Are Unions Soft on Merit Pay?
When it comes to building a compensation strategy, often what’s important is not the size of the pot but the choice of levers. The levers include base salary, incentive pay through stocks or bonuses, commissions, and a range of benefits. Getting this compensation mix right has a big impact on how well an organization performs.
In a non-union setting, managers have virtually free rein to work these levers as they see fit. But what happens in a unionized shop? What is the union influence on the mix of compensation chosen by employers? Richard J. Long (University of Saskatchewan) and John L. Shields (University of Sydney, Australia) set out to answer that question. They studied survey data from 2000 and 2004 for 250 Canadian firms.
Reporting in Relations Industrielles/Industrial Relations, they write that, as expected, firms that are more heavily unionized devoted a larger proportion of total compensation to employee benefits than did firms with a lower level of unionization. Not surprising: an earlier U.S. study found that union presence adds 20 to 30 percent to employee benefits and that indirect pay accounts for almost 35 percent of total compensation for unionized workers versus about 25 percent for non-union workers.
But the researchers unexpectedly discovered that while the more heavily unionized firms in 2000 devoted a smaller share of compensation to individual performance pay, that was not true in 2004. That’s surprising: as a rule, unions have little time for individual performance pay or appraisal-based merit pay.
“Also surprising,” Long and Shields write,”is that more unionized firms did not differ significantly from less unionized firms in their proportions of base pay, group performance pay, or organizational performance pay in either time period.”
Their conclusion: while unions may still have power to influence some aspects of the comp mix, their power may be declining. “Even within the four-year time span of our study, Canadian unions may have lost their ability to affect a key component of the compensation mix — the use of individual performance pay — an ability that they appeared to possess at the beginning of the twenty-first century.”
“Do unions affect pay methods of Canadian firms? A longitudinal study,” by Richard J. Long and John L. Shields; Relations Industrielles/IndustrialRelations (64-3, 2009, pp. 442-465)
photo credit: Darrren Hester