Academic journal article Review of Business

Utilitarianism: An Ethical Framework for Compensation Decision Making

Academic journal article Review of Business

Utilitarianism: An Ethical Framework for Compensation Decision Making

Article excerpt

According to the U.S. Chamber of Commerce (1986), employee benefits in 1985 made up an average of 37.7% of a firm's total payroll compared to 24.7% in 1959. Grossman and Magnus (1988) predict that if this trend continues, then benefits as a percentage of total compensation are projected to reach 40-45%. This prediction bears out the report issued by Kneeling, Kallaus, and Neuner (1978) that benefits, as a percentage of total compensation, are increasing faster than wages and salaries. It also confirms the trend reported by Hanna (1977) that benefits have risen at a rate nearly four times greater than base wages from 1955 to 1975. While a portion of this rise was due to the increase in legally required benefits (9.5% of payroll in 1985 compared to 3.5% in 1959), employers are increasingly turning to benefits for compensating employees.

A parallel trend has been an increase in the number of part-time employees, defined as those employees who worked less than 35 hours per week. In 1973, The Wall Street Journal reported that 15% of the working population was made up of part-time employees and that the trend toward hiring part-timers was increasing. This finding was confirmed by a 1979 study by Allen, Keavney, and Jackson who reported that about 21% of the U. S. labor force was considered part-time. In the Statistical Abstract of the United States 1990, the U. S. Department of Commerce reported that a total of 21,097,000 individuals (approximately one out of every five workers) were considered part-time employees (p. 387). However, despite their increasing number, fringe benefit packages are often not made available to part-time employees. Perhaps the increase in the percentage of part-time workers can be attributed to cost savings benefit reaped by businesses that employ primarily part-time help.

This paper's purpose is to examine the possible differential compensation treatment received by part-time employees and to investigate whether such a treatment is justifiable on ethical grounds.

Employee Compensation Policy

Except for certain compensation payments and other benefits that are mandated by law, each business organization determines its own policy on whether to offer additional benefits, how much these benefits should be, and which of its employees should receive fringe benefits. Examples of fringe benefits not mandated by law appear in Table 1.

Insurance Coverage                Pay for Time Not Worked
  1. Life                          1. Sick Leave
  2. Major Medical                 2. Personal Leave
  3. Dental                        3. Holidays
  4. Vision Care                   4. Jury Duty Leave
  5. Accident/sickness             5. Military Leave
  6. Long-term Disability          6. Funeral Leave
  7. Mental Health Care            7. Vacations
  8. Retirement                    8. Rest time
Bonus Payments                    Other
  1. Overtime Premiums             1. Educational Assistance
  2. Holiday Premiums              2. Employee Discounts
  3. Shift Differential            3. Profit-sharing Plans
  4. Incentive Payments            4. Subsidized Meals
  5. Payment for Work              5. Relocation Allowance
     Away From Office              6. Prepaid Legal Services
                TABLE I Types of Fringe Benefits
               (U. S. Chamber of Commerce, 1990)

The compensatory discrepancy between full- and part-time employees also can be examined in monetary terms. To calculate the difference in total compensation, the following equations are presented based on the findings of Keeling, Kallaus, and Neuner (1979):

Full-time Compensation Package = Base Wage/.67 (1) Part-time Compensation Package = Base Wage/1.0 (2)

Note that the equations are consistent with the general labor statistics for the year 1986, as reported by the Chamber of Commerce. The difference in the denominators of the equations (1-.67= .33) represents the difference in benefits between full-time and part-time employees. …

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