Labor Relations Development Structure

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Chapter 09 - Wage and Benefit Issues in Bargaining

Chapter 09
Wage and Benefit Issues in Bargaining
True / False Questions

1. (p. 253) Private sector employers are ultimately interested in increasing workers' power.
FALSE

2. (p. 254) Reduced union coverage is a major contributor to income inequality.

TRUE

3. (p. 255) Cost-of-living adjustment is intended to maintain parity between wages and profits
over time.
FALSE

4. (p. 255) Collective bargaining alters the status quo in pay administration by substituting a
negotiated contract for management's unilaterally determined practices.
TRUE

5. (p. 256-257) Pay system refers to the methods used to determine how much each individual will
earn within a job.
TRUE

6. (p. 257) When the economy is strong, a profit-making capital-intensive firm can avoid wage
increase.
FALSE

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Chapter 09 - Wage and Benefit Issues in Bargaining

7. (p. 258) Where COLAs exist, pay levels within the contract period are tied to changes in the
consumer price index.
TRUE

8. (p. 262) In a lane-and-step system, pay rates are based on work experience and reference
provided by previous employer.
FALSE

9. (p. 264) The disadvantage of the two-tier pay plan is that the employees doing equal work
receive unequal pay.
TRUE

10. (p. 265) Cost of the health insurance is tied to the employees' pay level.
FALSE

11. (p. 268) ERISA compels employers to offer a pension plan to all the employees.
FALSE

12. (p. 270) All else equal, companies in more mature, stable, or declining industries are likely to
have higher health care costs because of the older average age of their workforces.
TRUE

13. (p. 271) Benefit status seniority refers to entitlements that individuals accrue from continued
employment.
TRUE

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Chapter 09 - Wage and Benefit Issues in Bargaining

14. (p. 274) The Scanlon plan's major purposes are to reward both parties for productivity gains,
encourage participation, and tie pay to company performance.
TRUE

15. (p. 276) One disadvantage of Impro-Share is that the competitors can easily determine wage
costs.
FALSE

16. (p. 279) Only in the construction industry are union workers paid better than the nonunion
workers.
FALSE

17. (p. 281) Union wage premiums are greater during recessions and narrow during inflation.
TRUE

18. (p. 283) In the short run, union wages are insensitive to changes in the unemployment rate
compared to wages in the nonunion sector.
TRUE

19. (p. 284) In a national sample of employees, those who moved from nonunion to union
employment had more equal wages.
TRUE

20. (p. 287) Incentive and performance-based pay programs are used more often in unionized
settings than in nonunionized firms.
FALSE

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Chapter 09 - Wage and Benefit Issues in Bargaining

21. (p. 287) Because a unionized workforce increases wage costs, compared to unorganized
firms in the same industries, a unionized firm is at a competitive disadvantage.
FALSE

22. (p. 289) In unionized firms, workers are more willing to share job information due to
seniority-based pay systems.
TRUE

23. (p. 289) Unionized firms invest more in research and development because of the more
skilled and productive labor.
FALSE

24. (p. 291) Takeovers of unionized firms result in higher shareholder return compared with
takeovers of nonunion employers.
TRUE

25. (p. 291) Unionization has been found to have consistent effects on firm insolvency.
FALSE

Multiple Choice Questions

26. (p. 253) Union's upward bargaining pattern has declined because of:
A. increased global competition.
B. unavailability of skilled labor.
C. strict laws protecting employers.
D. lack of employment opportunities.

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Chapter 09 - Wage and Benefit Issues in Bargaining

27. (p. 255) When do companies introduce cost-of-living adjustment?

A. When they want to increase employees' standard-of-living.
B. When there is pay difference within different work groups.
C. When the purchasing power of employees' pay has eroded.
D. When the parity between wages and prices is high.

28. (p. 256) Which pay program is a method by which compensation is received?
A. Pay level
B. Pay form
C. Pay structure
D. Pay system

29. (p. 256) When does external equity demand in wages arise?
A. When the wages are different for different functions.
B. When the wages are lower for unskilled labor than the skilled labor.
C. When the wages are lower than other similar firms with similar jobs.
D. When the wages are different for similar functions within the organization.

30. (p. 257) Which component is associated with pay level?

A. Job evaluation
B. Gainsharing plan
C. Health care costs
D. Standard of living

31. (p. 257) When the economy is strong, capital-incentive employers do not have the incentive
to avoid large wage-raise? Why?
A. The profit-sharing ability is high.
B. They are compelled to add COLA.
C. Nonbargaining unit employees have better benefits.
D. Wage increase leads to job security.

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Chapter 09 - Wage and Benefit Issues in Bargaining

32. (p. 258) Identify a condition that is likely to decrease wage imitation.
A. Decreased competition in industries where employers operate.
B. Differences between industries where employers operate.
C. Equal ability to pay within the industries.
D. Decreased emphasis on company productivity trend.

33. (p. 259) Which of the following helps determine pay structure?
A. Standard of living
B. Time worked
C. Wage-and person-tied benefits
D. Job evaluation

34. (p. 259) What is the primary disadvantage of the job evaluation system?
A. It makes it difficult to slot a new job in the existing pay structure.
B. There is reduction of compression in wage differentials if increases are given as a
percentage of the total points.
C. Union and management must initially agree on the identification, definition, and point
assignments associated with compensable factors.
D. It supports team-based production, which blurs job boundaries.

35. (p. 259-260) When is an employer more likely to implement a grade structure?
A. When the union is supporting team-based production.
B. When most of the jobs are filled from within the company.
C. When education and experience are assumed to be related to productivity.
D. When the pay increases with the learning of prescribed skills.

36. (p. 261) Which of the following is more likely to adopt a lane-and-step plan?
A. A manufacturing company
B. An airline company
C. An information technology company
D. A nonresearch university

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Chapter 09 - Wage and Benefit Issues in Bargaining

37. (p. 262) If an employee is receiving pay based on his length of service in the organization
and highest education received, then which pay structure is his/her employer following?
A. Grade structure
B. Lane-and-step plan
C. Two-tier plan
D. Job evaluation

38. (p. 263) In two-tier pay plans, when does the employer benefit most?
A. When the company is stagnating.
B. When the lower-tier employment levels begin to increase.
C. When the employees turnover is high.
D. When the pay increase is related to the skills learnt.

39. (p. 263) A car manufacturing company wants to lower wage costs through decreased starting
rates for new hires. Which pay structure should it implement?
A. Lane-and-step plan
B. Grade structure
C. Skill-based plan
D. Two-tier pay plan

40. (p. 264) What causes dissatisfaction in the two-tier pay plan?
A. Employees doing equal work receive unequal pay.
B. Employees with higher education get higher pay.
C. Employees with lower skill level get lower pay.
D. Senior employees get higher pay.

41. (p. 265) Health insurance benefits are:

A. wage-tied.
B. age-tied.
C. gender-tied.
D. person-tied.

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Chapter 09 - Wage and Benefit Issues in Bargaining

42. (p. 265) In a manufacturing company, employee A earns 18$ an hour. After the company
agreed to a new wage contract, employee A will be paid 18.72$ an hour. What is the
percentage of wage increase the company agreed to?
A. 5%
B. 3.5%
C. 4%
D. 2.5%

43. (p. 266) When would employers prefer overtime workers than new hires?
A. When more work is needed and the employee wants to reduce costs.
B. When person-tied benefits and paid time off exceed 50 percent of base pay.
C. When the overtime contract requires higher premium.
D. When costs are incidental to hiring and benefits are lower than overtime premium.

44. (p. 267) How did VEBA affect automobile manufacturers?

A. Rapidly escalated the cost of health care benefits for retirees.
B. Compelled the companies to deposit 1,500$ per vehicle manufactured to fund VEBA.
C. Allowed them to transfer their liability to provide medical care for retirees.
D. Reduced their global competitiveness and profitability.

45. (p. 268) In which pension plan is the amount paid on a monthly basis?
A. Defined benefit plan
B. Salary reduction plan
C. Defined contribution plan
D. Tax free fund transfer

46. (p. 268) All of the following statements regarding pension plans are true EXCEPT:
A. under defined benefit plan, the employer's fiduciary decides where to invest funds.
B. under the salary reduction plan, employee elects to contribute some amount of pretax
income to his/her retirement account.
C. under defined contribution plan, the risk of investment is borne by the employer.
D. under ERISA, employer is not required to offer a pension plan.

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Chapter 09 - Wage and Benefit Issues in Bargaining

47. (p. 268) If an employee selects a pension plan in which a fixed percentage of profit is
allocated to each employee in proportion to his/her proportion of total employee pay in that
employee group, which pension plan did he/she select?
A. Defined benefit
B. Salary reduction
C. 403(b)
D. Defined contribution

48. (p. 268) ERISA obligates that:

A. all employers must offer a pension plan.
B. employers with pension plans must create a set of rules and comply with them.
C. employers with pension plans must allow all employees aged 21 and over to participate.
D. employers with defined benefit plans must make contributions that will cover immediate
retirement costs.

49. (p. 269) Why do employers currently choose the 401(k) plan or the 403(b) plan?
A. Employers receive increased incentives to offer these plans and they carry substantially
reduced risk.
B. There are guaranteed benefits for employees and the employer bears no risk of investment
under these plans.
C. These plans ensure that if the company fails, the accrued pension benefits will nevertheless
be paid.
D. Under these plans, employers have 40 years to fully fund an underfunded plan.

50. (p. 270) Which factor directly affects the health care cost of the employer?
A. Standard-of-living of workforce
B. Age and gender composition
C. Ethnic background of workforce
D. Manual labors and nonmanual labor composition

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Chapter 09 - Wage and Benefit Issues in Bargaining

51. (p. 271) Which pay system refers to entitlements that individuals accrue from continuous
employment?
A. Scanlon Plan
B. Productive efficiency
C. Benefit status seniority
D. Gainsharing plan

52. (p. 272) All of the following are methods used to decide pay for each employee EXCEPT:
A. gainsharing plan.
B. Scanlon Plan.
C. piece rate system.
D. person-tied benefits.

53. (p. 272) What did Joseph Scanlon propose to avoid a firm's closure?
A. Parties work together to increase productivity to which a bonus is linked.
B. All employees should participate and rewards should be given to highly skilled labor.
C. Management should decide the best solution and workers should follow it.
D. Bonus should be given to the workgroup that came up with the best solution.

54. (p. 273) In the Scanlon Plan, which party is responsible for determining bonuses to be paid?
A. Employee committee
B. Screening committee
C. Production committee
D. Executive committee

55. (p. 274) One of the Scanlon Plan's major purposes is:
A. to minimize employee participation.
B. to increase labor input for a given output.
C. to reward only employees for productivity gains.
D. to tie pay to company performance.

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Chapter 09 - Wage and Benefit Issues in Bargaining

56. (p. 274-276) What is a difference between the Scanlon Plan and Impro-Share?
A. Impro-Share employees can easily calculate their bonus amount.
B. In the Scanlon Plan, the bonuses are shared across workgroups.
C. Impro-Share is aimed at increasing employee participation.
D. In the Scanlon Plan, the bonus committee determines the bonus formula.

57. (p. 277) Profit-share bonuses are influenced by:

A. individual employee performance.
B. executive bonus committee.
C. product design decisions.
D. union's ability to negotiate.

58. (p. 279) What is an industrial effect of unions on pay level?

A. Union workers are paid lesser than nonunion workers on an average.
B. Industries having highest union wage premium had the lowest employment decrease in the
1970s.
C. Unions are able to bargain larger-than-normal increase in firms that created specific assets.
D. Wage premiums come with cost to labor making the firms less profitable.

59. (p. 280) Which of the following do unions have greater effects for?
A. Women employees
B. Residents of Northern states
C. Whites
D. Transport operatives

60. (p. 281) When does the narrowing of union-nonunion wage gap occur?
A. During periods of expansion.
B. During periods of high unemployment.
C. When wages have eroded.
D. When inflation is high.

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Chapter 09 - Wage and Benefit Issues in Bargaining

61. (p. 282) Across workers' subgroups, becoming unionized or not is associated with:
A. company profitability.
B. increased wages.
C. job satisfaction.
D. gainsharing programs.

62. (p. 283) Which condition raises union spillovers?

A. High unemployment
B. Increasing inflation
C. High standard-of-living
D. Economic expansion

63. (p. 284) According to an extensive study of union wage differentials:

A. the private sector wage premium is higher today than it was in the 1970s.
B. public sector wage effects are smaller than those in the private sector.
C. nonunion workers are able to resist employers' efforts to reduce wages better than the
unionized workers.
D. there remains big variation in the premium across workers.

64. (p. 284) According to a study across income distribution in Canada:

A. employees whose earnings are in the top quintile lose from unionization.
B. employees whose earnings are in the lowest quintile lose from unionization.
C. average earning of the nonunion worker in the first four quintiles is higher than the
nonunion worker.
D. employees who are most advantaged in the labor market benefit the most.

65. (p. 286) Which of the following statements about union and nonunion members is true?
A. Nonunion members receive more in nonstatutory benefits.
B. Union members are more likely to have benefits such as vacations.
C. Unions have the greatest impact on high-wage employers.
D. Nonunion members prefer a larger portion of their pay as benefits.

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Chapter 09 - Wage and Benefit Issues in Bargaining

66. (p. 287) Why are performance-based pay programs less implemented in unionized
organizations?
A. Lack of measurable performance criteria.
B. Demand for equal pay across functions.
C. Performance monitoring is difficult.
D. Union jobs are more repetitive.

67. (p. 288) According to various studies on union's effects on a firm's performance:
A. in auto parts industries, unionized firms are 20 percent more productive than nonunionized
firms.
B. in the hospital industry, productivity was higher in public sector establishments.
C. in education student achievement was negatively affected by unionization.
D. in the construction industry, nonunionized workers were more productive than unionized
workers.

68. (p. 289) Why do unionized firms have lower research and development budgets?
A. Higher labor costs compared to nonunion firms.
B. Lack of skilled workers compared to nonunion firms.
C. Less productive workforce compared to nonunion firms.
D. Higher share prices compared to nonorganized firms.

69. (p. 289) Why do unionized firms have higher skill levels than nonunionized firms?
A. There is increased competition in unionized firms.
B. Employees are more willing to share job information.
C. Most unionized firms adopt skill-based pay system.
D. Unionized firms hire only highly-skilled labor.

70. (p. 291) How does unionization affect insolvency?

A. The rates of unionized plant closure are higher in the manufacturing industry.
B. Unionization has no consistent effect on a firm's insolvency.
C. Unionized firms are 20 percent less profitable.
D. Management cannot convince unions about saving concession.

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Chapter 09 - Wage and Benefit Issues in Bargaining

Short Answer Questions

71. (p. 253-254) How does unionization affect income inequality?

Income inequality is also a component of the equity demand. Unequal distributions exist
where different workers in different jobs earn different pay. From a union standpoint,
excessive inequality would be related to income differences between production workers,
professionals, and executives that are larger than members can justify. For the union,
inequality suggests there may be an opportunity to redistribute income from higher to lower-
level jobs. Income inequality has increased substantially since 1980. Some of this can be
attributed to occupational changes, but reduced union coverage is a major contributor to this
problem. Union coverage is an important factor because inequality had decreased in the
public sector over the same period in which union membership grew.

72. (p. 257) Which factors influence a firm's ability to pay?

A variety of considerations influence ability to pay. The general level of business activity
influences profits. When the economy is strong and unemployment is low, wage demands
increase and the incidence of strikes to support bargaining demands rises. Employers that
have relatively capital-intensive production processes or that bargain with several relatively
small units do not have the incentive to avoid large wage increases that labor-intensive firms
have. The ability to pay is usually an issue raised by the union, but employers experiencing
reduced profits (or losses) or changes in their industries' competitive level argue for pay
reductions. Pay-level comparisons become more difficult to make as pay form becomes more
complex.

73. (p. 258) Explain an important COLA consideration while increasing wages.

A very important COLA consideration is whether the increases are incorporated into the base
wage. Unions prefer to include them in the base before the current contract expires because, if
inflation were high, an extremely large increase would be needed to bring the base up to a
real-income standard equivalent to that earned at the end of the expiring contract.

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Chapter 09 - Wage and Benefit Issues in Bargaining

74. (p. 260) Which characteristics of grade structures must be negotiated?

First, the parties would need to decide how many grades would be in the structure. Second,
they would have to decide which jobs to assign to which grades. Third, they would have to
determine differences in pay between grades. And fourth, they would have to decide the
minimum and maximum pay rates an employee could earn within a pay grade.

75. (p. 260-261) How does skill-based pay plan work?

Skill-based pay (SBP) ties pay to the skills employees have acquired. An inexperienced
employee is hired at a starting rate. As the employee learns prescribed skills, pay is increased.
Relatively few job classifications exist, and employees can be moved between assignments
based on the employer's needs. This pay plan combines structural (job or task relationships)
and system (pay changes based on individual behavior or skills) aspects.

76. (p. 267) Why was the Voluntary Employee Benefits Association created?

In situations where a company has a large group of retirees relative to the size of the active
workforce, the cost of health care benefits escalates rapidly. This problem is what led the U.S.
domestic automobile manufacturers to negotiate the formation of a voluntary employee
benefits association (VEBA) with the UAW in their 2007 contract.

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Chapter 09 - Wage and Benefit Issues in Bargaining

77. (p. 268-269) List the rules of ERISA that employers with pension plans must comply with.

ERISA obligates that employers with pension plans must allow all employees aged 21 and
over to participate. As employees accrue service, their accrued benefits become vested
(owned) after five years. If they quit after that point, their employer must allow them to make
a tax-free transfer of the funds to an IRA. If the employer has a defined benefit plan, it must
make an annual actuarially based contribution that will cover the expected future retirement
costs. Employer contributions must be turned over to a financial trustee (fiduciary) whose
responsibility is to invest them for the benefit of the future retirees. Not more than 10 percent
of the plan's assets can be invested in the employer's stocks or bonds. If a company files a
bankruptcy petition, it may, under certain circumstances, abrogate its pension obligations,
although its previous contributions would continue to remain in the plan. It can also choose to
terminate a fully funded plan. If it does, it provides a payment equal to the amount of pension
that would be provided at retirement if the employee were to have the current salary and
length of service at retirement. The employee would then roll this sum over into an IRA to
avoid taxability of the payment. However, it is unlikely that a union would agree, in
negotiations, to allow an employer to terminate an existing plan.

78. (p. 275) What are the evidences related to success of the Scanlon Plan?

(1) Perceived participation is necessary for successful implementation, (2) company or plant
size is not a factor, (3) managerial attitudes toward the plan predict its success, (4) successful
implementation takes considerable time, (5) plans are more successful where expectations are
high but realistic, (6) a high-level executive must lead implementation for it to be successful,
and (7) the type of production technology is not related to success or failure.

79. (p. 276) Explain the bonus formula in Impro-Share with an example.

The bonus formula is somewhat complex, but the result subtracts the actual hours employees
work from the "base value earned hours" of their output. If the result is positive, the
employees' share (say, 50 percent) is divided by the actual number of hours worked to obtain
a bonus percentage. For example, if an employee worked 1,000 hours during a period, and
base value earned hours were 1,100 with a 50 percent share, the bonus would be 5 percent.

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Chapter 09 - Wage and Benefit Issues in Bargaining

80. (p. 287) What is union's effect on the pay system?

Little is known about how unions specifically influence pay systems, and existing data are
based on the industry level. Unionized employers are much more likely to determine pay
increases using easily identifiable criteria and automatic progression and are less likely to
have merit reviews or other forms of individual determinations. Union jobs are more
repetitive, have more measurable performance criteria, and need to apply incentive pay less
because performance monitoring is easier. In general, incentive and performance-based pay
programs are used less often in unionized settings.

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