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Acme: Equity in Pay

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In almost any organization there will be concerns about whether all employees are being paid "fairly". The term most widely associated with this issue is equity.

What does equity theory tell us about compensation in an organization? How many different types of equity do we typically refer to?

Emerging Trends in Benefits

Benefits now average 33% to 50% of an organization's compensation costs; so it is important for the organization to ensure that the benefits are serving their purpose. For example, the design of the benefits package should make it easier to recruit and retain good workers. One of the critical challenges facing HR is choosing wisely among the available benefits. The benefits package should make sense in light of the organization's business strategy.

More companies are offering flexible scheduling, childcare assistance and other work/family initiatives. Currently, over 68% of employers offer flexible scheduling arrangements and there is significant growth in the number of companies offering adoption, elder care and child care assistance benefits.

Elder care is moving toward the forefront of worker concerns as our life spans increase. Many workers are members of what is called the "Sandwich Generation." These workers are caring for their children and, at the same time, for their parents who are living longer. One benefit that is increasingly available is Long Term Care. LTC has been available since 1987 and, with the passage of the Health Insurance Portability and Accountability Act of 1996, Congress provided LTC insurance with tax-favored status. LTC provides financial aid for workers and their dependents who need medical, personal, custodial and social services during long illnesses and disabilities.

We are also seeing an increasing array of lifestyle-oriented benefits and services as a result of the growing diversity in the workforce. These include:

- Retirement and Financial Planning
- Estate and Will Planning
- Legal Services
- Loan Assistance for Home Purchases, College Tuition, Cars, Etc.
- Ride-Share Incentives and/or Transportation Reimbursement
- Vacation Planning and Time-Share Programs
- Meals/Food Subsidies
- Entertainment Discounts
- Wellness Programs and Health Club Memberships.
One of the newer issues, even with cafeteria benefit plans, is the idea that childless employees feel cheated by the company and their co-workers. In one survey, over 40% of the employees indicated that childless workers feel they're subsidizing health care and other benefits for employees with children. Childless workers often feel that options like flextime and telecommuting are most often used by employees with child care responsibility. Childless workers also report that they do not take as much time off as their co-workers who have children and that they are expected to work more overtime.

Complete a Case Analysis using the following criteria (cite and list all references):

- Identify both the key issues and the underlying issues. In identifying the issues, you should be able to connect them to the HR principles which apply to this situation. .
- Discuss the facts which affect these issues. The case may have too much information. In your discussion, you should filter the information and discuss those facts which are pertinent to the issues identified above. .
- Discuss your tentative solution to the problem and how you would implement your solution. What actions would you propose to correct the situation, based on the knowledge you have gained in this course? Be sure to support your recommendation by citing references in the text and in the supplementary readings. You should also draw on other references such as business periodicals and HR journals. Remember that an ANALYSIS is more than simply a SUMMARY of the Case Study. .
- Discuss follow-up and contingency plans. How will the organization know that your proposed solution is working? What should they do if it does not work? .

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Step 1
The equity theory tells us about job compensation that if the employee perceives inequity, she will act to correct the inequity. The inequity will be corrected through lower productivity, reduced quality, increased absenteeism, and voluntary resignation. There are four types of equity we typically refer to. The first is that individuals at Acme Manufacturing seek to maximize their rewards less costs. The second is that groups at Acme Manufacturing can maximize collective rewards by developing accepted systems for equitably apportioning rewards and costs among members. The third is that when individuals find themselves in inequitable relationships they become distressed (a). The fourth is that those who are in inequitable relations eliminate distress by restoring equity.

Step 2
The key issues are that childless employees feel cheated by the company and their co-workers. The childless workers feel that they're subsidizing health care and other benefits for employees with children(b). Those who are childless at Acme Manufacturing feel that flextime and telecommuting were mostly used by persons with children, whereas those that are ...

Solution Summary

This solution explains if employees are being paid fairly. The sources used are also included in the solution.

See Also This Related BrainMass Solution

Bugs and Thugs, Inc. Equity

I would need assistance on the accounting exercise problems attached.

1. The common stock of Bugs & Thugs, Inc. is currently selling at $110 per share. The board decides to increase share volume prior to a new issue. The per share par value is $10; book value is $60 per share. 10m shares are outstanding and issued.

a) Provide the journal entries if the board decides to do a 2-for-1 stock split.

b) Provide the journal entries if the board decides to do a 100% stock dividend.

2. Acme Company reports the following in its stockholders' equity section of the balance sheet of its December 311,2006 financial statements.

Description Par Dividend % issued
Preferred stock 110 10% 3,000 330,000
Common stock 6 20,000 120,000
Additional paid-in capital 125,000
Retained earnings 450,000
Hint: Ending number of common shares is 20,900. The journal entry for #5 includes a credit to common stock dividend distributable of 11,400. Total paid-in capital (including common stock, preferred stock, treasury stock, & all additional paid-in capitals equals $722,800.

During 2007, Acme took part in the following transactions concerning stockholders' equity.
1. Paid the annual 2006 $11 per share dividend on preferred stock and $3 per share dividend on common stock. These dividends had been declared on Dec. 31, 2006.
2. Purchased 1900 shares of its own outstanding common stock for $43 per share, Acme uses the cost method.
3. Reissued 900 treasury shares for land valued at $32k.
4. Issued 600 shares of preferred stock at $115 per share.
5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $45 per share.
6. Issued the stock dividend.
7. Declared the annual 2007 $11 per share dividend on preferred stock and the $3 per share dividend common stock. These dividends are payable in 20078.

a) Prepare journal entries for the activities listed above.

b) Prepare the stockholders' equity section of the balance sheet (inasmuch as is possible)

3. Mickey and Minnie, LTD, issued in 2006, at par, 70 $1000, 10% bonds, each convertible into 115 shares of common stock. Mickey and Minnie revenues were $21,500 and expenses of $9100 (except tax and interest, tax rate is 42%). In 2007, 3000 shares of common stock were outstanding; no bonds were converted or redeemed.

# of bonds issued 70
Fare value per bond 1,000
Total fare value 70,000
Dividend percent 10.00%
Each bond converts to 115 shares of common stock
Total revenues 21,500
Expenses 9,100
Interest expense 7,000
Tax expense 2,268
Tax rate 42%
# of shares outstanding 3,000

a) Compute diluted earnings per share for 2007 Hint: weighted average #of shares for diluted EPS is 11,50)

b) Compute diluted EPS, assuming the same as in a), except that bonds were issued 9/1/07, instead of in 2006. Hint: Net income for diluted EPS is 7,192)

c) Compute diluted EPS, assuming the same as in a), except that 20 of the 60 bonds were converted 7/1/07. Hint: basic EPS is .75) Prepare the stockholders' equity section of the balance sheet (inasmuch as is possible).

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