Matters Column

Fair pay today goes far beyond supply and demand

June 10, 2016
TAGS fair / pay
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“Pay me fairly!” Who can be against that? Well, of course it’s that person in the corner office wringing out every ounce of value from the sweat of others, maximizing the money flowing into his or her own pocket.

Perhaps this is a bit of a simplistic view of the boss-employee relationship, although there may be a few people one can point to as the foundation for the stereotype.

Most people running an organization don’t see themselves as Mr. Scrooge. They are just working hard to accomplish goals, and getting others to help with the work for a certain level of pay. It’s just part of the equation.

Of course the next logical thought is that more work for less money just makes sense.

Social values and pay: In any case, your view is shaped largely by where you stand in the equation. The perception of what people should be paid is really a complicated and, not surprisingly, sensitive issue.

Once you move away from slave labor, the question must be faced: What should people be paid?

For most of the history of this country, it was a marketplace matter of supply and demand. Because of the usually low skill levels required in production, people offering those jobs were in a stronger position to dictate what would be paid: There were plenty of bodies capable of doing the work.

As we know, the advent of unions, starting with crafts, began to have an impact on that balance. But still it was a supply-and-demand marketplace. It was still a discussion to strike a bargain without generally considering social values.

However, as we have evolved as a society, values have become an essential aspect of the pay issue.

Child labor laws came into play early in the 20th century, along with a minimum wage of 25 cents an hour. The concept of “a fair day’s pay for a fair day’s work” caught on with the rise of industrial union negotiations.

Today, social values factor into questions of pay when it comes to discrimination against protected classes of people and the concept of equal pay for equal work. When it comes to women, there still is work to do.

Economic considerations: We may have a variety of protected classes of employees to consider, but the concept of fair pay in general has been rearing its head in a number of arenas. The driving effort is tied into larger social values.

One discussion revolves around the idea that people must be able to live and support their families through the work they perform.

It asks how much people “should” be paid for work in order to secure basic food, clothes and shelter without government assistance. This is the discussion of minimum wage.

Setting this standard would seem not too difficult when you make some assumptions about what that basic life looks like. The challenge, of course, is to create a definition all can agree on. It becomes an emotional and political landmine that few want to deal with on a regular basis.

The difficulty also involves who feels the fallout from such political decisions, and economic impacts on producers, consumers and employees.

Because we don’t have consistent strategies for dealing with social-value matters, we get today’s reactive minimum-wage mess: federal law being $7.25; Michigan law being $8.50 and cities around the country being anywhere up to $15 per hour — a difficult environment to navigate, from a business perspective.

Overtime: Then we have new regulations that update the Fair Labor Standards Act, enacted in 1938 and covering a variety of wage and working conditions. Although it has had a few changes over the years and certainly lots of tweaks due to lawsuits, it has been somewhat stable in recent years.

Recent discussion deals with who should be paid overtime. The law looks at what you do and what you are paid in 40 hours a week or eight hours a day, depending on operating practices. (If you haven’t decided what your work week is, it would be prudent to do so.)

Because the law had not been changed recently with regard to pay, that was almost never a consideration in determining overtime eligibility. The rule in effect until Dec. 1 says if you pay someone more than $11.37 per hour in certain categories of work, you are not required to pay them overtime at 1.5 times their hourly rate. The categories are professional, executive, outside sales and administrative professional. After Dec. 1, the same rules apply except that the pay threshold will be $22.82 an hour on a 2,080-hour year (that’s 52 40-hour weeks).

This regulatory change is to prevent “abuse” of managers required to work extensive hours without overtime pay. The perception is that such extended unpaid hours are unfair.

Dealing with the 1 percent: The pay-and-social-values conflict has come up in recent political debates over the disparity between wage earners and the “wealthy.” Getting the proper balance in the U.S. social structure will probably take a number of unexpected turns.

The overall structure is not likely to change, but social unrest will drive some type of narrowing. The tools may be tax policy and pay regulation change.

A factor people may not anticipate is the changing labor-market bargain as job-seekers with the quantity and quality of skills required become scarcer. Wages that employees consider fair will be a lot higher than what employers feel they can live with, so it will change things.

The search for answers: What can the employer do to deal with issues of fair pay? The first step is to establish a sound pay and performance compensation system.

The system has to be flexible to adjust to new conditions while preserving internal equity based on job responsibilities and performance. Once established, it has to be maintained.

Such a system may not help avert all the push and pull of social change, but it should reassure employees that their pay is based on reasonable considerations. It should also help to facilitate any required changes in a fair and equitable manner.

Ardon Schambers is principal at P3HR Consulting & Services.

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