TABLE OF CONTENTS *

OPENING STATEMENT, CHAIRMAN CASS BALLENGER, SUBCOMMITTEE ON WORKFORCE PROTECTIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES *

OPENING STATEMENT, MINORITY RANKING MEMBER MAJOR R. OWENS, SUBCOMMITTEE ON WORKFORCE PROTECTIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES *

STATEMENT OF MARGARET A. COIL, PARTNER, CENTER FOR WORKFORCE EFFECTIVENESS, NORTHBROOK, IL *

STATEMENT OF PAM FARR, PRESIDENT AND CHIEF OPERATING OFFICER, CABOT ADVISORY GROUP, LLC, WASHINGTON, DC *

STATEMENT OF LYNNE BOURGEOIS, DIRECTOR, HUMAN RESOURCES, BLUECROSS BLUESHIELD OF LOUISIANA, BATON ROUGE, LA *

STATEMENT OF NICHOLAS CLARK, ASSISTANT GENERAL COUNSEL, UNITED FOOD AND COMMERCIAL WORKERS INTERNATIONAL UNION, WASHINGTON, D.C. *

APPENDIX A -- WRITTEN OPENING STATEMENT, CHAIRMAN CASS BALLENGER, SUBCOMMITTEE ON WORKFORCE PROTECTIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES *

APPENDIX B -- WRITTEN OPENING STATEMENT, MINORITY RANKING MEMBER MAJOR R. OWENS, SUBCOMMITTEE ON WORKFORCE PROTECTIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES *

APPENDIX C -- WRITTEN STATEMENT OF MARGARET A. COIL, PARTNER, CENTER FOR WORKFORCE EFFECTIVENESS, NORTHBROOK, IL *

APPENDIX D -- WRITTEN STATEMENT OF PAM FARR, PRESIDENT AND CHIEF OPERATING OFFICER, CABOT ADVISORY GROUP, LLC, WASHINGTON, DC *

APPENDIX E -- WRITTEN STATEMENT OF LYNNE BOURGEOIS, DIRECTOR, HUMAN RESOURCES, BLUECROSS BLUESHIELD OF LOUISIANA, BATON ROUGE, LA *

APPENDIX F -- WRITTEN STATEMENT OF NICHOLAS CLARK, ASSISTANT GENERAL COUNSEL, UNITED FOOD AND COMMERCIAL WORKERS INTERNATIONAL UNION, WASHINGTON, D.C. *

HEARING ON REWARDING PERFORMANCE

IN COMPENSATION ACT

Tuesday, April 13, 1999

The subcommittee met, pursuant to notice, at 1:30 p.m., in Room 2175, Rayburn House Office Building, Hon. Cass Ballenger [chairman of the subcommittee] presiding.

Present: Representatives Ballenger, Barrett, Boehner, Owens, Martinez, Woolsey, and Kucinich.

Staff present: Molly M. Salmi, Professional Staff Member; Gary Visscher, Workforce Policy Counsel; Mark Rodgers, Workforce Policy Coordinator; Robert Borden, Professional Staff Member; Rob Green, Professional Staff Member; Deborah Samantar, Office Manager; Jason Ayeroff, Staff Assistant; Peter Rutledge, Senior Legislative Associate/Labor; Maria Cuprill, Legislative Associate/Labor; Shannon McNulty, Staff Assistant/Labor, and Marjan Ghafourpour, Staff Assistant/Labor.

Chairman Ballenger. [presiding] A quorum being present, the Subcommittee on Workforce Protections will come to order.

According to Rule 12 of the committee rules, any oral opening statements at the hearing are limited to the Chairman and the ranking minority member. Therefore, if other members have opening statements, they will be included in the printing hearing record. This will allow us to hear from our witnesses sooner and to help members keep their schedules. Without objection, all members' statements and witnesses' written testimony will be included in the hearing record.

Today we will focus on the Rewarding Performance in Compensation Act. The legislation, which was introduced earlier today, would address problems that employers face when providing bonus or gainsharing programs to their employees. While the Fair Labor Standards Act does not prohibit employers from providing these types of rewards, it does make it difficult and confusing for those who wish to do so.

More and more companies are linking pay to performance as they look for innovative ways to encourage employee performance and allow employees to share in the company's success. It is increasingly common for employers to award one-time payments, in addition to regular wage increases, to individual workers or to groups of employees. Employers have found that rewarding employees for high-quality work improves their performance and the ability of the company to compete. Even President Clinton has called on businesses to work in partnership with their employees by sharing the profits when times are good.

Gainsharing is one type of a pay plan that links pay to measurable improvements in productivity. Employees are assigned individual or group productivity goals, and the savings achieved from improved productivity, or the gains, are then shared between the company and the employees. The payouts are based directly on factors under the employee's control, such as productivity or costs, rather than on the company's profits. Thus, the employee directly benefits from improvements that they help to produce by increasing their overall compensation.

Unfortunately, many employers who choose to operate such pay plans can be burdened with unpredictable and complex administrative costs. For example, if a bonus is paid on production, performance, or other factors, the payment must then be divided by the number of hours the employee worked during the time period that the bonus is meant to cover, and added to the employee's regular hourly pay rate. This adjusted hourly rate is used to calculate the employee's overtime rate of pay. For the other types of employees, such as executive, administrative, or professional employees, who are exempt from minimum wage and overtime, an employer can easily give financial rewards without having to recalculate rates of pay.

The Rewarding Performance in Compensation Act would amend the FLSA to specify that an employee's regular rate of pay for the purposes of calculating overtime would not be affected by additional payments that reward or provide incentives for employees who meet certain goals. By eliminating the disincentives in the current law, this legislation will encourage employers to reward their employees, and make it easier for employers to share the wealth with their employees.

I would like to thank all of our witnesses for taking time out of their busy schedules to appear before us today. We look forward to hearing their perspectives on the issue and on the legislation that we are considering here today.

I now yield to the distinguished Ranking Member Mr. Owens for any opening statement that he wishes to make.

[The statement of Mr. Ballenger follows:]

WRITTEN OPENING STATEMENT, CHAIRMAN CASS BALLENGER, SUBCOMMITTEE ON WORKFORCE PROTECTIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES -- SEE APPENDIX A

Mr. Owens. Mr. Chairman, let me begin by applauding the very noble sentiment you expressed. We would like to see the wealth shared with the working families. But, we would like to have it shared by increasing the minimum wage. I wish we were devoting this time to a discussion of how this committee can move forward to increasing the minimum wage, instead of cutting the overtime pay.

Repealing the 40-hour workweek is a goal that we cannot allow the Majority to achieve. The bill introduced today is a cleverly veiled attack on overtime pay. This amendment seriously undermines an employee's guaranteed right, presently under the law, to receive true time-and-a-half pay for overtime work, based on all of the incentive-based pay they received for doing their work. The Fair Labor Standards Act does not prevent employers from rewarding employees with productivity, quality, efficiency, or sales goal bonuses. However, this bill's proposed change in the regular rate would allow employers to design compensation packages which could totally avoid the act's overtime and forty-hour work week requirements. The FLSA regular rate of pay is the hourly amount that is used to calculate time-and-a-half overtime.

In my view, the requirement that workers be paid time-and-a-half for overtime work serves two very important public purposes. First, it discourages employers from requiring workers to work excessive hours. It encourages employers to hire more people, rather than simply working a fewer number of people for longer hours.

Second, where employees are required to work more than 40 hours a week, the overtime requirements of the Fair Labor Standards Act ensure that employees are more fairly compensated for that work. Diminishing or eliminating overtime pay would produce two results. Those workers with jobs would have to work longer hours for less money. At the same time, the number of workers without jobs would increase.

Today, corporate profits are at an unprecedented level, and those in the 20 percent income bracket are making more than ever before. At the same time, more and more workers are working longer and longer hours just to make ends meet. The legislation introduced today seems to be specifically intended to accelerate this trend. It is difficult for me to imagine a more wrong-headed policy, At a time of great prosperity, we should share the wealth with the workers.

[The statement of Mr. Owens follows:]

WRITTEN OPENING STATEMENT, MINORITY RANKING MEMBER MAJOR R. OWENS, SUBCOMMITTEE ON WORKFORCE PROTECTIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES -- SEE APPENDIX B

Chairman Ballenger. Thank you, Mr. Owens. Let me advise everyone, as I told the ladies, Mr. Clark, you weren't here at the time, that we know we have a call for two votes coming up sometime soon. So, why don't we go ahead and start with the hearing. We'll play it by ear when the time comes. Let me introduce the panel of witnesses. Excuse me, the vote is on now. Why don't we take a break now and we'll have a continuous hearing when we resume. We'll be back in about 20 or 25 minutes. Sorry about that.

[Recess.]

Chairman Ballenger. [presiding] Let's call the meeting to order. This is one of the reasons that we operate so well around here. It was a very tense vote, 418 to nothing. We all had to worry about that one.

[Laughter.]

Now, let me introduce our panel of witnesses. Our first witness today is Ms. Margaret Coil, a partner in the Center for Workforce Effectiveness. Second, we will hear from Ms. Pam Farr, the President and CEO of Cabot Advisory Group. Our third witness will be Ms. Lynne Bourgeois, Director of Human Resources for BlueCross/BlueShield of Louisiana, who will be testifying on behalf of The Society of Human Resource Management. Finally, we will hear from Mr. Nicholas Clark, the Assistant General Counsel for the United Food and Commercial Workers International Union. I thank you all for being here today.

Before the witnesses begin, I would like to remind the members that they will allowed to ask questions of the witnesses after the entire panel has testified. In addition, committee rule two imposes a five-minute limit on all questions. With that said, Ms. Coil, you may begin your testimony.

Ms. Coil. Thank you, Mr. Chairman. Members of the committee, it is my pleasure to be here and to have this opportunity to speak with you. I am with the Center for Workforce Effectiveness, which is a management consulting firm in Chicago. As a business, CWE is a small employer in north suburban Chicago. So, I will speak to you on behalf of CWE as a small employer, as well as CWE as a consultant to many businesses across the country.

Goalsharing, gainsharing, incentives, commissions, are all labels that are applied to a spectrum of monetary awards that are attached to the success and failure of businesses. They are growing in popularity among employers as a way to engage the employees of the organization in the success of the business. Unfortunately, the current statutory framework makes them problematic to administer and apply to the non-exempt workforce. Certainly, the Department of Labor is valiantly trying to apply the 60-year old labor law to a workplace that, quite frankly, doesn't even resemble what was in place at the time that the crafters of the FLSA adopted the regulations in 1938.

First, let me present to you some positions that I have on behalf of CWE as a small employer. We have nine consultants and three non-exempt staff people. There is certainly a great deal of camaraderie between us in the workplace. Unfortunately, there are certain aspects of the FLSA that make the hard work that we've put into creating that sense of cohesion and classless environment, quite difficult. In the era that FLSA was adopted, unemployment was over 20 percent. The economy was agrarian and industrial. Technology was the electrification of rural America and putting telephones in people's homes. The workforce was predominantly male.

Certainly we have a very different kind of an environment today, which is driven not only by the kind of work and the service sector, but also by the technology that is available to us. So, today the workplace, the worker, and the work, is fundamentally different. On top of that, we've got a wonderful diversity of gender, race, religion, and age, which brings a different set of needs to the workplace than we ever saw before.

An example of one of the problems that we constantly are confronted with is that we frequently have conference room lunches. Under the strict interpretation of the Fair Labor Standards Act, non-exempt employees have to be, and I quote, ``completely relieved of all duties in order for a meal period of 30 minutes or more to be considered non-work hours.'' What that means for us is that, when we have our group lunches in the conference room, we have to segregate our population and not allow the non-exempt workforce to partake, simply because an innocent work-related issue introduced in the conversation can turn what is a social lunch, into work-time for non-exempt employees. So, we are confronted with the issue of either segregating the workforce, or absorbing the cost of paying those employees for an hour every day.

I would propose that this does not remotely resemble the original intent of the protections envisioned by the crafters of the FLSA, nor does the language that defines hours of work represent the realities of the way that work is done. We also don't include our non-exempt staff in the bonus formula or the formal bonuses in the organization. It is hard enough to explain the overtime implications to our clients, let alone to an outsource payroll service that has enough trouble just delivering checks on time and correctly.

The law is problematic from the perspective of us as a consultant to business as well. A large part of our practice is helping organizations to design goalsharing plans. You will see the attachment at the back of my testimony, which presents what a client of mine recently had to go through in order to convert a flat-dollar bonus and incorporate it into the regular rate of pay. The intent of the flat-dollar bonus was, quite specifically, to try to reduce any implications that your level in the organization or what you make has on the kind of bonus. They wanted it to be flat-dollars. But, as you can see by looking at the attachment, it is no longer flat-dollars at all. Those who can or will work overtime are granted a premium over those who cannot work the overtime.

So, what we have are a lot of regulations that were intended to protect employees in an environment of high employment when labor was in large supply and jobs were in short supply. The framework of the employment landscape today is fundamentally different. We've got to put aside our assumptions that all employers are part of an evil empire. There will always be bad employers, and I'm not sure that there is anything that you or I can do to stop that. But, by the same token, if we collaborate and make legislative changes, we can create a work environment that is flexible and is engaging for both employers and employees. Thank you.

[The statement of Ms. Coil follows:]

WRITTEN STATEMENT OF MARGARET A. COIL, PARTNER, CENTER FOR WORKFORCE EFFECTIVENESS, NORTHBROOK, IL -- SEE APPENDIX C

Chairman Ballenger. Ms. Farr, you may begin.

Ms. Farr. Thank you, Mr. Chairman, and distinguished members of the committee. I have been introduced as Pam Farr, president of the Cabot Advisory Group. We are a consulting group made up of former HR executives from large companies who now work with businesses on figuring out how to keep their business strategies competitive.

Now just before my presidency, I worked for 20 years for Marriott as the Senior Vice President of Human Resources for our lodging division. 1500 hotels in 53 countries. In that capacity, I worked extensively with employees, with managers, with compensation experts, industrial psychologists, motivational psychologists, our hotel owners, and lots of customers to try and design pay, benefits, and rewards programs.

We had to navigate the legal, the practical, and the competitive realities of pay programs. So, I want to share with you today some of the examples of what we learned, because I think there is a good story to tell today.

At Marriott, we began our incentive or gainsharing programs in our smaller, limited lodging service products. Typically, they consisted of 100 to 120 rooms, with a workforce of 20 to 40 people. Now, we begin there for one really good reason. One is that the customer research was very clear on what customers wanted, and I imagine that you are all hotel customers. The customers in our limited service wanted fast check-in, fast checkout, friendly employees, and a clean, fresh room. They wanted everything in working order, and they wanted low to moderate prices. So, we recognized that this was an opportunity. We had clear customer research, we had our own workforce, and we could link the needs of the two together.

So, in our small hotels, we recognized that it had to be a team approach. We were all interdependent. Housekeepers, front-desk, laundry, maintenance, and sometimes restaurant workers, all had to be part of a moving-part, organic organization. The housekeepers couldn't check people in if the rooms weren't ready or if the plumbing didn't work. Our housekeepers needed fresh linens. Our front-desk people couldn't check people out unless all of the bill was in order. So, we worked with employees. This was very important when we began the gainsharing plans. We talked to the employees about ``what they would think if we had a gainsharing type plan?'' We worked with the managers and compensation experts, ``how would they be able to administer it?''

We had a very strong belief that we needed to reward the associates on top of their base pay. We actually calculated these bonuses based on actual guest comments. People like yourselves that were checking out of our hotels, who rated us on room cleanliness, on friendliness, on service, and all of the amenities. The bonuses were paid out quarterly, and it averaged in our beginning years from $200-300 per quarter. The bonus plan yielded significant results. It was amazing. Not only in profitability and in guest satisfaction, but in the whole employee satisfaction area. That is what I am here to really talk a little bit about today, because I know it blew me away as a human resource executive.

It provided a tracking system to help associates know where to target their efforts. For instance, let us just say that in one of our Inns, that friendliness was pretty high. All 20 employees were rated as friendly, but maybe our checkout speed was low. So, they would work as a team to say, ``OK, how can we all work on check-out speed?'' so that the next quarter they could be higher. It was a very powerful, powerful experience.

One of the amazing by-products that we found of the incentives plans was that our non-management employees began to learn basic business management. Unbelievable. We taught our employees the concepts of sales, profits, and productivity. They learned basic math concepts, increases and decreases. We had charts and trend lines that they followed off computers to know how they were doing as a team, and how their Inn stacked up with the rest of the Fairfield Inns. They had an increase in self-esteem because they felt pride in their work and their opinions counted.

We would ask the housekeepers, ``how do you think we can improve the check-in speed?'' We would ask them about the room amenities, and they gave us great information. They listened to the customers, who oftentimes were in the room when they began cleaning. We learned from our employees. They also helped us adjust the bonus plans over time. But one thing that totally amazed us is that the employee opinion survey started going up.

We have pretty high employee opinion surveys, but the scores on being treated with respect, and my opinion counts around here, and overall satisfied with the job, went up. In fact, our outside firm that keeps the scores and compares our scores with other hospitality businesses, called me one day and said, ``you are blowing the top off the index on some of these scores, what are you doing?'' We said, ``well, we put in some new incentive plans.''

The Fair Labor Standards Act, in our opinion, needs to be changed so that the bonus payment is on top of the base pay. This would be so that it could help differentiate the average or basic performance, which should be rewarded with base pay, from that superior, which should go beyond with the extra bonus payment for improving processes in the hotel. In our case, superior is being more friendly and more efficient. We want to take the emphasis off the tedious, back-office systems used for processing the calculations. Now, I know that this committee is probably not going to be particularly sympathetic to large organizations having to do computer programs, and I'm not asking that today. I am just saying, as a human resource executive, if I had to spend time on back-office systems versus galvanizing my HR staff to design better plans, to work with employees, to do better training programs, I'd rather have them work up front with the employees.

The research is compelling to tackle some of these changes. The Government Accounting Office said that it improves employer-employee relations, reduces grievances, and improves satisfaction. We found that. The Mercer Group said in their study that only 25 percent of employers are using these plans. So what about those other 75 percent?

Employees use many factors to decide what kind of employer they want. In my observation in 25 years, employees are much more informed these days. They really have much more information available than in 1938 because of advertising, job hot lines, and Internet resources. They know what is being paid and market rates. I urge the committee to take a giant step forward into the new world of employment and pass H.R. 1381. So much has changed since the FLSA was passed. The laws should reflect the realities of business. Thank you very much.

[The statement of Ms. Farr follows:]

WRITTEN STATEMENT OF PAM FARR, PRESIDENT AND CHIEF OPERATING OFFICER, CABOT ADVISORY GROUP, LLC, WASHINGTON, DC -- SEE APPENDIX D

Chairman Ballenger. Ms. Bourgeois, if I'm pronouncing that correctly?

Ms. Bourgeois. You certainly are.

Chairman Ballenger. Good. Thank you, Ma'am.

Ms. Bourgeois. Everybody's French lesson for the day. I am Lynne Bourgeois, SPHR. I am the Director for Human Resources at BlueCross BlueShield of Louisiana, and I am here today on behalf of The Society for Human Resource Management where I have been active member since 1990, and a volunteer leader since 1992. I am now the state director for their state council, for The Society for Human Resource Management. I am also a grass-roots network member.

The Society for Human Resource Management is the leading voice of the human resource profession. It provides education, information services, conferences, seminars, government and media representation, and online service and publication, to more than 114 human resource professionals, which grows as we sit here, as well as student members throughout the world.

The Society is the world's largest human resource management association. It is a founding member of the North American Human Resource Association, and the World Federation of Personnel Management Associations. We are here today to urge bi-partisan Congressional support to amend the Fair Labor Standards Act to encourage employee bonuses and gainsharing programs.

I want to commend Chairman Ballenger and his staff for their continued commitment to update the FLSA and to allow us to better benefit employees. The workplace has dramatically changed, as you've already heard, since 1938. In case you didn't look around, or in case you weren't here to know. The FLSA can now actually serve as an impediment to rewarding the very same employees that it was originally designed to protect.

I have been a human resources professional for 15 years. I have had numerous situations with different companies to introduce progressive or different types of pay plans that would actually help to benefit the non-exempt employees. But, it has been very difficult to implement anything progressive with the Fair Labor Standards Act.

At Ochsner Clinic, I was the director for human resources from 1986 to 1996. That is a multi-specialty medical group practice, and it is called one of the big six, which means it is one of the largest multi-specialty medical group practices in the country. We had over 5,000 employees, and I worked at a regional site in Baton Rouge that had a little less than 500 employees. We had a tough time getting our regional site up and running, and we barely broke even for the first few years. In 1993, there were no budgeted increases for the next three years in our plan. So, the only way that I saw that I'd be able to really give incentive to employees and give them any kind of a base pay and overtime was to implement a gainsharing program. I took it to the board for our site, and it was approved. I called it OchShare. Our turnover at the time was 37 percent in our facility. We set three goals. One was to decrease turnover to 24 percent. We wanted to increase our revenue, of course, so we would have something to share and payout, and we wanted to reduce administrative costs.

Well, the first year it was wonderful. The plan was a tremendous success. Our turnover went down to 24 percent. Employees were happy. They felt like they were really adding value to the company. They knew they were going to have a payout, and everybody did get a payout. That was really when the nightmare started. Because, to have to go back and re-calculate the new overtime rate for about 270 employees, when you have a manual payroll system, was truly a nightmare. Many employees came forward and asked if they could sign something to release us from doing the re-calculation. They were so excited about their money that they wanted their check right away, and they didn't want to wait the two weeks it was going to take us to re-calculate. But, of course, we re-calculated and checked each other, and re-calculated again and finally cut those checks two or three weeks later.

After I left Ochsner Clinic in 1996, they discontinued the plan for two reasons. First of all, the administrative nightmare. Secondly, I took a lot of the staff with me, and the new staff didn't want to deal with it. In 1996, I joined UC Lending, which is a mortgage lender. In the United States they have about 200 branches in 46 States. Most of the branches were just about six or seven people. One manager, a lot of sales people, and maybe one or two, at the most, clerical people.

Of course, the management and the sales staff were on commission and bonus, and they had incentives. The non-exempt people could not participate. Our turnover was 80 percent. We wanted to implement some kind of incentive, and the employees in the non-exempt position constantly wrote and called and asked, ``why can't we participate in the bonus incentive payoff? We are working just as hard as they are and we're not getting a check.''

We didn't want to recalculate for 200 sites. Now I am at BlueCross of Louisiana, and we do have a corporate-wide discretionary bonus. It's not anything near what we want to give and what we would give if we didn't have to address to re-calculation issue. We're dedicated to work-family issues. We limit the amount of overtime people can work because we want them to have a life outside of our company, whether they want a life there or not, we want them to have one. We implement as many programs as we can to address the work and family issues. We have a perfect attendance award. We love to give cash, and frankly, our employees want cash. They've said it in their employee's survey every year. They would prefer cash as the award for perfect attendance. But, instead, they get paid time-off. They don't want paid time-off. They want money. We don't want to re-calculate, so they get the days off instead. Most of them don't even take that time off.

We do work very hard to meet with the intent and the spirit of the FLSA, as I think most human resources, and certainly most businesses, do. There are adequate safeguards within the act to continue to protect workers from minimum wage and overtime violations. But it's evident that employees want to financially be rewarded for a job well done. They want to feel like part of the major team, and they want to feel like they're adding value to the company where they work.

Penalizing employers for voluntarily awarding these bonuses and incentives does not give incentive to employees. It causes separation between the non-exempt and the exempt groups. Re-calculation of overtime discourages motivating and rewarding the employees for their hard work.

In closing, I appreciate the opportunity to address the subcommittee, and I hope that you will continue to turn to The Society for Human Resource Management for human resource expertise on the issue of FLSA reform. I will be happy to answer questions.

[The statement of Ms. Bourgeois follows:]

WRITTEN STATEMENT OF LYNNE BOURGEOIS, DIRECTOR, HUMAN RESOURCES, BLUECROSS BLUESHIELD OF LOUISIANA, BATON ROUGE, LA

-- SEE APPENDIX E

Chairman Ballenger. Thank you, Ms. Bourgeois. Our last witness is Mr. Clark. You may begin.

Mr. Clark. Thank you, Mr. Chairman and distinguished members of the committee. My name is Nicholas Clark. I am an Assistant General Counsel for the United Food and Commercial Workers Union, which is based here in Washington, D.C. On behalf of our 1.4 million members, I thank you for this opportunity to testify concerning this proposed legislation.

For our members and the over 120 million American workers who rely on the Fair Labor Standards Act to protect their incomes and the 40-hour workweek, we voice our strong objections to the proposed amendment, as presently drafted.

Current law requires employers to include non-discretionary performance bonuses in the regular rate of pay for purposes of calculating overtime. The proposed amendment would eliminate this requirement, allowing the employer to pay overtime based on a regular rate that does not include bonus payments, thereby reducing overtime compensation to workers. In the example which is attached to Ms. Coil's testimony, this would mean a pay-cut of up to $400 per year for that particular worker.

These are significant sums to UFCW members, most of whom are employed in the retail, food processing, and health care sectors of the economy, and most of whom are women. Many of our members are the sole or primary breadwinners for their families. They depend on the 40-hour workweek and overtime payments to maintain their standard of living and still have time to care for their families. The last thing they need right now is a Congressionally mandated pay cut.

But the ill effects of this amendment are much more insidious and potentially far more dangerous and damaging than this. The act requires inclusion of bonus payments and overtime to prevent employers from abusing bonus systems to circumvent the act's key purpose, which is to protect the 40-hour work week by requiring employers to pay a premium for overtime hours. If employers could exclude bonus payments from overtime pay, they could easily design their compensation systems to avoid paying any premium for overtime work, thereby removing disincentives to work employees over 40 hours per week.

An example is an employer who is now paying its workers $12 an hour and an overtime rate of $18 an hour. If the proposed amendment were law, this employer could simply pay its workers $6 an hour wage, and a $6 an hour performance bonus, thereby reducing its overtime rate from $18 to $9 per hour, which is $3 an hour less than the previous wage for non-overtime hours. Accordingly, the premium for overtime hours is eliminated along with the disincentives to work employees in excess of 40 hours per week.

Americans are already spending too many hours at work, and the trend is increasing. Since 1979, average annual hours worked by American workers has increased over 120 hours, the equivalent of three 40-hour workweeks each year.

The proposed amendment would only serve to increase this workload on already over-worked families by making overtime hours cheaper for employers, and eliminating overtime for workers.

The purported business reasons given for the proposed amendment do not begin to justify this massive wealth transfer from workers to employers. First, proponents claim that under the current system, compensation payments are too difficult to calculate, thereby discouraging some unspecified number of employers from offering incentive payments to their workers. Which, in turn, has some unspecified deleterious effect on productivity. This contention is wholly specious. Even small businesses have access to computers that can readily make these payroll calculations, which are far less complex than those routinely required to comply with tax, securities, and pension laws. If these calculations are so difficult, why are more employers than ever offering incentive compensation plans to their employees?

Second, proponents claim that current law makes it difficult for employers to give bonuses to salaried employees that are equal to those given hourly employees who work overtime. This result occurs, they claim, from the fact that overtime workers get additional pay due to the inclusion of bonuses in their overtime calculations. While this might be true, what it does not explain is how this result could possibly adversely affect productivity for salaried workers. To the contrary, productivity would seem to be enhanced by rewarding additional pay to those employees who work more hours. At any rate, this completely speculative effect hardly justifies an amendment that would effectively gut the 40-hour work week and slash pay for non-salaried workers who work overtime.

If proponents of this amendment are truly concerned with inequities toward their salaried workers, we suggest they focus instead on the act's minimum salary levels, which have not been increased in 24 years. These levels were intended to be sufficiently high such that only relatively highly compensated workers may qualify for exempt status. However, over the last 24 years, the minimum salary has eroded to less than the minimum wage.

The current minimum salary level for exempt executive, administrative, and professional workers is less than $9,000 per year, while the minimum wage for full-time workers is now $10,700 per year. To account for inflation, these levels must be increased to about $24,000 per year for executive and administrative salaried workers, and to about $26,000 per year for professionals.

The salary test, along with the requirement that exempt employees regularly perform executive, administrative or professional duties, are crucial components of the act. For the act to work properly, the salary levels must keep pace with inflation. The Department of Labor passed regulations to increase these levels just before President Carter left office in 1981, but President Reagan rescinded the increase by Executive Order just after he took office.

When I was here four years ago testifying concerning the proposed changes in the FLSA salary test, members of this committee, and the employer representatives on the panel agreed that these salary levels were woefully outdated and needed to be adjusted for inflation. Yet, four years later, these salary levels remain the same. In that time, neither this committee, nor any employer representatives, has proposed a bill that would remove this inequity.

Instead, the committee and the employers have devoted their energies to an unnecessary amendment that will decrease, rather than increase, incentives for workers to perform better, that will cut pay and jobs, and will severely undercut the 40-hour work week as a standard for working Americans.

The existing law requiring inclusion of bonuses in overtime assures that bonus systems will not be used to cut pay, and thus preserves the integrity of legitimate bonus systems.

Right now, worker productivity is the highest it has been in 25 years. Unemployment is at its lowest point in 30 years. Profits are up, wages are flat, and inflation is non-existent. What the proponents of this amendment really have is a solution in search of a problem.

We urge the committee to reject the proposed amendment and to re-focus its attentions on strengthening, rather than weakening, the current law protecting the 40-hour week. We suggest that a good start would be to increase the minimum salary levels, unchanged in 24 years, to 1999 standards.

Again, we thank the committee for the opportunity to testify concerning this important issue, the workers, and we welcome any questions you may have concerning our position. Thank you very much.

[The statement of Mr. Clark follows:]

WRITTEN STATEMENT OF NICHOLAS CLARK, ASSISTANT GENERAL COUNSEL, UNITED FOOD AND COMMERCIAL WORKERS INTERNATIONAL UNION, WASHINGTON, D.C. -- SEE APPENDIX F

Chairman Ballenger. Thank you, Mr. Clark. As we go along, I hope that each and every one of you, if you have something you'd like to add when somebody has asked a question, just raise your hand.

Mr. Clark, one of the things that we are trying to do is prove that we are trying to be reasonable about this. You say that you are not in favor of this bill as presently drafted. Is there a way that you could change this bill to support it? Let me just say also, that I think most of the comparisons that you made until the very end of your statement were that we did very well in the 30's when there was an unlimited supply of labor and the competition was such that somebody really might cut somebody's pay. I've never heard of anybody cutting pay in the last 10 or 15 years. So, the basic question that I ask you is whether there is any way this bill could be written that would be acceptable to you?

Mr. Clark. Mr. Ballenger, let me say this: The act, as its presently drafted, was carefully thought through to prevent a very important problem that could occur if this bill were passed, which is the undermining of the whole premise for the bill, which is to put a premium on overtime over 40 per week.

Now, Ms. Coil referred to looking at employers as evil, or something like that. There is nothing here that would limit application of this bill, as far as misusing it, to avoid overtime by evil employers. Employers are profit maximizers. They will use this bill, as written, to eliminate overtime and to make it much cheaper to work employees over 40 hours per week. What the proponents of the bill have focused on is a calculation problem. As difficult as it is to believe that there might be some employers with 275 workers that don't have a computerized payroll system, most employers of that size do have computerized payroll systems. But, if there is a calculation problem, it can simply be addressed by regulation. I point out to the committee that under the current system, the Department of Labor regulations allow the employer to calculate these overtime payments as little as four times a year. The means the employer gets an interest free loan on that money for that time period.

The act, as it's written now, and as it's interpreted by the Department of Labor, is extremely generous to employers, and makes every effort to accommodate any calculation or re-calculation problems they might have. But, if there is any problem, it should be addressed by the Department of Labor and by regulation after hearings and an opportunity to comment.

Chairman Ballenger. You probably know I'm a businessman myself, and some of us sometimes do not necessarily think that the regulations that come from the Labor Department are very consistent because they can change every time there is a different ruling. One of the questions that comes to my mind specifically is, suppose you have a salaried person making $23,000 a year, and you have an hourly worker who makes $23,000 a year; you can legally pay a bonus to the salaried person. Your guess or estimation on how easy it is to figure this amount for the nonexempt person is based on knowing what the bonus is before you do the paycheck.

But, the sad part is that you must recalculate it every time when you have 200 employees and the majority of them don't make the same amount of money. So that wonderful computer is supposed to figure this whole thing out by taking varying pay scales and varying hours, and somehow turn it all into a number. But it doesn't work. Because your estimation, or your diagram of the program you had in mind, is all based on knowing that this person is going to make $80 extra that week, so it's easy to figure out. But, if you have no idea how many hours that man or woman is going to work, then there is no way you can estimate the rate.

No computer can figure out the variations you might have in the number of hours that were worked and the different pay scales you might have. It is really a complicated calculation that is much more difficult than I think you indicated. I don't think I recieved an answer. You almost stated that there was no way that this bill could be written that would be acceptable.

Mr. Clark. Well, Mr. Chairman, I apologize if I didn't answer your question. What I am saying is that there may well be a way to re-write this bill to accommodate all of the different interests and problems that might occur. I don't presume to have the solution to that problem now. I think it should be addressed by the Department of Labor who has, as it has been pointed out, 60 years of experience in this area. Let them write a regulation after notice and comment. I think that it is not the kind of thing that needs to be addressed by the_

Chairman Ballenger. You have more confidence in the Department's ability to come forward with a usable rule and regulation that wouldn't destroy business. It might lock in certain various things you'd like to have, but most business people would like something written down in black and white that doesn't require them to go to the Department every time there is an argument. That would probably be the more important thing. Excuse me, Major Owens. My time is up.

Mr. Owens. Ms. Coil, you also said that when an employee is required to attend a meeting during lunch, the employee should be paid. Would you agree the employee should be paid if they are required to attend the lunch? Did you mean to imply that if they were informally in the same place, choosing to eat lunch with another employee, who happened to be a manager, and their discussion turns to work issues, that the FLSA requires_

Ms. Coil. That was a decision by the Department of Labor with a small firm in Arizona.

Mr. Owens. If they happen to be in the room, informally, they were not required to be there?

Ms. Coil. If work came up as an issue at a social lunch. This was a decision that the Department of Labor rendered in Arizona.

Mr. Owens. If work came up as a issue.

Ms. Coil. If work came up as a topic of discussion, then the lunch-time was no longer considered non-work hours. It was, in fact, hours worked.

Mr. Owens. It came up as a discussion, meaning management made a speech?

Ms. Coil. No. It was a casual luncheon discussion.

Mr. Owens. Somebody got the attention of all of the employees and stood up to make an announcement?

Ms. Coil. It was a casual luncheon discussion about something work related. It might have been a casual discussion about getting a mailing out that afternoon.

Mr. Owens. But supervisors led this casual discussion?

Ms. Coil. No, that is not true.

Mr. Owens. I see. Thank you. Ms. Farr, I assume that Marriott maintains an extensive system to track such things as reservations, room service, in room movies, et cetera. They have a variety of rates on room sizes, frequent customer status, and so on. They keep track of all that. So, is it particularly difficult to deal with overtime and computing pay if you can compute all those complex matters?

Ms. Farr. It is true that we have systems for reservations and sales and so forth. I think the challenge that my staff has explained to me through the years is the process of calculating how many hours worked with variable rates of pay that you could have in a workforce of 10,000 or 12,000 people in an operating division. All of the different rates of pay, holding that for a week, waiting for the other figures to fill in from sales and the financial. So it's the compound_

Mr. Owens. That is more difficult than keeping track of all of those customers who come to stay, and some get frequent user rates and some are government employees?

Ms. Farr. It is the compounding effect. I can only tell you that as a human resource executive, if I was going to deploy my staff and I said, gee, how would I like them to spend their time? Would it be on all these tedious calculations, re-calculations, testing_

Mr. Owens. Well, you're not still using manual systems are you?

Ms. Farr. No, sir. We are using computers.

Mr. Owens. BlueCross BlueShield is not using manual systems either?

Ms. Bourgeois. We're using an in-house system that our information technologies group has written and it is behind the times even as we speak. They are trying to catch up.

Mr. Owens. It is computerized?

Ms. Bourgeois. It is partially computerized.

Ms. Farr. It's not as easy as saying it's computerized, because the computer has different data elements that is has to bring together at different points in time. So that is the hard part of the calculation. But, I think what we're really saying is that if we could spend our time designing better plans and getting employee involvement, answering employee questions about how the plans work and how they can be trained; that is a better use of the time than doing some of these back-office calculations. That is what I found in my experience.

Mr. Owens. You're dealing with people's compensation, and when it comes to the corporate management, you have stock options and the changing value of the stock options and all kinds of things that are used to calculate the compensation for upper-level and CEO's, et cetera. But it's a problem when it comes to calculating bonuses and overtime for ordinary workers?

Ms. Farr. It's just more steps you have to go through to calculate it over a period of time with variable rates and variable employees with different work schedules and their different occupational codes.

Mr. Owens. Ms. Coil, you said you think the law is obsolete, the FLSA. You think we should go to a 35-hour week and more_

Ms. Coil. No. There is nothing in this bill that speaks to changing the 40-hour workweek. If I can direct your attention to the attachment in my testimony. If you'll bear with me and walk through this, because this is an extremely simple example.

Mr. Owens. Do you agree with Mr. Clark who said the worker would lose $400?

Ms. Coil. First of all, I disagree with him that this says that I would cut somebody's pay $400. In fact, that $400 is over and above their regular pay. I made assumptions to make this as simple a calculation as possible so there is no sick time, there is not any supplemental earnings. This is just a simple example. The employee has 520 regular hours in the pay period. They get $10 an hour. They have no supplemental earnings and they had 100 hours in overtime. This particular employer, when I was working with this client, there were three tiers of bonus. I just picked the $400, but lets say the $400 pay-off, that flat dollar same amount for everybody under the plan, was what was going to be paid out. But for every non-exempt employee, the employer has to go through this exercise for every quarter the plan pays out. In this case, there are 520 hours.

Mr. Owens. Thank you. My time is up. I understand what you are saying. I want to ask Mr. Clark why he says the opposite is true, that the employee loses?

Ms. Coil. He says I gave them a $400 paycut.

Mr. Clark. The impact of the bill on this particular employee would mean that the employee's pay would be cut approximately $400 a year, that is $96.75 a quarter. That is the impact of the bill on this particular worker.

Ms. Coil. Well, the alternative with a lot of my clients, when they see the complications of doing this, opt to not offer cash bonuses at all and use less effective ways of rewarding non-exempt employees because of this burden.

Mr. Owens. Thank you.

Chairman Ballenger. Mr. Barrett.

Mr. Barrett. Thank you, Mr. Chairman. Mr. Coil, it seems to me that this regulation creates two classes of employees; exempt and non-exempt. Correct?

Ms. Coil. Absolutely, it does and we're trying to get away from those hierarchies.

Mr. Barrett. As a small employer one time myself, this is what most companies are trying to avoid. Basically, as the law is currently written, it penalizes companies for giving bonus money to employees. Do you agree?

Ms. Coil. Correct.

Mr. Barrett. Well, then how in the world can a company or an employer promote any sense of community when the government, in this case, is trying to make it difficult for both employers and employees?

Ms. Coil. I cannot agree with you more.

Mr. Barrett. Thank you.

Ms. Farr. I could just underscore that by talking with our hourly employees, our non-management employees before we put the bonus plans in. There were some ill feelings about, ``managers always getting the bonuses and we get to do the work.'' Then we implemented the plans which were a team-based bonus and they began to feel that, `OK, I see how my work and my contribution is actually increasing the house profit, and I'm sharing in this.'' So, I would like to underscore that point, in our experience in my years at Marriott.

Mr. Barrett. Thank you. Mr. Clark, I am curious about the effects of changing the regulation, at least in your opinion. If we allow bonuses to be applied to our hourly employee's check after overtime has been calculated, is it going to be a little more difficult to retain those employees, in your opinion?

Mr. Clark. The act presently allows bonuses to be awarded to all workers, and there are not disincentives against awarding bonuses to any workers. The only disincentive that has been pointed out is a calculation problem. There's no impediment that I am aware of to awarding bonuses to hourly and salaried employees alike. If the employer feels that it must, for some reason, give exactly the same bonuses to workers even though they don't give the same pay to them. Of course, salaried workers make different pay than do hourly workers. Then, if they feel they need to do that, over time they may adjust the bonuses so that they actually reduce them to the hourly worker.

However, if you do, you are going to create a disincentive to workers working harder and being part of the business. I think one thing that has been demonstrated here today, that we all agree on, is that if you pay workers more, you get a better job, and that's nothing new in that.

Mr. Barrett. Then, your opinion is that it would make no difference to employees?

Mr. Clark. What would make no_I'm sorry.

Mr. Barrett. My question about the overtime being calculated after the checks or hourly wages were drawn.

Mr. Clark. I'm afraid I don't understand the question. I think what you are saying is if this bill were implemented and overtime was calculated without the bonus being included in regular pay, I think that would have a tremendous impact on workers.

Mr. Barrett. Yes, that was my point. Ms. Farr, I think Mr. Clark indicated earlier that changing this area of the law would perhaps cut worker's pay. You said that you have over 20 years experience with Marriott?

Ms. Farr. Yes, sir.

Mr. Barrett. Well, did any non-exempt workers experience a pay cut, in your experience?

Ms. Farr. We didn't want to go there, and let me tell you why. When we first started designing these plans, we talked to the hourly employees who would be affected by it such as housekeepers and front-office people. We started talking to them and they made it very clear that their base pay was really sacred. That was what their bills were paid with. We also knew that in order to be competitive, so that we could get the best employees in the marketplace at Marriott, that we couldn't tinker too much with base pay. I can also tell you that if you tinker with people's pay, it's like an incendiary device, it blows up in your face unless you really understand it.

So, we learned from our employees that we needed a competitive base pay to get them in the door. And then on top of that, if we could build this incentive pay for extraordinary performance that they all could share, that is when we would have the winning formula, and that is what we learned. So, we did not want to reduce pay. We contemplated it initially. But then we talked with employees and realized no, because that risk was just too much. They basically said, ``this is what I need to run my household.'' I will also tell you that when they got their first bonus checks, it was like a windfall. It would be a lot like people getting tax refunds. You get this lump sum that you didn't expect. So, people were really excited. They said, ``Wow, I can buy a new refrigerator. I couldn't do that before because my base pay was covering rent and utilities and so forth.'' So I can say in this marketplace that we are not about reducing pay, because the competition for workers is so keen. Two or 3 percent unemployment in some markets. That is not the direction that we wanted to go in at Marriott.

Mr. Barrett. Thank you very much.

Ms. Coil. I would like to ask a question of Mr. Clark.

Mr. Barrett. Mr. Chairman, with your indulgence?

Chairman Ballenger. Yes.

Ms. Coil. May I ask a question of Mr. Clark?

Chairman Ballenger. Yes, fire away.

Ms. Coil. He says that this would be an excuse for employers to reduce employee's wages and call the difference a bonus. But, would he agree that employers currently can reduce base rates and pay incentives, though there is the complication of the calculation. They can do that now by reducing base rates and replacing it with bonus money.

Mr. Clark. The employers must, under the law, include the performance bonus in the regular rate of pay for purposes of calculating overtime, and that is the only thing that is addressed by the regulation that's the provision of the law that is being addressed by the amendment.

Chairman Ballenger. I think her point is that you are saying that if we put in the bonus system, this would give the employer the chance to reduce the base pay and make it up in overtime. I think the point she is trying to make is that, if you're a stupid employer and don't care about keeping your workers, you can do that now. You can cut the base pay. Usually the only people I've heard that happening to are bankers when there is a lousy employee and they are scared that if they fire him they might end up in court. So the best thing they can do is either not raise their pay for 20 years or reduce some of the benefits and then they say, ``maybe they don't want me around here.''

Mr. Clark. I think I have to disagree. Under the current law, if you take a person's wage that is, as I suggested, say $12 an hour and reconfigure it into $6 an hour wage and $6 an hour bonus_

Chairman Ballenger. No, I'm not talking about bonus. I'm just saying that if you're making $12 an hour and business is bad, an employer could reduce your pay to $11 an hour. An employer has that authority to do that right now. With or without a bonus, it doesn't make any difference.

Mr. Clark. Assuming those workers don't have a union.

Chairman Ballenger. No, I think everybody here is saying that the assumption you're talking about is wrong. You don't even have to have a union. You can't do that today and keep your workers. That is what I think we're trying to say. Ms. Woolsey, I think you're next.

Ms. Woolsey. Thank you, Mr. Chairman. I respect the position that the three of you hold as human resource professionals. I spent 20 years before I came here. Ten as the human resources manager for an electronics company that grew from 13 people_I was number six_to over 700 over a 10 year period. During that time, it never entered our minds that if our workers, who were getting bonuses based on their work, were paid a bonus, that it was too much trouble to calculate what the overtime was. As a human resources person, as a politician, you don't know what you sound like. You are sitting there saying, ``its too much work to do that for them.''

Now, I'll tell you. The exempt professionals in your organization, the executives who receive bonuses during the year, and then at the end of the year receive a bonus on their annual pay, that amount is calculated in the total and nobody says, ``Oh, that's too much trouble.''

I hope you hear what you are saying. It cannot be too much trouble. If there is a will there is a way. When it comes time to having lunches and non-exempts and exempts were invited, there is a way. You either pay the overtime cause the non-exempt person is there, and good grief, they've earned it. They are the engine of your company. Our company became a Fortune 300 company. We didn't go broke. BlueShield BlueCross is certainly able to track medical costs on a per person rate basis, right?

Ms. Bourgeois. Correct.

Ms. Woolsey. Per treatment basis to prevent bundling. I think you comply with the complicated Medicare rules that often require reconfiguring medical bills.

Ms. Bourgeois. Of course.

Ms. Woolsey. Well, I can't understand why you can't reconfigure your employee pay?

Ms. Bourgeois. We do.

Ms. Woolsey. Excuse me. Then it becomes, why don't you want to? We're talking about work. We're not talking about a Christmas bonus that everybody gets. It doesn't matter if they excelled. It wasn't based on their performance. We're talking about bonuses based on work.

Ms. Bourgeois. We can. I want to address, first of all, your point you made about executives. You're right. There are all kinds of incentives and bonuses for executives. But we're talking about, in my particular company, less than 15 executives, but 1,400 employees. So, we're talking about going back and re-calculating for 700 individual rates of pay, as opposed to 14 executives who may be on some great incentive program that is completely different. We would do it, and we do it now. But, what I would like to say is that we would do more. We would offer more incentives and we would design more and better pay programs if we didn't have the burdensome re-calculations. That is all. We do it now and will continue to do it, but we would do more.

Ms. Farr. I would just like to underscore that, and I appreciate that you know what it's like to sit in the chair and walk in the shoes. I was listening to ourselves and I thought very carefully about it before I came today. I did say in my opening remarks that I did not expect the committee to be particularly sympathetic, especially to a large company with large resources. The point that I wanted to make, as a former human resource executive, is that if I had several hundred staff people that I could utilize to make better HR practices, if I had a choice between harnessing them toward the calculation and recalculation and all that, or working with the associates who would be affected with the plans to better design the plans so that they're more understandable, to communicate them in a timely fashion, to design training programs on customer friendliness and guest satisfaction, I would choose the latter. So, for me, I was trying to make that point that we're willing to do it and we do it. But, as you work in a competitive environment competing against other hotel companies and other chains and so forth, I have to figure out what is the best and highest use of a staff. Just like you have to in your jobs. That is what I was saying. I would choose for better design and doing focus groups with employees. That was my point to the committee. Not whining that it was too hard.

Ms. Woolsey. Well, it sounded whiny.

Ms. Farr. I apologize.

Ms. Woolsey. Well, it shouldn't be either or. Because, you see, now that our Chairman suggested that maybe we were having a shortage a workers versus in the past. When you have a shortage of workers, Mr. Chairman, you do even more for them and not less. We're in a very competitive world and the people who are having great successes in surpluses in this country are_the Dow went up again today. Average workers have to benefit, and they aren't going to if the people who are supposed to be their voices, the human resources people, don't look at it through their eyes. It's OK to go that extra mile for those 700 employees instead of just the top 15, because they really are who make the difference. Well, thank you Mr. Chairman.

Chairman Ballenger. Let me just say that, as an employer, who on a daily basis, well not on a daily basis because I go back home on Monday morning to find out what's going on in the place. We recognize with the shortage of help that we have, that you have to pay more. If business is good, you don't care how much overtime. It may cost more, but you don't care about that. You have to somehow get the people attracted, so what do you do? You figure out paid time off. You figure out free jury duty. You figure out free funerals. You figure out something because when your radio ad goes on saying ``wouldn't you like to work at this place because we offer profit sharing. We offer everything in the world. But, the bonus gainsharing we don't offer, mainly because it is expensive to offer.''

I think Ms. Bourgeois was the one who said that you spend 160 hours just in paperwork efforts to do the bonus gainsharing the first year and it was enough of a detriment that you didn't do it the second year.

Ms. Bourgeois. Because no one was doing anything else while we were busy re-calculating.

Chairman Ballenger. I've figured that I've got at least three people that work in my little operation that don't do anything but fill out government forms, and this would be one of those situations. Mr. Clark, one of the things that you suggested was why don't we let the Department of Labor come up with a regulation to take care of this thing? The Department of Labor has been trying to re-write the white collar section that you're talking about, Section 541 regulations, for over 13 years and we have yet to see any proposed rules. You are suggesting that we have them do that base salary situation. We've been waiting 13 years for them to come up with an answer to that particular problem that you just stated. In other words, your suggestion has been tried for 13 years and nothing has ever come of it.

Mr. Clark. Mr. Chairman, the Department of Labor did come up with rules that would have greatly fixed a lot of the problems that have to do with applying the white collar exemptions, and that is getting those minimum salary levels where they belong, and it was thrown out by President Reagan when they passed the regulation before. That was 1982 and it's now 1999.

Chairman Ballenger. Right, it's a long time.

Mr. Clark. It's not the Department of Labor's fault, I submit. What needs to be done is that they need to get guidance from the committee that this is something that needs to be done, and that they're going to get cooperation.

Chairman Ballenger. Guidance is one thing. Cooperation is another. Its a two way street and I doubt seriously if that's going to work out real well. Let me thank the witnesses. Oh yes, I'm sorry Mr. Martinez. I saw you come in and forgot about you. It's all yours.

Mr. Martinez. Thank you, Mr. Chairman. I am really a little confused here. Maybe Mr. Clark can help me out. It seems that this is because of the requirement of the Department of Labor to figure in bonus pay as part of the overtime. I'm confused as to why that should even interfere with the overtime itself. If you want me to work extra hours, I expect to get paid overtime. The simple reason is that I have to give up something to work overtime. I have to give up time with my family. Maybe miss an event that one of my family members is participating in. There is a lot of sacrifice there. Time with my family is precious, so I want that time-and-a-half. But now it seems as if giving the bonus to the person because they did any extra good job, or because you want to reward them for speeding up production, or whatever the reasons. There are a myriad of reasons on why you give a bonus. That all of the sudden because the Department of Labor requires you to do some additional paperwork and the bonuses, as I understand it, are going to a few employees at the top of the ladder, not every worker across the board. Is that right?

Mr. Clark. Well, they can go across the board. There is nothing in the law that would prohibit that. Certainly, the law actually encourages it from our point of view. I would share your confusion as to what the real problem is here with the current law. I think that what's been pointed out time and time again is that the law is somehow 60 years old and that the workplace has changed so much in that time. What hasn't changed is the fact that workers still have families and they have time to spend with those families, and the 40-hour work week is as important now as it ever was, and overtime is the key component to maintaining the 40-hour work week. So that is why it's so important that we preserve the protections that are in the current law that were well thought out. Its not just the Department of Labor. It was Congress and the Supreme Court that thought this whole problem through many years ago, and has consistently applied the law to require the inclusion of bonuses in regular rate of pay for purposes of calculating overtime.

Ms. Coil. I get the impression that Mr. Clark seems to think that the workplace is the same as it was in 1938, and it isn't. The virtual workplace is a reality. Work is no longer constrained by time or space or place. If I don't see you, you can still be working, which is totally different from 1938. I would contend that the way the regulations are currently crafted, it would imply that non-exempt employees are, in fact, hired from the neck down. But, guess what? When you hire a pair of hands, you get a brain for free. We're asking that the entire employee be engaged in the workplace, which is exactly what they want. In doing that, lots of FLSA problems arise, and part of it is that offering bonuses on a broad basis is becoming very problematic when you start applying that methodology to non-exempt workers.

Mr. Martinez. Well, I guess if that's what you want to believe, you'll believe. But, I beg to differ with you. You know, there were a lot of jobs way back in 1938 where you didn't see people who were actually working. Certainly, traveling salesmen, which were a common thing back then. The boss in the office never saw that traveling salesman. He had to depend on his reports and the number of sales that he made as to whether he was really out there working or not.

Ms. Coil. And that traveling salesman was exempt.

Mr. Martinez. Yes. I guess the problem comes in because you want to exempt certain employees from the Fair Labor Standards Act because you don't care how many hours they work in order to make those sales. If they work 20 hours to make a sale where maybe normally somebody else would take 4 hours to make that sale, you don't care how many hours. You just make the sale and bring business to the company, and we're not going to pay you overtime because you're an exempt employee. If the purpose of this bill is to exempt as many employees as you can so you don't have to provide overtime for them_

Ms. Farr. No.

Mr. Martinez. It's a good bill for the companies, but it sure isn't a good bill for the person that has to put the time in. I don't care if it's sales or something else. If I work a certain number of hours I want to know that I'm going to get compensated for those hours.

Ms. Farr. It is not_

Mr. Martinez. Because if I work those number of hours then I'm not going to be able to spend that time with my family.

Ms. Farr. And that is very clear in the minds of the employees and, at least the employer where I worked for 20 years. It is not to avoid overtime, not to reduce the base pay, but to get the employees linked to those key measures of the business. You mentioned about the traveling salesman. I will tell you a quick story that I call the candy bar story that relates to one of these bonus plans.

Fairfield Inns have many on the road salespeople and business people. Fairfield Inn was operating at a fairly high friendliness rate and recognizing repeat customers. I was told this story, and I received a letter from the guest. He said, ``I want to tell you I'm a customer for life because I checked in again for the fourth time at your Fairfield Inn at such and such a place, and when I arrived, there were four candy bars on my desk. The housekeeper had told the general manager that I was a candy bar person and they knew that I had an important sales presentation the next day.''

So, there is just a small example of where the housekeeper, maybe in the old framework wouldn't have thought twice about it, but in the new framework said, ``how can we really impress the guests and make him feel welcome?'' So, there is an example of how the incentive program sometime gets an employee to think about ways we can really delight customers. So that's my story about sales. We didn't try to reduce her bonus, and when she works overtime, she gets time-and-a-half.

Mr. Martinez. Here again, if that's what you want to believe, fine. Let me tell you what your incentive is. Your incentive is piecework. I've seen sweatshops work piecework. They don't care whether the employee works one hour or two hours or three hours. They don't care if the employee works 10 hours, because he's on piecework, his incentive. One person can work 8 hours and maybe make the equivalent of 12 hours of work, and another worker who isn't quite as talented or hasn't got the ability, will work 10 hours to do 8 hours worth of job. But the employer, if he's got him on piecework, he doesn't care, because its piecework. You only get paid for the piece you're going to finish. That's incentive. To make as much as you can in the time you want to take to make it. That's what it boils down to.

Ms. Farr. I guess our plans are more team based. They're not piecework.

Mr. Martinez. I don't care. Any way you cut it. I knew a guy who ran a newspaper. This gentleman claimed to be one of the extreme liberals of the world. I also wondered how he could be so liberal about so many things except his employees, because he had every one of his employees working 39 hours when a 40-hour week was the required work week. Do you know why? Because then he didn't have to pay them any benefits. They were their own contractors, and they had to do their own income tax and all the rest. Employers have been trying different scams like that to do to employees as long as I can remember. When they cut the hours back to, I think in California it was to 36, he cut them back to 35. He still didn't have to pay those things. Sure the employer's always trying to work out some way. Look, it's as simple as this. If I work overtime, pay me my overtime. If you think I'm an exemplary employee and producing for you in that time I worked, give me the bonus and I don't care how you have to figure it into my pay, give me the bonus. If you don't want to give me the bonus, don't give me the bonus, but pay me my overtime. Don't make me an exempt employee so I have to be working 16 hours a day to make an 8-hour living.

Chairman Ballenger. Marty, we'll call it there. Let me just say somewhere along the line, no matter what we bring up, we get into fighting the 40-hour work week like we're out to change the thing, and we're not. There is no effort on our part to do that, and if you'd like it written in stone with a pound of flesh and a couple of pints of blood tied to it, I'll be glad to do that.

Mr. Martinez. Well, you do when you make an exempt employee. If you don't understand that_

Chairman Ballenger. No, no. I realize the exempt employee's situation. Well, let me just say that I want to thank the witnesses for their valuable testimony. I'm sure we 100 percent agree. We very much appreciate you taking the time to come and testify. If there is no further business, the subcommittee stands adjourned.

[Whereupon, at 3:25 p.m., the subcommittee was adjourned.]