This chapter covers internal constraints on pay, as opposed to the external constraints (namely labor law) covered in Chapter 4. Much is said about collective bargaining agreements in unionized settings, and the effect of unions on pay and pay dispersion. From the standpoint of managers, internal and external constraints are nearly identical in that both are sets of rules that must be followed to avoid negative consequences. One difference is that internal constraints are often more amenable to managerial influence; for example, collective bargaining agreements are renegotiated every few years, and management participates. The 3 Cs of compensation constraints are revisited in the context of internal constraints, as are compensation floor and ceilings. Pay compression is discussed, given its prevalence in unionized settings. Diverse preferences in the union membership are addressed in the context of a vote on seniority-based layoffs versus across-the-board temporary wage cuts, i.e., furloughs. Other (non-union) internal constraints are covered, such as those imposed on individual establishments by corporate headquarters, and company-wide design of the benefits package in pay plans.

So far, we have seen data that comes in a file – whether it is in a table, a CSV, or an XML format. But text files (including CSV) are not the best way to store or transfer data when we are dealing with a large amount of them. We need something better – something that allows us not only to store data more effectively and efficiently, but also provides additional tools to process that data. That is where databases come in. There are several databases in use today, but MySQL tops them all in the free, open-source category. It is widely available and used, and thanks to its powerful Structured Query Language (SQL), it is also a comprehensive solution for data storage and processing.

This chapter provides more comprehensive coverage of promotions than is typically seen in compensation texts. The subject is important for compensation because employees' biggest raises usually involve promotions, so promotions are intimately connected to pay growth. Plus, promotion prospects are valued by workers and might make them willing to accept lower pay than they would receive in (otherwise identical) jobs that offer little or no promotion prospects, which connects to the concept of compensating differentials (Chapter 3). This chapter gets the reader-manager thinking about compensation structures within an entire organization, i.e., how the compensation differs across levels of the job hierarchy. The chapter opens by describing the role of promotions in creating worker incentives, both productive and perverse, and in matching workers to jobs ideally within the company. The question of why promotions usually come with big raises is covered, as is the important and common managerial problem of internal-versus-external hiring. The implications of turnover for promotions (and vice versa) are covered, as are up-or-out policies that require employers to fire non-promoted workers.

This chapter presents a detailed example that applies the compensation analytics concepts developed in Chapter 6. The reader is assumed to be a compensation consultant charged with evaluating whether gender-based discrimination in pay is present in a public university system in the sciences. Section 7.1 walks through the analysis step-by-step, from formulating the business question, to acquiring and cleaning data, to analyzing the data and interpreting the results from voluminous statistical output in light of the business question. Section 7.2 covers exploratory data mining, causality, and experiments. Exploratory data mining covers situations in which the manager does not know in advance which relationships in the data will be of interest, in contrast to the example in section 7.1 in which a statistical model and specific measures could be constructed that were directly tailored to address the business question at hand. Section 7.2 covers the challenges associated with establishing causality in compensation research and how experiments can sometimes be designed to address those challenges. Randomization and some pitfalls associated with compensation experiments are also covered

This chapter teaches readers how to think about government regulations on pay. Although a lot is said about specific US laws, the primary focus is on how to think about regulation in general, so the discussion is portable across countries even where the local laws differ. Section 4.3 introduces a prescriptive mnemonic concept called the “3 Cs” of constraints: Comprehend, Circumvent, Comply. The idea is that managers first need to comprehend the constraints that impede their efforts to maximize company profit. They should then search for creative ways to circumvent those constraints (without violating ethics or the law). Finally, to the extent that they cannot circumvent the constraints, they must comply with them. The ethical issues surrounding the second of these Cs are discussed. Both anti-discrimination laws and wage-and-hour laws are discussed, including FLSA, ADA, ADEA, EPA, FMLA, and others. There is extensive discussion of floors and ceilings on both the monetary and non-monetary components of pay. An example of floors on paid time off draws on the concept of the marginal worker from Chapter 3 to show that regulations limit the variety of pay plans offered in the market.