Business Commons^™

Pay In Nonprofits, Kevin F. Hallock

Economics Faculty Publications

In the US, April 21-April 27 is National Volunteer Week, a time to recognize all those who work without pay to support important missions or causes championed by nonprofits. Many of the issues that come up when designing pay systems in for-profits (strategy, internal equity, performance, motivation, fairness, transparency, etc.) are as important to consider in nonprofits as they are in for-profits. But some of the facts and issues differ. Using a sample of data from the 2000 US Census of Population about approximately 3 million people between the ages of 16 and 65 who worked full year and full …

Valuing Employee Stock Options, Kevin F. Hallock

Economics Faculty Publications

It helps to remember that employee options and market-traded options are quite different. The difference between them makes valuing employee options more complicated, but it also offers a lesson about how the employer's cost for a given piece of the total rewards package may not be the same as its value to a given employee. Organizations too often miss this and, as a result, can find themselves leaving money on the table. A stock option is the right to buy a share of stock at a specific price (called the strike or exercise price) at some point in the future. …

Pay And Relative Income Within Couples, Kevin F. Hallock

Economics Faculty Publications

In "U.S. Labor Market Challenges Over the Longer Term," labor economist David Autor shows that the fraction of young adults who are currently married plummeted, dropping by 30% to 70% depending on gender, education and race/ethnicity (paper prepared for the Federal Reserve Board of Governors, 2010). At the same time, women's labor earnings have steadily increased. An interesting and provocative new working paper, "Gender Identity and Relative Income Within Households", by Marianne Bertrand, Emir Kamenica and Jessica Pan (working paper, November 2012), tries to determine how these two trends are related. One of the things Bertrand, Kamenica and Pan focus …

Presidential Pay, Kevin F. Hallock

Economics Faculty Publications

Last month, the author wrote about athletes' pay relative to CEOs' pay and he invoked Babe Ruth's famous line justifying being paid more than Pres Herbert Hoover because Ruth had had "a better year." This month, Pres Barack Obama will be sworn in for a second term. His annual salary will be $400,000. Of course, compensation is about a lot more than wages and salaries in most jobs, and it is no different for the president of the US. Consider that the president enjoys a $50,000 "expense allowance" that is not taxed. There are also rewards after leaving office. Again, …

Data Improvement And Labor Economics, Kevin F. Hallock

Economics Faculty Publications

The expansion of available data for research has transformed empirical labor economics over the past generation. This paper briefly highlights some of the changes and describes a few examples of papers that illustrate the advances. It also documents the changing ways data have been used in the Journal of Labor Economics over the past 30 years, including a trend toward a higher fraction of papers using any data and, among those papers using any data, a higher fraction using nonpublic data, a higher fraction using international data, and more frequent use of multiple data sources. Finally, this paper describes work …

Stakeholder Theory, Value, And Firm Performance, Jeffrey S. Harrison, Andrew C. Wicks

Management Faculty Publications

This paper argues that the notion of value has been overly simplified and narrowed to focus on economic returns. Stakeholder theory provides an appropriate lens for considering a more complex perspective of the value that stakeholders seek as well as new ways to measure it. We develop a four-factor perspective for defining value that includes, but extends beyond, the economic value stakeholders seek. To highlight its distinctiveness, we compare this perspective to three other popular performance perspectives. Recommendations are made regarding performance measurement for both academic researchers and practitioners. The stakeholder perspective on value offered in this paper draws attention …

Top Athlete Pay, Kevin F. Hallock

Economics Faculty Publications

The US has a history of discussing the pay of the relatively well-paid. This is partly because pay levels of some are revealed publicly (e.g., CEOs of publicly traded companies). Americans are also characterized as being celebrity-obsessed. So discussing the pay of superstars seems inevitable. However, they do not have quality data on the compensation of the relatively highly paid in many organizations and professions. When the author speaks about compensation in front of large groups, someone (and in many cases, many people) gets incensed over what they term "outrageous" or "egregious" levels of executive compensation. Athletes are rarely mentioned. …

Amazon.Com: Offering Everything From A To Z, Stephanie Lang, Logan Tinder, Jarett Zimmerman, Jeffrey S. Harrison

Robins Case Network

Amazon’s focus on customer service has led to an impressive record of growth and profitability. However, late in 2012, the company posted a quarterly loss. This asks whether the company may be sacrificing profits in the interest of growing rapidly. It also explores the incredibly competitive environment Amazon faces.

Economic Effects Of The Minimum Wage, Kevin F. Hallock

Economics Faculty Publications

The US minimum wage, at almost 75 years old, remains the topic of many academic studies and much policy debate despite the fact that only about 5% of hourly employees are currently paid at or below the federal minimum. There are many possible and interesting economic effects of the minimum wage. The issue that has received by far the most attention is whether increasing the minimum wage has a negative effect on employment, and if so, for whom and by how much. Economists first approach this question through the basic theory of a perfectly competitive labor market where all workers …

Ceos Off The Clock, Kevin F. Hallock

Economics Faculty Publications

There is new and interesting academic work on how executives spend their time and the personal choices they make to maximize utility. From a compensation point of view, one issue that has been at the forefront with respect to executives is perks. One CEO compensation perk that has also received increased scrutiny but is surviving better than club memberships is the use of private aircraft. In a related April 2012 paper, "Executives' 'Off-The-Job' Behavior, Corporate Culture and Financial Reporting Risk" (National Bureau of Economic Research working paper), Robert Davidson, Abbie Smith and Aiyesha Dey consider other off-the-clock behaviors of CEOs …

Paying Professors, Kevin F. Hallock

Economics Faculty Publications

One of the most interesting quirks of academia is professional tenure. Many argue that tenure is necessary so that faculty can be protected by "academic freedom" to study the issues they find important without outside interference or pressures to conform. It is also, obviously, a nonmonetary reward and this security for life could offset higher salaries. Few accounts of the tenure system, however, recognize that while tenure essentially grants a job for life, it does not come with guaranteed lifetime raises. Some academic organizations, however, give roughly across the board annual raises. They don't seriously reward performance until a faculty …

Does Graduating In A Bad Economy Penalize Your Pay Tor Life?, Kevin F. Hallock

Economics Faculty Publications

Rigorous research has shown that the state of the economy when one graduates from college does matter. And, unfortunately, given the current slow-growth labor market, it matters not just for earning in the first job after college but also for compensation years in the future. Recessions are bad on graduates' pocketbooks, at graduation and in years to come. If that's not enough, it looks like recessions could be bad for these graduates' current and future health too. J. Catherine Maclean studies the effects of graduating from college during a bad economy on physical functioning, mental functioning and depressive symptoms on …

General Motors Company: Restructured To Rediscover American Innovation, Jeffrey S. Harrison, Stefan Michalski, Joel Winbigler, Trevor Wind

Robins Case Network

Many analysts predicted that General Motors was not salvageable. However, after a government-backed restructuring, the company seems to be doing much better. The big question is whether the turnaround is sustainable. The company is investing heavily in technology in an effort to continue its record of success. This case examines GM up to its reorganization and also details its current strategies.

Lockheed Martin: Dealing With Dependence On A Single Customer, Timothy Kyle Benusa, Sam Gottwald, Jeffrey S. Harrison, John Reed

Robins Case Network

Lockheed Martin is a giant in the aerospace and defense industry, and obtains more than four fifths of its revenues from governments for national defense. Budget deficits have caused the United States and other governments to carefully evaluate the amount they allocate to defense, and sharp cuts are anticipated. What can Lockheed Martin do to deal with reductions in demand from its most important customer?

Governance And Executive Compensation In Nonprofits, Kevin F. Hallock

Economics Faculty Publications

Corporate governance has attracted much attention lately, justifiably many would argue. In the past couple decades, important legislative changes and public pressure have driven rapid changes in board governance and reporting, much focused on executive compensation, in particular. Still, there seems to be less focus on these issues in nonprofit organizations. This despite the fact that more than one-quarter of Americans volunteered through or for an organization last year, with the likely majority of these organizations being nonprofits. Adjusting for organization size, however, cash pay is not that different in for-profits and nonprofits. Resources exist for helping nonprofit boards govern …

Why Do We Tip?, Kevin F. Hallock

Economics Faculty Publications

Some economists may argue that the billions of dollars a year spent on tipping are difficult to understand. After all, there is no requirement to tip. In a recent article "Why Tip? An Empirical Investigation for Tipping Car Guards" (Journal of Economic Psychology, February 2010), Stephen G. Saunders and Michael Lynn summarize potential reasons for tipping as: to increase the probability of good service upon repeat business, to reward good work, to redistribute income to service workers, to avoid societal disapproval or gain societal approval and to conform to internalized norms. Tipping hair stylists and babysitters clearly fits into the …

Massive Kinked Bonuses, Kevin F. Hallock

Economics Faculty Publications

While most people are paid by the hour or with a yearly salary, some are also paid bonuses. And, some are paid very large, all-or-nothing bonuses. The author's favorite recent example is from last summer when golfer Darren Clarke earned a $3-million bonus from his sponsor. But it was how the payout was structured more than the amount that so intrigued him -- his sponsor's payout was all or nothing. How people are paid is fascinating. It is particularly interesting in this case of very, very large bonuses. The sports odds that Darren Clarke would win the tournament going into …

Will It Be A Tough Year?, Daniel D. Selby, W. Darrell Walden

Accounting Faculty Publications

While there may be some glimmers of hope about a turnaround to the U.S. economy, such as decreasing unemployment, Virginia CPAs aren't betting on a huge recovery in the next year.

The second annual VSCPA Economic Outlook Survey reveals Virginia CPAs are more pessimistic about the United States and Virginia economies than they were last year, but they are actually more optimistic about Virginia's economy compared to the United States as a whole. Likewise, VSCPA members continue to feel good about the economic outlook in Virginia relative to neighboring states.

Is There Deadweight Loss In Holiday Rewards?, Kevin F. Hallock

Economics Faculty Publications

An interesting and provocative study was conducted by Joel Waldfogel of the University of Minnesota some 20 years ago. He wrote "The Deadweight Loss of Christmas." Waldfogel was not only discussing Christmas but noted that the ideas could apply to other holidays with gift-giving rituals. The study noted that although gift giving is generally applauded by economists since it is a way to help the macro economy, there is another side to the story. A problem with gift giving (or non-monetary rewards) is that the gift giver often does not perfectly know the preferences of the person receiving the gift. …

Pay System Gender Neutrality, Kevin F. Hallock

Economics Faculty Publications

It was Francine Blau's "Equal Pay in the Office" (1977) that laid out some of the seminal research on gender differences in labor market outcomes. Blau and other pioneering researchers established decades ago that the gender pay gap (then around 40%) could not be ignored by academic economists. Many organizations are concerned with whether their individual pay systems are gender neutral, but it is not easy to test robustly a pay system's gender neutrality. To build such a test requires consideration of several issues, including control variables, occupational patterns, statistical specifications, and the often-overlooked difference between wage and salary income …

Say On Pay And Compensation Design, Kevin F. Hallock

Economics Faculty Publications

Say on pay is demanding far more time and energy than expected, and its full impact on the world won't be known for years. The 2011 proxy season was the first time publicly traded firms in the U.S. were required by law to solicit from their shareholders advisory yes or no votes on the pay package awarded to the CEO. In every industry, the median CEO received a raise (positive year-on-year change) in total CEO compensation. The mix of pay shifted some. For example, in the communications industry, the average share of total compensation paid in salary fell by 6.53 …

Nokia Siemens Networks: Just Doing Business – Or Supporting An Oppressive Regime?, Judith Schrempf-Stirling

Management Faculty Publications

This case study examines the relevance of taking social and political factors into consideration when a corporation is making a key business decision. In September 2009, Simon Beresford-Wylie, the outgoing CEO of Nokia Siemens Networks (NSN), was reviewing the company’s achievements — while acknowledging the latest public criticism regarding NSN’s business relationship with the Iranian government. In the summer of 2009, NSN was accused of complicity in human rights violations linked to Iran’s presidential election. The company sold network infrastructure and software solutions to the Iranian government, which then used this technology to observe, block, and control domestic communications. Should …

Linking Compensation And Job Losses During A Recession, Kevin F. Hallock

Economics Faculty Publications

For more than 60 years, no permanent Lincoln Electric employee has been laid off for lack of work. 2010 marked the 10th consecutive year year that the company increased its dividend and stock price gains have fairly consistently outperformed the S&P 500 during the past five years. For most organizations, when costs need to be cut, shedding some workers is part of the solution. Work Sharing Unemployment Insurance tries to mitigate the negative repercussions of layoffs. Under WSUI, workers are eligible for a prorated fraction of unemployment insurance benefits. Proponents of WSUI contend that hiring, firing, and retraining costs are …

Does That Pay Practice Really Have Any Impact?, Kevin F. Hallock

Economics Faculty Publications

Few organizations take the time to credibly study whether some pay, benefits, work-life balance or other total rewards practices have any impact on the organizations' bottom line or employee outcomes like productivity or turnover. It's too difficult to do well, organizations don't actually want to know the answer, and/or organizations don't have the know-how or time. One successfully executed, evidence-based study of a new compensation practice is Safelite AutoGlass. Edward Lazear compared the productivity change worker by worker, for only those employees present under both pay arrangements. Lazear found that not only did productivity increase after the change from hourly …

Dr Pepper Snapple Group: Fighting To Prosper In A Highly Competitive Market, Joseph S. Harrison

Robins Case Network

Since its separation from the food giant Cadbury Schweppes, Dr Pepper Snapple Group has experienced successes such as the turnaround of the Snapple brand and growth in demand for some of its popular brands. However, the company is still a distant third in an incredibly competitive industry. How can the company achieve continued success in the shadows of Coca Cola and PepsiCo?

Pay Ratios And Pay Inequality, Kevin F. Hallock

Economics Faculty Publications

Some argue that reporting the ratio of CEO pay to that of the median-compensated worker in the organization is useful since it highlights the sometimes large discrepancy between the pay of an average worker and that of corporate executives. One argument against reporting the ratio of CEO pay to median worker pay is that this is much more difficult to calculate in practice than in theory. The hourly earnings of workers at the bottom have been incredibly flat for the last generation. Only the top 5% have seen large gains over time. For CEOs, the gains are substantial. the multiple …

Monopsony And Salary Suppression: The Case Of Major League Soccer In The United States, John Twomey, James Monks

Economics Faculty Publications

Top tier professional soccer in the United States is operated by Major League Soccer (MLS). The MLS was established and operates under a single entity structure, such that all players negotiate and sign contracts with the league rather than with individual teams. This monopsonistic structure was designed to eliminate competition for players across teams within the league and thus allow the league to suppress player salaries. This paper investigates how effective the MLS has been in achieving this goal and finds that the MLS devotes only about 25 percent of its revenues to player salaries, compared to 50 to 60 …

Pay Secrecy And Relative Pay, Kevin F. Hallock

Economics Faculty Publications

In March 2008, the Sacramento Bee began publishing the salaries of all California state workers, including public universities. UC Berkeley professors took this information and used it to learn about pay secrecy, relative income, and how people feel and react to knowing what their co-workers earn. It turns out that there is a dramatic difference in the response to new information about wages of co-workers, depending on whether an individual has wage and salary pay above or below the median for his or her workgroup. For those who earn below the middle of their group, the new information about the …

Motivating With Efficiency Wages And Delayed Payments, Kevin F. Hallock

Economics Faculty Publications

In the delayed payment system, companies motivate workers to work hard year after year by paying them less than the value they create for the company early in the workers' tenure and more than the value they create for the company later in the workers' tenure. With efficiency wages, workers are essentially paid a wage that is higher than the next-best offer they could get. A paper by Alan Krueger found that at company-owned fast food restaurants, employee compensation is higher and the delayed payment profile is steeper than at franchised outlets. In a recent paper, Matthew Freedman and Renata …

Le Développement Durable Comme Mode De Prévention Des Risques Energétiques : Une Approche Par Les Capacités D’Absorption. Le Cas De La Voiture Electrique Chez Renault, Sylvaine Castellano, Adnane Maâlaoui, Judith Schrempf-Stirling

Management Faculty Publications

Sustainability — a way to prevent energy-related risks — is the buzzword of the last decade. This trend demands radical rethinking on how society lives, consumes and produces. Herein, we focus on electric cars, which is the result of sustainable processes and initiatives in the car industry. The case of Renault illustrates how the firm based its sustainable strategy on its absorptive capacities.