A Just Wage or Minimum Wage?

Thanks for your posts in today's online class. Michael Naughton's A Theology of Fair Pay article provides a nice wrap for our compensation and benefits discussion. In this article Naughton acknowledges the importance of the market (contribution) in pay philosophy, consistent with our study earlier this week of market-based pay systems. The market imperative carries with it the implication that a company can afford to pay the market rate (economic order). Obviously, if a company cannot afford to pay the market rate it will soon go out of business for lack of qualified employees. Then he introduces a new wrinkle: need. Need is essentially what is often referred to as a "living wage". Where all three imperatives intersect -- contribution, economic order and need -- we find a just wage.

While the idea of a living wage might sound extravagant to some, it is simply what is required to cover the essentials: a roof over one's head (a studio apartment for single people), food on the table, access to basic medical care, transportation (which doesn't always mean owning a car), and the like. See the components of a basic needs budget in Dr. Amy Glasmeier's original poverty in America work here. A living wage provides the necessities, and that's about it.

Naughton's story about Reell Precision Manufacturing paints a picture of a real company dealing with real issues (no pun intended), doing their best to honor and place equal importance on each component of the just wage. Many of you agreed with the decisions and actions of the Reell Precision Manufacturing leadership team. As Kyle N. highlights in his post, paying a just wage is a complex business decision. Katie, Andrew B., Dan & Malcolm note that Reell's key to success was a complete redesign of the production jobs and organization design to be more productive and efficient, increasing the value of the work performed, and thus enabling Reell to increase pay over a period of years to finally meet the local living wage. It is important to recognize that this kind of organization/job redesign this also happened to make the job more meaningful, which takes us back to Van Duzer's second intrinsic purpose of business, creating meaningful work that allows people to use their God-given creativity.

So should a just wage replace the minimum wage? Ayanna, Andrew R., Anthony P., Dan, Joel, Kyle and Malcolm came down squarely as supporters of a just wage. Anthony B., Kyle and Malcolm went a step further, arguing that the living wage calculator was setting the bar too low.

If we were to move to a just wage, Ayanna asks an important question: which household size do we choose to set as the bar for a living wage? The MIT calculator provides a number of benchmarks based on household size. While there is no one right answer, perhaps demographic knowledge of your target market for employees can be helpful in determining your benchmark. It's also important to note that U.S. labor law requires equal pay for equal work; pay may not take into account variations between employee commitments outside the workplace. So paying one employee more because they have a family to support would put managers out of compliance with labor law, not to mention be inconsistent with the contribution component of Naughton's just wage model.

But many of you argued that requiring all employers to pay a just wage is not practical. Kayln reminds us of Naughton's economic order requirement: companies must be able to afford to pay a just wage. Not all business models are designed to support a just wage. Yet the minimum wage was recognized by many in this same group as being too low. Kaylyn and Kristen made a case for review and setting of minimum wage at the local and state-levels, rather than by the federal government. Junior offered a creative alternative: an age-based minimum wage, lower for those under 18 years of age, higher for adults.

So, no easy answers here, but Naughton's model does help us to explore the implications of our faith on a central aspect of human resources management: what will we pay our employees? Clearly this is an issue that requires careful consideration when building a business plan. We started our compensation and benefits module noting that compensation philosophy flows from our business vision, mission and strategy, which includes Van Duzer's purposes. Baking just wages into a business plan from the beginning will help ensure we're building a a sustainable business model for both owners and employees.

The Purpose of Benefits

So what is the purpose and role of fringe benefits in a for-profit firm? You explored three different perspectives on this question in today's discussion board.

Lets begin our discussion acknowledging that benefits are expensive. Herzberg cites the cost as 25% of a person's base pay. The cost today is closer to 30%, and maybe more. Yet, as businesses have recognized from the early days of "welfare work" (remember that conversation & reading from the first week of the semester?), offering benefits beyond pay to employees has distinct advantages.

Libby Sartain offers a classic argument for the advantages of fringe benefits. They are a tangible demonstration of the company's care and interest in each individual employee. And at their best, benefits are a differentiator in a company's employment value proposition.

Chewning offers his benefits philosophy from Christian worldview; many of you appreciated his perspective. His argument would be consistent with that of many of the early welfare work proponents, including the Cadbury brothers in England, and Milton Hershey (at least based on his family background). Employers have a moral responsibility to help care for the whole person, not just the body that shows-up for work every morning. Of course, this was one of Henry Ford's frustration. He is famously quoted as saying, "All I need are a pair of hands, but I keep getting the whole person!" (my paraphrase).

Herzberg presents us with a view of pay and benefits through the lens of his motivator-hygiene theory. Those of you who are in or have taken BUSA 390 will recognize this theory.

Figure 1: Herzberg's Motivator-Hygiene Theory

The point Herzberg is trying to make in his article is that benefits keep getting more and more expensive because employers are using benefits to achieve the wrong purpose. Benefits in Herzberg's model are hygiene factors. Mitchell begins to help us understand this in his post.

Recall that hygiene factors can result in dissatisfaction if not present, but not satisfaction. Only motivators can bring people satisfaction on the job and result in intrinsic motivation. As noted in figure 1 above, motivators include recognition, opportunity for advancement, challenging work, etc. These factors on the job result in intrinsic motivation. Extrinsic motivators such as benefits can never do this, though they can cause dissatisfaction if not present.

So what does all of this have to do with Van Duzer and creating meaningful work where people can use their God-given creativity? One approach to providing meaningful work might include designing work with Herzberg's motivators in mind. These characteristics of work do not fully define "meaningfulness" in one's work, but they might give us a good start. Second, leaning on Chewning's argument -- designing benefits to address family needs, or the needs of the "whole" employee -- certainly frees our coworkers from the some of the concerns of this life, enabling them to more completely dedicate themselves to their work and the organization, including using their God-given creativity.

And the end of the day, all of this still costs money, which means our benefits philosophy needs to be clear and then baked into our business strategy and plans.

We'll continue our pay & benefits conversation on Monday with some practical work on constructing a pay range. We'll come back to this complicated issue of balancing our moral commitments with market forces and the needs of the business next Friday in our online discussion of just wages.

Enjoy the weekend, and see you on Monday!

Minimum Wages and the FLSA

The recent move by Walmart to raise entry level wages provides an interesting case for opening our compensation and benefits discussion this semester. Walmart is clearly making this move for several strategic reasons related to employee attraction, retention and development, as many of you noted in your discussion board posts. We'll come back to these strategy issues in the coming days as we discuss compensation strategy. For today, let's focus on some of the basics...

A basic tenet of the Fair Labor Standards Act is who's in and who's out in terms of the law's protection and coverage. Here's the basic premise: assume everybody in your company is covered by the FLSA, unless they fall into one of the specific exemption categories identified by Muller (2013). And if as an employer you are claiming one of these exemptions for a particular employee classification (job), you'll need to be diligent about making that case.

We'll focus on the five white collar exemptions here, but understand that there are a lot more, each with a very specific set of standards that require close attention. See this brief video for an introduction.

The white collar exemptions are: executive, administrative, professional, outside sales people, and computer professional. Note the pay and duties, and sometimes training/education criteria defined in Muller (2013) for each. These guidelines must be carefully followed, and relevant jobs regularly reviewed to ensure compliance. Employees within these groups are classified as "exempt" from the FLSA minimum wage and overtime rules.

So now how do we classify everybody else who is not in one of these exempt categories? Everybody not is an exempt classification is "non-exempt", or not exempt from the FLSA. In other words, the FLSA minimum wage and overtime rules apply to everybody else. This is the group to which Walmart's pay increases apply.

Getting our managerial heads around these classifications is critical; it impacts both our ability to comply with national, state and local labor laws, as well as ensure we have competitive pay practices.

So what is the real minimum wage?

While the FLSA establishes a national floor for wages and work hours, states and municipalities can adopt higher minimum wages and stricter work hour rules, and they are increasingly doing so. Here's a Bloomberg Business story highlighting all of the changes happening in 2015.

http://www.bloomberg.com/bw/articles/2014-12-29/minimum-wages-to-increase-in-several-states-cities-in-2015

Our Walmart story is not an isolated instance, as several of you noted in your posts. It seems to be part of a larger movement by companies and voters to take independent action in raising base wages.

Reference

Muller, M. (2013). The manager's guide to HR. New York: Amacom.