in BLS surveys.

Paying High for Low Performance

Source: Steven A. Bank, George S. Georgiev, University of California, Los Angeles (UCLA) – School of Law Law-Econ Research Paper No. 15-11, August 7, 2015

From the abstract:
This essay argues that regulatory reforms introduced by the Dodd-Frank Act of 2010 in the area of executive compensation have not yet achieved their purpose of linking executive pay with company performance. The rule on shareholder say-on-pay appears to have had limited success over the five proxy seasons since its adoption. The rule on pay ratio disclosure, adopted in August 2015, and the rules on pay-versus-performance disclosure and the clawback of certain incentive compensation, proposed in April 2015 and July 2015, respectively, are also unlikely to succeed. For the most part, the rules are intuitive and well-intentioned, but a closer look reveals that they are easy to manipulate, counterproductive, and often interact with one another, and with other regulatory goals, in unintended ways. As a result, five years after the passage of Dodd-Frank, the decades-old goal of aligning pay with performance remains elusive.

Beyond the Wage Stagnation Story: Better Measures Show America’s Workers Doing Better Than Previously Reported

Source: Stephen Rose, Urban Institute, August 2015

From the abstract:
Many major media outlets take as a given that the earnings of middle-class workers have not increased much for many years. The most commonly cited figure is the small 6 percent increase in median real hourly pay between 1979 and 2013. However, this paper finds that real median yearly compensation rose 38 percent over these years. This large discrepancy results from how data are examined in this paper: using yearly rather than hourly pay, including employer-provided benefits of payroll taxes and medical insurance and retirement contributions; and accounting for inflation with a different measure.