HRM textbook

358 PART 4 COMPENSATION
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1974 EMPLOYEE RETIREMENT INCOME SECURITY ACT The
Employee Retirement Income Security Act (ERISA) provided for the
creation of government-run, employer-financed corporations to protect
employees against the failure of their employers pension plans. In
addition, it sets regulations regarding vesting rights (vesting refers to the
equity or ownership the employees build up in their pension plans
should their employment terminate before retirement). ERISA also
regulates portability rights (the transfer of an employee s vested rights
from one organization to another). It also contains fiduciary standards
to prevent dishonesty in pension plan funding.
OTHER LEGISLATION AFFECTING COMPENSATION Various
other laws influence compensation decisions. For example, the Age
Discrimination in Employment Act prohibits age discrimination against
employees who are 40 years of age and older in all aspects of employment,
including compensation. 32 The Americans with Disabilities Act prohibits
discrimination against qualified persons with disabilities in all aspects of
employment, including compensation. The Family and Medical Leave Act
aims to entitle eligible employees, both men and women, to take up to
12 weeks of unpaid, job-protected leave for the birth of a child or for the
care of a child, spouse, or parent. And various executive orders require
employers that are federal government contractors or subcontractors
Two executives discuss a print layout; one to not discriminate, and to take affirmative action in certain employment
happens to be in a wheelchair. Federal law
areas, including compensation.
mandates that the wheelchair-bound employee
Each state has its own workers compensation laws. Among other
not suffer discrimination in compensation.
things, these aim to provide prompt, sure, and reasonable income to
victims of work-related accidents. The Social Security Act of 1935 (as amended)
provides for unemployment compensation for workers unemployed through no fault
of their own for up to 26 weeks (and recently extended), and for retirement benefits.
(We ll discuss Social Security benefits in Chapter 13.) The federal wage garnishment
law limits the amount of an employee s earnings that employers can withhold
(garnish) per week, and protects the worker from discharge due to garnishment.
Union Influences on Compensation Decisions
Unions and labor relations laws also influence pay plan design. The National Labor
Relations Act of 1935 (Wagner Act) granted employees the right to unionize, and
to bargain collectively. Historically, the wage rate has been the main issue in collective
bargaining. However, unions also negotiate other pay-related issues, including time off
with pay, income security (for those in industries with periodic layoffs), cost-of-living
adjustments, and health care benefits.
The Wagner Act created the National Labor Relations Board (NLRB) to oversee
employer practices and ensure that employees receive their rights. For example, the
NLRB says that employers must give the union a written explanation of the
employer s wage curves the graph that relates job to pay rate. The union is also
entitled to know its members salaries. 33
Pay Policies
The employer s compensation strategy will manifest itself in pay policies. For example, a
top hospital like Johns Hopkins might have a policy of paying nurses 20% above the
prevailing market wage. Pay policies can influence the employer s performance and
profitability, as the accompanying HR as a Profit Center illustrates.
Managers need to formulate pay policies covering a range of issues. One is whether
to emphasize seniority or performance. For example, it takes 18 years for a U.S. federal
employee to progress from step 1 to step 9 of the government s pay scale. Seniority-based
pay may be advantageous to the extent that seniority is an objective standard. One disadvantage
is that top performers may get the same raises as poor ones. Seniority-based pay