- Proactive compensation. It could behoove organizations operating in industries with prevalent union activity to be proactive with pay increases.
- Compensation practitioners are uniquely positioned. Compensation professionals can help the organization in both the short- and long-term when it comes to proactive pay practices because they are compensation experts with a pulse on the labor market.
- Ensure there’s room in the budget. Companies need to factor proactive pay increases into both short-term and long-term budget forecasts.
- Maintain HR partners. Compensation practitioners can also keep HR partners who play role in setting collective bargaining agreement wages informed of changes to internal compensation programs, as well as external economic trends (e.g. inflation) in preparation for collective bargaining agreement discussions.
The United Auto Workers union recently reached an agreement with Detroit's Big 3 automakers and, as is the case with many union negotiations, increased pay was a main component of the agreement.
The pact includes 25% pay increases over the terms of the agreement. The raises and benefits such as cost-of-living adjustments cumulatively raise the top wage to more than $42 an hour, including an increase of 70% for starting wages to over $30 an hour, the union said.
A few days later, Toyota announced it was raising wages for its nonunion factory workers, seemingly in response to the UAW agreement.
“We value our employees and their contributions, and we show it by offering robust compensation packages that we continually review to ensure that we remain competitive within the automotive industry,” Chris Reynolds, Toyota Motor North America's executive vice president, said in a statement.
So are “proactive raises” a potential strategy for other organizations that are at risk of union activity or operate in an industry where union activity is prevalent?
Patterns and Pain Points
Companies with “a strong preference” against collective bargaining contracts will often try to offer their nonunionized workers similar, though not identical, compensation packages in order to avoid union organizing or majority voting for unionization, said Lonnie Golden, a professor of labor and employment relations at Pennsylvania State University’s Abington campus.
“Indeed, the ‘pattern bargaining’ of the union sector — such as the recent auto/UAW deal — suggests that companies fear falling too far out of line with the most recent contract, for fear of worker retention and dissatisfaction consequences,” he said.
And whenever “pain points” develop around areas such as pay, benefits, or work environment, there’s always the risk of union activity, said Lori Wisper, managing director at WTW.
“Right now, the pain point is around pay and the unions know workers want to hear about that,” she said. “So being proactive around pay gives workers less reason to listen to the union narrative.”
But even organizations that are not prone to union activity need to be proactive on pay, said Wisper.
“I just had a conversation with a utility provider in the South,” she said. “They have unions, but by law, their workers can’t go on strike. But the utility is now feeling pressure because there’s a Ford plant right down the road, so their workers could leave for jobs at an auto plant that just struck an amazing deal for its workers.
“So there’s a ripple effect on the market whether you have unions or not,” she said.
Making a Plan
Compensation professionals are uniquely positioned to help the organization in both the short- and long-term when it comes to proactive pay practices.
“We are the experts in this market,” said Wisper. “Not just the compensation component, but the labor market as a whole because a comp professional should understand all of the dynamics of their competitive labor market.”
Typically, union-negotiated pay increases will be set for the next three to four years, so companies need to factor these increases into both short-term and long-term budget forecasts, said Justin Sun, a compensation expert at Expedia Group.
Since unions may create specific contractual requirements, compensation practitioners need to clearly communicate what pay guidance includes and doesn’t include to employees protected by a collective agreement, he added.
“Compensation practitioners will need to ensure that the salary budgets they project take into account the expected increases and that systems and compensation allocation guidance for managers takes these factors into account,” he said.
The timing of when these increases are negotiated can oftentimes conflict with a company’s overall timing for sharing pay guidance, so regular and ongoing communication on how this population should be treated is critical, he added.
Compensation practitioners can also keep HR partners who play role in setting collective bargaining agreement wages informed of changes to internal compensation programs, as well as external economic trends (e.g. inflation) in preparation for collective bargaining agreement discussions.
“Since managers may support both union and nonunion employees,” Sun said, “ensuring that they’re clear on what guidance affects each population can help them more effectively administer and communicate pay.”
Staying connected to individuals who are boots-on-the-ground — especially if they’re located in a different country outside of headquarters — is critical to ensuring that the organization budgets appropriately for union and government-mandated increases, he added.
Collective bargaining and statutory increases may also have very specific effective dates that aren’t aligned to the rest of the company’s pay calendar.
“So it can be helpful to proactively educate leaders on what’s coming down the pipeline to ensure they’re prepared to respond to questions that come up from employees,” Sun said.
Risks of Proactivity
While it’s possible for organizations to use proactive pay measures to head off any organizing efforts, it’s important to consider the possible negative consequences, said Wisper.
“If your organization overspends on salary budgets as a way of staving off unions, and you do it for everybody, you might be doing a disservice to the whole organization,” she said, “because the only way to overcorrect is through layoffs.
“So if you want to be aggressive on salary budgets, I’d do it with a surgical knife instead of a broad brush.”
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