REWARDING PERFORMANCE IN 

COMPENSATION ACT 

HEARING

BEFORE THE 

SUBCOMMITTEE ON WORKFORCE PROTECTIONS 

OF THE 

COMMITTEE ON EDUCATION AND 

THE WORKFORCE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

HEARING HELD IN WASHINGTON, DC, JULY 31, 2001 

Serial No. 107-27 

Printed for the use of the Committee on Education 

and the Workforce

U.S. GOVERNMENT PRINTING OFFICE 

 77-909 pdf WASHINGTON : 2002 

For sale by the Superintendent of Documents, U.S. Government Printing Office 

Internet: bookstore.gpo.gov Phone: (202) 512-1800 FAX: (202) 512-2250 

Mail: Stop SSOP, Washington, DC 20402-0001
ii

COMMITTEE ON EDUCATION AND THE WORKFORCE 

JOHN A. BOEHNER, Ohio, Chairman 

THOMAS E. PETRI, Wisconsin GEORGE MILLER, California 

MARGE ROUKEMA, New Jersey DALE E. KILDEE, Michigan 

CASS BALLENGER, North Carolina MAJOR R. OWENS, New York 

PETER HOEKSTRA, Michigan DONALD M. PAYNE, New Jersey 

HOWARD P. “BUCK” McKEON, California PATSY MINK, Hawaii 

MICHAEL N. CASTLE, Delaware ROBERT E. ANDREWS, New Jersey 

SAM JOHNSON, Texas TIM ROEMER, Indiana 

JAMES C. GREENWOOD, Pennsylvania ROBERT C. “BOBBY” SCOTT, Virginia 

LINDSEY O. GRAHAM, South Carolina LYNN C. WOOLSEY, California 

MARK E. SOUDER, Indiana LYNN N. RIVERS, Michigan 

CHARLIE W. NORWOOD, JR., Georgia RUBEN HINOJOSA, Texas 

BOB SCHAFFER, Colorado CAROLYN McCARTHY, New York 

FRED UPTON, Michigan JOHN F. TIERNEY, Massachusetts 

VAN HILLEARY, Tennessee RON KIND, Wisconsin 

VERNON J. EHLERS, Michigan LORETTA SANCHEZ, California 

THOMAS G. TANCREDO, Colorado HAROLD E. FORD, JR., Tennessee 

ERNIE FLETCHER, Kentucky DENNIS KUCINICH, Ohio 

JIM DeMINT, South Carolina DAVID WU, Oregon 

JOHNNY ISAKSON, Georgia RUSH D. HOLT, New Jersey 

BOB GOODLATTE, Virginia HILDA L. SOLIS, California 

JUDY BIGGERT, Illinois SUSAN DAVIS, California 

TODD RUSSELL PLATTS, Pennsylvania BETTY McCOLLUM, Minnesota 

 PATRICK J. TIBERI, Ohio 

 RIC KELLER, Florida 

 TOM OSBORNE, Nebraska 

JOHN ABNEY CULBERSON, Texas 

Paula Nowakowski, Chief of Staff 

John Lawrence, Minority Staff Director

SUBCOMMITTEE ON WORKFORCE PROTECTIONS 

CHARLIE NORWOOD, Georgia, Chairman

JUDY BIGGERT, Illinois, Vice Chairman MAJOR R. OWENS, New York

CASS BALLENGER, North Carolina DENNIS KUCINICH, Ohio 

LINDSEY O. GRAHAM, South Carolina PATSY T. MINK, Hawaii 

JOHNNY ISAKSON, Georgia LYNN C. WOOLSEY, California 

BOB GOODLATTE, Virginia LORETTA SANCHEZ, California 

RIC KELLER, Florida HILDA L. SOLIS, California 

JOHN ABNEY CULBERSON, Texas 
iii

Table of Contents 

OPENING STATEMENT OF VICE CHAIR JUDY BIGGERT, SUBCOMMITTEE 

ON WORKFORCE PROTECTIONS, COMMITTEE ON EDUCATION AND THE 

WORKFORCE ............................................................................................................... 2

STATEMENT OF RANKING MEMBER MAJOR R. OWENS, SUBCOMMITTEE 

ON WORKFORCE PROTECTIONS, COMMITTEE ON EDUCATION AND THE 

WORKFORCE ............................................................................................................... 3

STATEMENT OF CHARLES FAY, PROFESSOR OF HUMAN RESOURCES 

MANAGEMENT, DIRECTOR, GRADUATE PROGRAMS IN HUMAN 

RESOURCES MANAGEMENT, SCHOOL OF MANAGEMENT AND LABOR 

RELATIONS, RUTGERS: The STATE UNIVERSITY OF NEW JERSEY, 

HIGHLAND PARK, NJ ................................................................................................. 6

STATEMENT OF LORI A. THOMAS, CCP, VICE PRESIDENT, MANAGEMENT 

COMPENSATION GROUP/DULWORTH, INC., HOUSTON, TX, ON BEHALF OF 

THE SOCIETY FOR HUMAN RESOURCE MANAGEMENT, WASHINGTON, 

D.C.................................................................................................................................. 8

STATEMENT OF MICHAEL T. LEIBIG, PARTNER, ZWERDLING, PAUL, 

LEIBIG, KAHN AND WOLLY, ALEXANDRIA, VA, ON BEHALF OF THE AFLCIO, WASHINGTON, D.C.......................................................................................... 10

STATEMENT OF LEONARD COURT, SENIOR PARTNER AND CHAIRMAN OF 

THE LABOR AND EMPLOYMENT LAW SECTION, CROWE AND DUNLEVY, 

OKLAHOMA CITY, OK, ON BEHALF OF THE U.S. CHAMBER OF 

COMMERCE, WASHINGTON, D.C.......................................................................... 12

APPENDIX A - WRITTEN STATEMENT OF VICE CHAIR JUDY BIGGERT, 

SUBCOMMITTEE ON WORKFORCE PROTECTIONS, COMMITTEE ON 

EDUCATION AND THE WORKFORCE................................................................... 23

APPENDIX B – WRITTEN STATEMENT OF CHARLES FAY, PROFESSOR OF 

HUMAN RESOURCES MANAGEMENT, DIRECTOR, GRADUATE PROGRAMS 

IN HUMAN RESOURCES MANAGEMENT, SCHOOL OF MANAGEMENT AND 

LABOR RELATIONS, RUTGERS: The STATE UNIVERSITY OF NEW JERSEY, 

HIGHLAND PARK, NJ ............................................................................................... 27

APPENDIX C – WRITTEN STATEMENT OF LORI A. THOMAS, CCP, VICE 

PRESIDENT, MANAGEMENT COMPENSATION GROUP/DULWORTH, INC., 

HOUSTON, TX, ON BEHALF OF THE SOCIETY FOR HUMAN RESOURCE 

MANAGEMENT, WASHINGTON, D.C.................................................................... 41
iv

APPENDIX D – WRITTEN STATEMENT OF MICHAEL T. LEIBIG, PARTNER, 

ZWERDLING, PAUL, LEIBIG, KAHN AND WOLLY, ALEXANDRIA, VA, ON 

BEHALF OF THE AFL-CIO, WASHINGTON, D.C.................................................. 61

APPENDIX E – WRITTEN STATEMENT OF LEONARD COURT, SENIOR 

PARTNER AND CHAIRMAN OF THE LABOR AND EMPLOYMENT LAW 

SECTION, CROWE AND DUNLEVY, OKLAHOMA CITY, OK, ON BEHALF OF 

THE U.S. CHAMBER OF COMMERCE, WASHINGTON, D.C. ............................. 81

Table of Indexes............................................................................................................ 90 
1

REWARDING PERFORMANCE IN 

COMPENSATION ACT 

____________________

Tuesday, July 31, 2001 

Subcommittee on Workforce Protections 

Committee on Education and the Workforce 

U.S. House of Representatives 

Washington, D.C. 

 The Subcommittee met, pursuant to call, at 1:32 p.m., in Room 2175, Rayburn 

House Office Building, Vice Chair Judy Biggert presiding. 

 Present: Representatives Biggert, Ballenger, Isakson, Goodlatte, Keller, 

Culberson, Owens, Kucinich and Woolsey. 

 Staff Present: Molly McLaughlin Salmi, Professional Staff Member; Kent 

Talbert, Professional Staff Member; Victoria Lipnic, Professional Staff Member; Dave 

Thomas, Legislative Assistant; Peter Gunas, Director of Workforce Policy; Jo-Marie St. 

Martin, General Counsel; Heather Valentine, Press Secretary; Patrick Lyden, Professional 

Staff Member; Deborah L. Samantar, Committee Clerk/Intern Coordinator; Peter 

Rutledge, Minority Senior Legislative Associate/Labor. Maria Cuprill, Minority 

Legislative Associate/Labor; Brian Compagnone, Minority Staff Assistant/Labor.

Vice Chair Biggert. A quorum being present, the Subcommittee on Workforce 

Protections will come to order. 

Obviously, I am not Chairman Norwood. He sends his regrets that he couldn't be 

here today. We are meeting to hear testimony on H.R. 1602, the Rewarding Performance 

in Compensation Act. 

I am going to limit the opening statements to the Chairman and the Ranking 

Minority Member. Therefore, if other Members have statements, they may be included 

in the record. With that, I ask unanimous consent for the hearing record to remain open 

14 days to allow Members' statements and other extraneous material referenced during 

the hearing to be submitted in the official hearing record. 
2

Without objection, so ordered. 

OPENING STATEMENT OF VICE CHAIR JUDY BIGGERT, 

SUBCOMMITTEE ON WORKFORCE PROTECTIONS, 

COMMITTEE ON EDUCATION AND THE WORKFORCE 

 Ladies and gentlemen, good afternoon, and on behalf of Chairman Norwood, I 

would like to take this opportunity to welcome each of you to our hearing on H.R. 1602, 

the Rewarding Performance in Compensation Act. H.R. 1602 will help workers share in 

financial gains when their extra efforts produce increases in productivity. 

 This legislation was introduced by Representative Cass Ballenger from North 

Carolina, a Member of this Subcommittee who has worked for several years to address 

the special problems that employers face when providing bonus or gainsharing programs 

to their employees. 

 In October 1999, similar legislation was reported from the Committee on 

Education and the Workforce; and in February 2000, the Senate passed a bankruptcy bill 

that included bonus gainsharing. However, no changes made it into law. 

 Employers have found that rewarding workers who do high-quality work 

improves performance and the ability of the company to compete. Bonus or gainsharing 

plans can encourage employee creativity and innovation, improve customer satisfaction 

and promote safety and efficiency. 

 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. With gainsharing, 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 an 

employee's control, such as productivity or cost, rather than on the company's profits. 

Thus, employees directly benefit 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 based on production, performance or other factors, the payment must then be divided 

by the number of hours worked by the employee 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 employees’ overtime rate of pay for 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
3

employees who meet certain goals. By eliminating disincentives in 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 to be with us today. We 

look forward to hearing your views on the legislation that we are considering here today. 

WRITTEN STATEMENT OF VICE CHAIR JUDY BIGGERT, SUBCOMMITTEE ON 

WORKFORCE PROTECTIONS, COMMITTEE ON EDUCATION AND THE 

WORKFORCE – SEE APPENDIX A 

Vice Chair Biggert. I now yield to the distinguished Ranking Minority Member of the 

Subcommittee, Mr. Owens, for whatever opening statement he wishes to make. 

STATEMENT OF RANKING MEMBER MAJOR R. OWENS, 

SUBCOMMITTEE ON WORKFORCE PROTECTIONS, 

COMMITTEE ON EDUCATION AND THE WORKFORCE 

Thank you very much, Acting Chairwoman Biggert. We regret that Chairman 

Norwood could not be here with us, but we welcome your special wisdom and 

compassion to be applied to this subject. 

 I want to welcome today's witnesses and thank them for their willingness to be 

here this afternoon, but I must note, however, that this is not a new issue and I suppose 

you all know this. Legislation substantially similar to H.R. 1602 has been pending before 

the Committee in the previous two Congresses. 

 I have opposed this legislation in previous Congresses, and I continue to oppose 

it. I have never been persuaded that there is a need for H.R. 1602. Employers were paid 

bonuses before the Fair Labor Standards were enacted, and they continue to now. To 

contend that the use of bonuses is some kind of new development is simply not true. 

 Further, for more than 60 years, employers have been able to recalculate hourly 

wages and overtime liability to account for bonuses. To contend that such a recalculation 

is an insurmountable obstacle to using bonuses, especially now with the widespread use 

of payroll service companies and the universal use of computers, simply is not credible. 

 More importantly than my doubts regarding the need for the legislation are my 

concerns about the dangers that this legislation poses. The Fair Labor Standards Act 

generally requires employers to pay overtime on all performance-related compensation 

paid to workers. H.R. 1602 would effectively gut this requirement by permitting 

employers to exempt from overtime compensation that is paid to a worker as a bonus. 
4

Under H.R. 1602, while employers would generally still have to pay the minimum 

wage, employers are encouraged to convert all additional compensation into bonuses. 

For example, where an employee is making $20 an hour today, regardless of whether that 

$20 is in the form of wages or performance bonuses, an employer is generally required to 

pay $30 an hour for hours worked by that employee in excess of 40 hours a week. Under 

H.R. 1602, an employer could pay an employee $5.15 an hour in wages and could pay an 

additional bonus of $14.85 an hour for the first 40 hours worked. 

 On the surface, it appears that the employee is still making $20 an hour. 

However, when an employee works overtime, the employee is only entitled to $7.73 an 

hour instead of the $30 an hour the employee is entitled to under current law. 

 Even if the employer voluntarily agrees to pay the performance bonus for 

overtime hours as well as regular hours of work, the employee's overtime pay is still 

reduced by $30 an hour to $22.58 an hour. 

 H.R. 1602 reduces overtime pay for workers. While I can understand why some 

employers or managers may think this is a good idea, in my view, undermining overtime 

pay has disastrous consequences for both workers and society. The requirement to pay 

overtime is the only legal limitation placed on the number of hours an employee may be 

required to work by ensuring that it costs more to work an employee in excess of 40 

hours a week. The overtime law not only ensures that employers have sufficient time off 

to meet personal and family needs, but it promotes regular scheduling. If an employer 

can require an employee to work overtime at no additional cost to the employer, then 

there is little incentive for an employer to avoid scheduling overtime work, and workers 

will have less time to meet family responsibilities, and they will have greater uncertainty 

as to their schedule. 

 Finally, if there is no additional cost for overtime work, then it becomes cheaper 

for an employer to work one worker many hours rather than hiring and training another 

worker. Undermining overtime would make it significantly harder for those with jobs to 

meet family responsibilities and would increase unemployment by encouraging 

employers to work fewer workers for longer hours. Both consequences would harm 

rather than enhance the quality of life for most Americans. 

 I yield back the balance of my time. 

Vice Chair Biggert. Thank you, Mr. Owens for your opening statement. It is now my 

pleasure to introduce our panel of witnesses. Our first witness on the panel will be Dr. 

Charles Fay. He is a Professor and Director of Human Resources Management Graduate 

Programs at Rutgers University. 

 I will now yield to Mr. Culberson. He will be introducing our second witness, 

Ms. Lori Thomas. 

Mr. Culberson. Thank you, Madam Chairwoman. 
5

It is my privilege to introduce Ms. Lori Thomas, who is the Vice President of the 

Management Compensation Group/Dulworth, Inc. in Houston, testifying on behalf of 

The Society for Human Resource Management. She is a constituent and runs the 

Compensation and Benefits Consulting Unit, which assists clients in compensation 

planning and executive benefit plan design, installation, financing and administration. 

She has been with the company since 1984 and serves on its Board of Directors. 

 She is also a magna cum laude graduate of the University of Houston with a 

degree in computer science and is currently pursuing postgraduate work in accounting 

and finance. She is active in the community, Madam Chairman, and serves as a member 

of the Society for Human Resource Management and Treasurer-elect and Legislative 

Action Committee member for the Houston Human Resource Management Association, 

as well as the American Management Association and the National Association of Stock 

Plan Professionals. 

 She is here today to provide us with some real-life, technicolor, vivid illustrations 

of the impact of current law on small businesses and their ability to manage themselves 

and to reward good employees for their good performance. 

 I welcome you here today, Ms. Thomas, on behalf of the Subcommittee on 

Workforce Protections and look forward to your testimony on this important issue. And 

may I also say I am in the final stages of drafting on a key amendment to the Patients' Bill 

of Rights, which has to be in the Rules Committee by 5:00, so I may have to slip out a 

little bit earlier. 

 With that, we are very pleased you are here. Thank you. 

Vice Chair Biggert. Thank you, Mr. Culberson. If you know someone here, you get the 

long bio. If you don't, then it is the short bio. 

 Following Ms. Thomas will be Mr. Michael Leibig. Mr. Leibig is a partner at the 

law firm of Zwerdling, Paul, Leibig, Kahn and Wolly. He is testifying on behalf of the 

AFL-CIO.

 And our final witness for today is Mr. Leonard Court from the law firm of Crowe 

and Dunlevy. Mr. Court is here on behalf of the U.S. Chamber of Commerce. 

 So, first of all, let me remind the witnesses that under our Committee rules, you 

must limit your oral statements to 5 minutes, but your entire written statements will 

appear in the record. You also see that we have little timers there. When you begin 

speaking the light will be green and after 5 minutes it will turn to yellow, at which point 

you should begin to wrap up so we can keep to our schedule. 

Dr. Fay, you may begin your testimony. 
6

STATEMENT OF CHARLES FAY, PROFESSOR OF HUMAN 

RESOURCES MANAGEMENT, DIRECTOR, GRADUATE 

PROGRAMS IN HUMAN RESOURCES MANAGEMENT, SCHOOL 

OF MANAGEMENT AND LABOR RELATIONS, RUTGERS: The 

STATE UNIVERSITY OF NEW JERSEY, HIGHLAND PARK, NJ 

 Thank you for the opportunity to testify concerning H.R. 1602. I am Charles Fay, 

a Professor of Human Resources Management at Rutgers University. My research and 

teaching focus on reward systems, performance management; and I also have some 

interest in new work systems. 

 Today I would like to talk to you in the short time I have about how work and 

rewards have changed and how the FLSA has not changed. I will start with the old work. 

If you look at Attachment A in the written material I have submitted, page 8, you will see 

a diagram of an industrial engineering model to work. If it looks like an assembly line, it 

is because it is exactly like an assembly line. 

 Work done under this model has several important characteristics. Work is 

defined in terms of tasks done, and a job is a small set of tasks done by one employee. 

Jobs are stable. Because you have coordination difficulties, you need a bureaucratic 

hierarchy, and the only way you can perform under this industrial engineering model is 

either to work to the pace of the line or to produce more pieces. 

 A typical nonexempt job that is characteristic of this old work is an autoworker 

putting a left rear hubcap on each car that passes by. You could also think of a clerical 

worker, and there are many in government who look at the same form over and over 

again filled in by different people and make sure that a particular field has been filled out 

correctly. By the way, this is why we talk about a paper factory, because it is an 

application of an industrial engineering technique to a clerical task. 

 In this kind of work, employees are expected to check their brains at the door 

when they clock-in in the morning. Workers have very little discretion, particularly on 

assembly lines. They operate at the speed of the line. And the only way you can increase 

performance under this form of work is to either work harder or to work longer hours. As 

a result, the reward system for this old kind of work is almost always base pay or piece 

rates or some small bonuses. Historically, there have been very few bonuses for 

nonexempt workers. There have been many, many bonuses for exempt employees. 

 Job value under this old work system focuses on internal comparisons, economic 

models, job evaluation systems such as the Hay system, or a classification system that is 

used in the government for general schedule workers. In this work model, I would argue 

the regular rate requirement does in fact make sense, but this isn't what work looks like 

any longer. And let me just give you an example. 

 In the late 1980s, I visited a semiconductor fabrication unit and, as usual in these 

kinds of situations, I walked around looking at the work done and talked to some 

employees about what they did before starting on the assignment. Now, usually when I
7

do that and I do that any time I go to a factory, I get the following kinds of answers: “I 

am a....” followed by a job title, and then a listing of tasks; “I do A, I do B, I do C.” 

 In this case, I got very different answers at the semiconductor fabrication unit. 

The first thing that I got was an aside from some people: "Do you mean last week, this 

week or next week?" The other answer that was fairly standard was, "I do whatever it 

takes." Occasionally, people would say, “I produce X,” or “I provide a (certain) kind of 

service.” The work model that goes with these answers is also in your materials. It is 

Attachment B, page 9. If you take a look at that attachment, you see that it looks very, 

very different from the industrial assembly line model. 

 First of all, jobs are built around people in the new work model rather than around 

tasks. People focus on outcomes. The only constant is change. Employees and teams 

have a lot of discretion, and the bureaucratic hierarchy has all but disappeared in these 

organizations. Employees interact with many different people, both inside and outside of 

the organization, and that is noted here in terms of relationships with key customers. If 

you have a financial services provider that does one-stop shopping, you have interacted 

with this new work. 

 The reward systems for the new work model are very different. Job value is 

market-based. Incentives are going to focus on groups working smarter. The effort 

required may actually be reduced. Incentive programs aimed at getting groups to work 

smarter are equivalent to many profit-sharing plans where the organization seeks to share 

the contribution to profits with the group responsible. As a result, they should really be 

treated like other profit-sharing plans. 

 Thank you. That concludes my oral testimony, Mrs. Chairwoman. I will be 

happy to answer any question you or the other Committee Members may have. 

WRITTEN STATEMENT OF CHARLES FAY, PROFESSOR OF HUMAN 

RESOURCES MANAGEMENT, DIRECTOR, GRADUATE PROGRAMS IN HUMAN 

RESOURCES MANAGEMENT, SCHOOL OF MANAGEMENT AND LABOR 

RELATIONS, RUTGERS: THE STATE UNIVERSITY OF NEW JERSEY, 

HIGHLAND PARK, NJ - SEE APPENDIX B 

Vice Chair Biggert. Thank you, Dr. Fay. 

Ms. Thomas, you may begin your testimony. 
8

STATEMENT OF LORI A. THOMAS, CCP, VICE PRESIDENT, 

MANAGEMENT COMPENSATION GROUP/DULWORTH, INC., 

HOUSTON, TX, ON BEHALF OF THE SOCIETY FOR HUMAN 

RESOURCE MANAGEMENT, WASHINGTON, D.C. 

Good afternoon, Chairwoman Biggert and Members of the Subcommittee. As 

Congressman Culberson said, may name is Lori Thomas. I am a Vice President with 

Management Compensation Group in Houston, and I am here today on behalf of the 

Society for Human Resource Management to urge Congress to pass H.R. 1602. 

 This important piece of legislation would allow employers to provide incentive 

bonus plans and gainsharing arrangements without impacting the regular rate for 

purposes of calculating overtime. 

 The majority of my clients are small to mid-sized businesses, and many of them 

are unaware when they first come to us about the requirement that performance bonuses 

be included in overtime pay. Most of them, because they are small companies, lack the 

resources to make a recalculation of overtime. Therefore, they are unable in many 

situations to install the type of bonus arrangements they and their employees really 

desire.

 During the last year, I worked with a particular client to install a broad-based 

performance bonus plan. The type of arrangement the company wanted was a formulabased plan where each employee starts with a target bonus and is assigned certain 

company-wide, divisional and personal performance goals. The ultimate bonus is then 

calculated based on the attainment of these goals. 

 I informed the client they would need to include overtime in the formula, and we 

passed the final plan design past a labor attorney, who suggested that we keep the target 

bonuses for all the nonexempt employees at the same level and base their bonuses only 

on the company profit goal. The resulting plan actually has provided a much more 

objective way to determine bonuses than their old discretionary plan did, but there are 

some areas where the plan falls short. 

 First, because overtime had to be included in the formula, the company had to 

reduce target bonus amounts for all employees in order to stay within budget on the plan.

Many of the nonexempt employees at this particular company have little or no 

opportunity for overtime because of the type of work they do, and those who do have the 

ability to work overtime are likely to get bonuses that will be larger than their 

supervisors.

 The plan is difficult to communicate, because while the performance goals of the 

exempt employees have been tailored to each individual situation, the performance 

measures for the nonexempts are based strictly on company performance, and that does 

little to motivate the nonexempt employees to achieve personal or divisional goals. 
9

A company has four basic options when it comes to bonus arrangements: 

 They can choose not to offer a plan at all, which places them at a competitive 

disadvantage, and it does nothing to motivate or reward their employees. 

 They can choose to install a purely discretionary arrangement, which again does 

very little to motivate employees to achieve desired results. 

 They can install a performance-based plan and deal with overtime recalculation, 

which, by the way, is primarily a manual process. It is very costly and time consuming. 

But one of the downsides of this type of arrangement is that people who work more 

overtime are going to get the largest bonuses, and time worked is not always an indicator 

of top performance. 

 The final arrangement is you can install a performance-based plan and avoid the 

overtime issue by excluding your nonexempt employees. Sadly, this is something we are 

seeing happen fairly often. 

 Last year, I worked with SHRM, the Texas State Council and Houston chapter, to 

conduct a survey of Texas employers to see how they are reacting to the Fair Labor 

Standards Act and what choices they are making with respect to performance bonuses. 

What we found is that 60 percent of the companies who responded to the survey do 

provide some sort of performance bonus plan. Forty-two percent of those exclude their 

nonexempt employees, and more than 50 percent of those said that the decision to do so 

was based on the Fair Labor Standards Act. 

 Last year, the Congress took a very important step when it passed legislation 

exempting stock option gains from the overtime calculation. And while I applaud you for 

this very important piece of legislation, I ask you to consider that performance bonuses 

are another way to ensure employer success with all employees. For employees of 

privately held companies they are the only way, because stock is not available as a 

compensation device. 

 The Fair Labor Standards Act is an outdated law that in this day and age can serve 

as an impediment to the very employees it was designed to protect. I urge you to pass 

H.R. 1602 to encourage employers to provide performance and gainsharing bonuses to all 

employees. 

 Thank you very much for the opportunity to be here. I would be happy to answer 

any questions that you may have. 

WRITTEN STATEMENT OF LORI A. THOMAS, CCP, VICE PRESIDENT, 

MANAGEMENT COMPENSATION GROUP/DULWORTH, INC., HOUSTON, TX, 

ON BEHALF OF THE SOCIETY FOR HUMAN RESOURCE MANAGEMENT, 

WASHINGTON, D.C. - SEE APPENDIX C 
10

Voice Chair Biggert. Thank you, Ms. Thomas. 

 Mr. Leibig, you may begin your testimony. 

STATEMENT OF MICHAEL T. LEIBIG, PARTNER, ZWERDLING, 

PAUL, LEIBIG, KAHN AND WOLLY, ALEXANDRIA, VA, ON 

BEHALF OF THE AFL-CIO, WASHINGTON, D.C. 

 My name is Michael Leibig. In addition to representing the AFL-CIO, the 

International Union of Police and a number of other unions here today, I also am a 

professor of law at Georgetown University, where I have taught for 26 years and for 

many of the years concentrated on the Fair Labor Standards Act. Since I have submitted 

written testimony, I just want to concentrate on two points in the time I have now. 

The first is the negative impact of this legislation, if it passes, on people who 

already receive bonuses. In my testimony I give a number of statistics collected by the 

American Management Association; the Economic Policy Institute; Unite, which is a 

labor union in the needle trades, in the old-fashioned way of speaking; the International 

Union of Police and the United States Steelworkers. 

 All of those cases show that a great percentage of the American workforce 

already receives bonuses in gainsharing, and we certainly support that. If this legislation 

were passed, an employer who was just operating under what the law allows would 

reduce the pay of those people because now they pay overtime to the nonexempt people 

on the rates. And so one of the impacts would be a number of workers whose pay would 

go down because the amount of the reduction in overtime, as I have pointed out in my 

testimony, is greater than the bonuses that they receive. So that is one problem. 

 Another problem is that it would legally authorize employers to designate in the 

future what portion of pay is the bonus and what portion of pay is the base pay. There 

would be nothing illegal about donating everything except the minimum wage as the base 

pay and everything else as a various form of bonuses. 

 Now, the witnesses in favor of the legislation say that is unlikely to happen, 

because only unscrupulous employers would do that. That is not true at all. We should 

assume under the Fair Labor Standards Act, as the Act always has, that all employers 

who are scrupulous would in the interest of their stockholders take advantage of whatever 

economic savings they can. That is a perfectly appropriate thing for them to do. But you 

can't say that this legislation is only going to apply to those people who don't want to take 

advantage of the very benefit it gives. You have got to assume that any employer would 

take advantage of it. And once they do, it undermines the whole theory of the regular 

rate, which you explained. 

 What I would really like to explain is that he difficulty of including bonuses now 

and establishing bonuses now is greatly exaggerated by some of the sponsors of the bill, 

especially compared with the actual wording of the bill. If you look at the regulations on 

how you calculate to include bonuses in the regular rate, which I have attached to my 
11

testimony, in CFR 778.209 and 210, there is a great deal of flexibility. You don't have to 

calculate each time the person is paid overtime. You can wait till the period on the 

bonuses is paid. You can do the bonus as a percentage. It outlines a whole lot of ways 

that this can be simply done. 

 One example given of companies who seek advice is that the ways they are told 

do it by lawyers are very complicated. Well, that is fine if they want to do it that way, 

but they don't have to do it that way. The regulations make it clear; there are ways to 

include the bonuses that are not complicated. And in this age when people already have 

to calculate tax withholding and other things that they have to do in the pay system under 

Federal law they have all of the records that are necessary to include the bonus. They 

already have to have a payroll system, and it is not a complicated system to include it. 

 But let us pretend that it is. If you read the regulation in 210, which says if you 

pay a bonus and you figure out what percentage the bonus was of the overall salary the 

person made that year and just add to the overtime the person made that year that same 

percentage, that complies with the law. 

 If you read that and then read this legislation, which says that an employer, before 

he can do this, has to be able to show that he is in good faith for the purpose of 

distributing to employees additional remuneration over and above the wages and salaries 

that are not dependent on such a plan. It is not clear what that means, but it is much more 

difficult for an employer to figure out what that means than it is to read the regulations. 

The regulations are simpler than this objective standard included in this bill. And based 

on Congressman Ballenger's report a couple of years ago, I know some of this language 

was put in the bill to avoid the unscrupulous lawyer problem, in other words, the 

employer that would take advantage. 

 But if you read that language, it either does nothing or it is more complicated for 

an employer, because it is trying to say, if you are a scrupulous employer, you can 

include the bonus, but if you are an unscrupulous employer, you can't, and here's how 

you determine by that language what it is. If you read that language and then read the 

simplest way of including bonuses, it is already in the law in the regulations. The 

regulations are clearly simpler than the new regulations are. 

 My time is up, but I would just like to say that the number of institutions that have 

instituted bonuses already demonstrate the capability of having bonus and gainsharing 

without this legislation. If there are companies that think this is that complicated, and I 

said this 3 years ago and I still do, we would be glad to look at their systems for free, and 

show them how they can do it, as would the Department of Labor. 

WRITTEN STATEMENT OF MICHAEL T. LEIBIG, PARTNER, ZWERDLING, 

PAUL, LEIBIG, KAHN AND WOLLY, ALEXANDRIA, VA, ON BEHALF OF THE 

AFL-CIO, WASHINGTON, D.C. – SEE APPENDIX D 

Vice Chair Biggert. Thank you, Mr. Leibig. 
12

Our final witness is Mr. Court. You may begin your testimony. 

STATEMENT OF LEONARD COURT, SENIOR PARTNER AND 

CHAIRMAN OF THE LABOR AND EMPLOYMENT LAW SECTION, 

CROWE AND DUNLEVY, OKLAHOMA CITY, OK, ON BEHALF OF 

THE U.S. CHAMBER OF COMMERCE, WASHINGTON, D.C. 

Thank you, Madam Chairwoman and Members of the Subcommittee. By way of 

introduction, I am a member of the Labor Relations Committee of the U.S. Chamber of 

Commerce and Chair of that Committee's Fair Labor Standards Act Subcommittee. I am 

also a Senior Partner of Crowe and Dunlevy, Oklahoma's largest law firm; and I am 

proud to say that the most recent addition to this body's Oklahoma delegation, Brad 

Carson, comes from our law firm. Additionally, I am an adjunct professor of law at both 

the University of Oklahoma Law School and Oklahoma City University Law School. 

 Our firm represents all sizes of employers in Oklahoma, from large multinational 

corporations such as Goodyear and Avis to small companies having 25 employees or less. 

Giving advice to all of these clients gives me a perspective on how a variety of 

companies in different industries react to the legislation that is currently before this 

Committee. 

 My observations are based upon three assumptions: 

 First, in the current atmosphere of global competition, rewarding employees for 

improvements is desirable in areas of productivity, efficiency and incentive. 

 Second, predictability of compensation is important to employees. They want to 

know how much money they can make. 

 Third, bonuses are an effective and desirable method of compensation, and it 

seems to me that virtually every witness here agrees with that proposition. 

 The issue is how those bonuses are given. The Fair Labor Standards Act allows 

and recognizes the principles of bonuses by allowing the giving of discretionary bonuses 

without the inclusion of that sum into the hourly rate calculation. Unfortunately, 

however, the FLSA passed over 60 years ago impedes these principles in the treatment of 

nondiscretionary bonuses and requiring their inclusion in the regular rate of pay. 

 Unquestionably, the nature of business and competition today is very different 

from that which occurred when the FLSA was originally passed. Today even small 

Oklahoma companies have to compete on an international basis. To do so effectively, 

these companies must become more productive and more efficient. That requires that 

they find ways to reward their employees and recruit better employees and retain them. 

Many employers believe the performance-based bonuses are the way to accomplish those 

goals. This Committee has already heard a lot of testimony about that, and I don't plan to 
13

duplicate that effort. 

 Employers tend to reject performance-based bonuses because of the costs 

associated with the required recalculation under the FLSA and because of the other 

disincentives that are nationally involved. While admittedly the advent of computerized 

payroll systems has lessened the burden somewhat, they certainly have not eliminated the 

need for developing individualized programs, rechecking the calculations that have been 

done. This is time and money that could be better spent with additional bonus 

compensation. Recent client discussions illustrated this problem to me. 

 In preparing for this hearing, I have tried to talk to a cross section of my clients 

concerning nondiscretionary bonuses in the FLSA requirements. The almost unanimous 

reaction has been a disinclination to engage in these kinds of performance-based bonuses 

because of the problems associated with them. Now, I acknowledge that quantifying the 

number of companies who would adopt gainsharing or bonus programs if H.R. 1602 

became law is virtually impossible to determine. However, my personal experience with 

over 25 years in this field tells me that the percentage would be significant. 

 I would note here within the last month that I have worked with a client, much 

like Ms. Thomas, who looked at performance-based bonus systems but ultimately, being 

a small client and not wanting to have to deal with the recalculation problems, rejected 

that issue. Furthermore, in my role as Chairman of the FLSA Subcommittee for the U.S. 

Chamber, I repeatedly hear from other employment attorneys and business 

representatives who share in these same problems and experiences. Our Subcommittee 

has identified passage of this legislation as one of the most important modifications that 

can be made for the benefit of both management and their employees. 

 The net result of the current FLSA approach to these kinds of nondiscretionary 

bonuses simply widens the gap between exempt and nonexempt employees. Exempt 

workers are receiving the gainsharing and bonus programs that are not being offered to 

many of the nonexempt workers. All members of the team want to feel part of that team, 

and all members of that team want to share in the rewards that are given for its success. 

The current FLSA does not allow that. 

 Additionally, my experience tells me that predictability is important in 

compensation. The FLSA interferes with that by not emphasizing and allowing the use 

of nondiscretionary bonuses. Quite the contrary, most companies select the discretionary 

bonus, which doesn't tell the employee what they have to do or what they will receive. 

 This Congress has made modifications to the Fair Labor Standards Act over time 

to change the incentive approach, the most recent being with the stock options. It is now 

time for this Congress to take that next step to recognize the need for nondiscretionary 

bonuses that are not included in the overtime rate and pass H.R. 1602. 

 Thank you, and I am open for my questions that the Committee might have. 
14

WRITTEN STATEMENT OF LEONARD COURT, SENIOR PARTNER AND 

CHAIRMAN OF THE LABOR AND EMPLOYMENT LAW SECTION, CROWE AND 

DUNLEVY, OKLAHOMA CITY, OK, ON BEHALF OF THE U.S. CHAMBER OF 

COMMERCE, WASHINGTON, D.C. – SEE APPENDIX E 

Vice Chair. Thank you, Mr. Court. 

Now we will turn to questions by the Committee members; and, in fairness, we 

will also watch the clock. So each of us will limit our questions to 5 minutes. And I 

think since we have the sponsor of H.R. 1602 here with us that I will yield to Mr. 

Ballenger of North Carolina to open the questioning. 

Mr. Ballenger. I have a question for Dr. Fay, because every year we run into the same 

thing. This is the third time I have run this bill, and it is obvious from your testimony, 

that you have studied and developed several pay plans that are in use in companies. Is 

that correct? 

Dr. Fay. Yes. 

Mr. Ballenger. We heard Mr. Leibig say that H.R. 1602 would not prevent an employer 

from reducing an employee's wage down to the minimum wage and designating the rest 

of the employee's earnings as gainsharing. Do you agree with this position? 

Dr. Fay. No, I do not. In fact, given the language of the bill, it would be impossible to 

do. The bill states that the plan has to be in writing, made available to employees, and 

provide that the amount of payments to be made under the plan to be based on a formula. 

 All gainsharing plans operate from formulas. They are fairly complex formulas, 

and they require having a gain so that a share is paid out. They require that there be a 

reduction in the ratio of labor costs to total costs or labor hours to total costs of 

production. And to rig that in such a fashion that you come out anywhere close to a 

market rate using the formula, would be pure luck. The amount of gainsharing payout is 

going to be determined by the gains that are made; and, again, I would like to stress these 

gains are a function of working smarter, not harder. It is just impossible to be able to rig 

it in that way. 

 I might also note that, in connection with this, while there are an awful lot of 

plans that are cited as being gainsharing or performance-based systems of one kind or 

another, there is no evidence in these, and I am familiar with the Hewitt Associates study. 

I might have a performance-based pay system bonus for mid-level managers, and I would 

end up with 47 percent of people, so that many of the bonus plans that are cited here do 

not really apply to nonexempts. 

 The one exemption is in the steel industry, by the way, because a union rep in the 

steel industry invented gainsharing. The first gainsharing plan was developed by Joe 

Scanlon, who was a union rep for a steel mill that was about to go belly up; and he argued 

successfully that it was necessary for both management and employees to figure out how 

to work smarter so they could stay in business. He and his union force would be willing 
15

to do that, provided that the gains that they created would be shared. That spirit is still 

the spirit in every one of these incentive programs. 

Mr. Ballenger. I would like to ask Mr. Leibig a question. Let me give you an example 

of a case that I know actually existed. 

 A company was trying to figure out a way to make better profits and decided that 

they would offer bonuses to the employees based how much they reduced their waste 

factor at the end of the year. Now, according to you, you are going to be able to figure 

out how far down to reduce your pay so that you can get this thing to come out where 

they are just working for the minimum wage. 

 But in this particular case, you get to the end of the year and have two different 

plans. One of them didn't get below. They picked a figure, 10 percent. Ten percent is 

what our waste is running this year. You have got to beat that next year. If you do, we 

will base the bonus amount of money, say, for each quarter of a cent below, you give 

them $5,000 to divide up. So the other branch of the company actually cut their waste 

down to 9 percent. So there are 4 quarters. That is $20,000. And you divide it back to 

them on the basis of their time. 

 In the plant I am using this as an example you have 10 workers. Two of them 

work for $10 an hour. Two of them work for $11 an hour. Two of them work for $12 an 

hour. Two of them work for $13 an hour. Two of them work for $14 an hour. The first 

one works 2,200 hours in the year. The second one works 2,100 hours a year. The third 

one works 2,000 hours a year. The fourth one works 2,050 hours a year. The fifth works 

2,075 hours a year. Now, how are you going to get the minimum down so you can cheat 

the kid out of anything he has earned; how are you going to figure that? Even with a 

computer, I would dare you to do it. 

Mr. Leibig. Well, first of all, under one of the options where you can take how many 

hours they worked overtime over the year, none of those people worked over 2080 hours 

a year.

Mr. Ballenger. No, no, no. You are wrong; 2,200 hours, 2,100 hours, and 2,075 hours.

Mr. Leibig. Some of them did and some of them didn't? 

Mr. Ballenger. Some of them didn't, yes. So how are you going to divide it up? 

Mr. Leibig. First, you just calculate the bonus you want to pay. And I assume from your 

example that it comes out to be a percentage of their overall pay. 

Mr. Ballenger. No, sir. 

Mr. Leibig. It is a percentage of how much they get paid? 

Mr. Ballenger. It would based on what they get paid, yes. 
16

Mr. Leibig. Right. So if the person made $20,000 and they did enough savings, they 

might get a 5 percent bonus or 10 percent bonus. 

Mr. Ballenger. How am I going to get him down to the minimum wage, then? 

Mr. Leibig. Well, first let me say how you would calculate it without a lot of 

complications. 

Mr. Ballenger. No. The basic point is you are getting the wages down to the minimum, 

but you are figuring this at the end of the year. The bonus comes out after they have 

finished the year. 

Mr. Leibig. No, no. That’s two different questions. Right now, if that company had to 

pay the bonuses under the Fair Labor Standards Act that was a percentage of the people's 

salary, all they would have to do is take the number of hours they worked overtime, the 

amount it was, and take that same percentage and pay that. So, first of all, they could 

calculate it. 

However, that company that you just described could, if they wanted to, just 

develop a written pay plan that says our employees' base salary is now whatever the 

minimum wage is. That would be legal. 

Mr. Ballenger. Have you ever tried to hire anybody now at minimum wage? 

Mr. Leibig. Well, wait let me finish. But you wouldn't pay them at minimum wage, 

because you would say, we are also going to pay you so much more and we are going to 

designate that as a bonus and that could be $50,000. 

Mr. Ballenger. What you have done then is tell this employee that you are going to pay 

him $5.75 an hour. 

Mr. Leibig. No, no. 

Mr. Ballenger. You just said it, minimum wage. 

Mr. Leibig. No, I didn't say that. 

Mr. Ballenger. So you will agree that you are going to pay $5.75 an hour. Of course, 

you are not going to have any employees. 

Mr. Leibig. No that is not what you are going to tell him. You are going to tell him your 

base is only $5.75 an hour, but really you are going to be paid whatever you are going to 

be paid under the bonus. 

Mr. Ballenger. Of course, you are saying I am a crook to start with, so how in the world 

are you going to get anybody to work for you? 

Mr. Leibig. No, you are not a crook, because this bill specifically allows that. 
17

Mr. Ballenger. It doesn't make any difference whether they allow it. You know a crook 

and I know a crook when we see one. 

Mr. Leibig. Well, it would be legal. 

Vice Chair Biggert. The gentlemen's time has expired. 

Mr. Leibig. It would be illegal to do that, though. 

Vice Chair Biggert. Does the distinguished gentleman, the Ranking Minority Member, 

Mr. Owens, have questions? 

Mr. Owens. I have some friends from Israel who say that some of the mathematicians 

that have come to Israel from Russia are capable of solving any problem with what they 

call arrogant logarithms. It sounds like we need an arrogant logarithm here to deal with 

this.

 Mr. Leibig, would H.R. 1602 prevent an employer from paying an attendance 

bonus? 

Mr. Leibig. Prevent an employer from paying attendance bonus? It wouldn't prevent it 

if the employer wanted to pay it. 

Mr. Owens. So it would be both lawful and easy for an employer to convert a $20-anhour wage to, say, a $6-an-hour wage and pay a $14-per-hour bonus, correct? 

Mr. Leibig. Right. Right. And then they would only have to pay overtime on the figure 

that wasn't the bonus. That is correct. 

Mr. Owens. Now, Dr. Fay said that you and I are both mistaken when we say that H.R. 

1602 permits employers to convert wages into bonuses. Would you care to respond? 

Mr. Leibig. Well, all I would say is that I do think that the Committee staff did work on 

some language that I understand was an effort to do that, and if you look at what the 

language actually says, it says that the plan has to be in writing. Fine, you could write up 

what you said. It has to be communicated to the employees. That is fine. You could 

communicate to the employees. And then it says it has to be established and maintained 

in good faith. An employer could put the plan in your favor of good faith. 

 For the purpose of distributing an employee's additional remuneration, that would 

be the attendance bonus additional remuneration, and it has to be above the wages that 

are not dependent on the plan, which the part of the wages that they would designate are 

not dependent on the plan. 

 This bill authorizes exactly what you just described as a way of reducing the 

overall overtime costs which have all the attendant consequences, both you and your 

statement and that I mentioned before. So clearly there is nothing in the bill that would 

prevent that. In fact, it seems to say it is okay, as long as it is in writing, communicated 

and meets the standard of being accomplished in good faith. And I am assuming it is 
18

good faith for an employer to say I am good in faith because I want to make my company 

be more efficient and have gainsharing for all the good reasons that I have gainsharing.

The bill assumes that. 

Mr. Owens. You cited some authorizations that support your position. Could you read 

those again? 

Mr. Leibig. Sure. First, the AFL-CIO and a number of unions that I mentioned, the steel 

for instance. One of the main unions that I am the general counsel of is the Police Union. 

We did a survey and over half of the police officers in the United States already get 

bonuses that meet the definition that are included in their overtime rate now. 

After this bill passes, most employers that I am aware of will take them out of the 

overtime rate. So police officers will get 50 percent reduction in pay as a result of this, 

because they usually do work overtime and they would get a reduction, and the AFL-CIO 

affiliated unions. 

 Also, I teach at Georgetown Law School, and, as I said, I myself have been 

involved in a number of FLSA enforcement cases in all the courts. In three cases in the 

Supreme Court and Courts of Appeal in all situations the employees favored including 

the bonuses in the regular rate. And I would note there are no employees here that 

support the bill or that testified in favor of the bill. They are all employer representatives. 

Mr. Owens. Ms. Thomas, you said people who work overtime would get the largest 

bonuses. Can you explain what point you were making there? 

Ms. Thomas. When you add overtime into your bonus formula or you base your formula 

on a percentage of wages, you count base salary for those who are exempt and you count 

base salary plus overtime for those who are not exempt. Then the bonuses, as a result of 

the overtime being factored in, can be larger for those who do have a significant amount 

of overtime. 

Mr. Owens. Under this bill they would get larger bonuses than they would under the 

existing law? 

Ms. Thomas. As the law exists today, that is an issue. 

Mr. Owens. And do you contend that computing all this is very difficult? 

Ms. Thomas. I don't contend that computing a bonus where you merely multiply a 

percentage by salary or salary plus overtime is difficult. 

A plan that is based on performance that may extend over a quarter or a calendar 

year before the bonus is determined and then you have to go back during the period of 

time for which the bonus covered performance and recalculate overtime, I believe that is 

very difficult, yes. It is a manual calculation. If you talk to human resource professionals 

who are in charge of payroll, and the two major payroll companies that handle payroll for 

a lot of companies in the United States they will tell you that this is not a simple process. 
19

It is not an automated process. There is a great deal of time involved. 

Mr. Owens. Well, you can refer them to Mr. Leibig, who said he would do it for free. 

Thank you. 

Vice Chair Biggert. Thank you, Mr. Owens, and I think I will take my turn right now 

and ask a question of Mr. Court. We are about to have a vote, but we will continue for as 

long as we can and then go vote. 

Mr. Court, would you explain the differences in treatment of discretionary 

bonuses under current law from bonuses based on productivity gains, and do you think 

we should continue this distinction? 

Mr. Court. No, Madam Chairwoman, I don't. Discretionary bonuses are not included in 

the overtime calculation. 

 I would suggest, for instance, consistent with Representative Owens' statement 

that we have been paying bonuses for over 40 years and most of those have been 

discretionary bonuses. The problems with them are that they give no predictability and 

no guarantee to the employees. You don't know what you have to do to get them. You 

don't know how much you are going to get. They are left to the employers' discretion at 

the end of the year. 

 The nondiscretionary bonus, as this Committee knows, is figured very differently 

under the current law. And because of that treatment, as the other witnesses have 

indicated, I suggest there is a disincentive to give that kind of bonus. 

 The other aspect, if I can digress just a second, is the enforcement issue and this 

claim for change. Let me point out that certainly, at least in the unionized sector of our 

economy, if I as an employer were to try to make the kind of change that is being claimed 

here unilaterally, I have no doubt Mr. Leibig would have an (8)(a)(5) unfair labor practice 

charge in the National Labor Relations Board's hand immediately. I can't make that 

unilateral change in wages, hours and working conditions under an existing collective 

bargaining agreement. 

Vice Chair Biggert. Based on your experience and those of your clients, how important 

are productivity incentive programs in motivating and retaining employees? 

Mr. Court. I think my clients certainly believe that productivity-based bonuses are very 

important. They want to have more latitude to use them. They are, however, reluctant to 

enact them because of the problems we have talked about, not only in retaining 

employees but also in getting better employees. 

Vice Chair Biggert. Ms. Thomas, with your testimony, you attached a survey of 

employers in Texas on performance-based gainsharing. Can you tell the one or two 

really important findings from that survey? What do you really look at when you see the 

survey? 
20

Ms. Thomas. Yes, ma'am. We surveyed members of SHRM chapters in Texas and also 

members of the Texas Chamber of Commerce to find out what they were doing with 

respect to bonuses. We had 321 respondents to the survey. Sixty percent of those 

companies do provide performance bonuses for their employees in one form or another. 

Forty-two percent of the companies that do provide that type of arrangement exempt or 

exclude their nonexempt employees. 

 We asked if the distribution was based on the Fair Labor Standards Act 

requirement that overtime be included in those bonuses, and 52 percent of the companies 

that exclude their nonexempt employees said that it was the factor. There were a few 

companies where the response was they were unaware of what the basis for the decision 

was, but a significant number do exclude the nonexempt employees because of the issue 

of overtime recalculation. 

 We also asked those who do include their nonexempt employees about plan 

administration and their experience with that. Only 13 percent said that the plan was 

either simple or very simple to administer. Most of them said it was very difficult, and 

they cited the recalculation as the issue. 

Vice Chair Biggert. Then based on your work with various employers, what level of 

cash bonuses do employees typically receive in gainsharing plans? 

Ms. Thomas. What we are seeing is that employers are trying to increase the amount of 

bonuses that they are paying, because it makes more sense to pay a larger performance 

bonus if you are going to motivate someone to increase productivity rather than to pay a 

discretionary bonus. So we are starting to see bonuses become a more meaningful 

component. 

 For someone who is not at a management level, we have seen target bonus 

amounts ranging from 5 percent, 10 percent, 15 percent, depending on the philosophy of 

the company. But we are seeing those percentages increase for companies that want to 

put in bonus plans. 

Vice Chair Biggert. My time is about to expire, so I think I will turn to Ms. Woolsey. 

Ms. Woolsey. Thank you. Thank you, Madam Chairman. Thank you, panel. 

 My background before Congress was in human resources management for 10 

years with a high-tech electronics company of over 800 that started with 13 people when 

I joined them, and then 10 years as human resources consultant. So I come from a 

different perspective than most of the panel. 

 It was our philosophy at the company that I worked for that the employees who 

contribute the most generally earn the most and generally receive the largest bonuses.

Hence, it wasn't in our best interest to be picky about how much they got over how much 

they didn't get when what we were trying to tell them was job well done. 
21

I don't see how what we are talking about ever works for the employee. What do 

we care about? I know, tax-and-spend Democrat you are probably thinking, the Chamber 

of Commerce and things like that. It doesn't matter. You have to think about the 

employee. What if they sat here and listened to you talking about how they weren't worth 

setting up a computer program that might be a little difficult? So what if it is not simple? 

Do it. Make it work for the people that work for you, and let them gain by their 

contribution to your organization. 

 There. That is my lecture. You have all heard it before. But I just for the life of 

me cannot believe why business or we must think they are going to benefit so greatly by 

doing in that employee, and that somehow the employees aren't going to get it. I can't see 

how it could possibly be. 

 I would like to ask Mr. Leibig the same question that was asked earlier. Under 

H.R. 1602, from your perspective, could an employer pay employees a bonus instead of 

wages? 

Mr. Leibig. Well, they would have to pay the minimum wage, but, above the minimum 

wage, the employer can designate under the bill, as long as he has a written plan the 

employers know about and it is in good faith whatever part of wages they want as a 

bonus and whatever wages they want as the base. The base would have to be the 

minimum wage, of course. But, beyond that they could do whatever they wanted to. 

Ms. Woolsey. But which is more secure, the wage your job and your talents equal or 

minimum wage, and maybe a bonus, maybe not, depending on your contribution? 

Mr. Leibig. To be perfectly honest with you, most of my experience in this recently has 

been with police officers. And I have got to tell you, police officers want the guarantee, 

but they also favor bonuses. They already get bonuses that are included in the overtime 

rate. If this bill passed, they would then get bonuses that aren't included in the overtime 

rate, and that would reduce their overall pay. So, obviously, they want more pay. 

 I would like to say that employees would like to have all their pay in the base and 

none in bonuses, but my actual experience is that we have nothing against bonuses when 

they are calculated as nondiscretionary bonuses. And I do agree, discretionary bonuses 

are often given, but the problems pointed out logically make sense. 

If it is a discretionary bonus, you don't know what it is. If it is a nondiscretionary 

bonus, you do know what it is. You can rely on it, and you actually can easily calculate 

how much it is going to be and how much it is going to increase your overtime. So I 

think both motivate them. 

But the biggest danger of the bill I think is that, immediately upon passage, any 

employer who is trying to minimize their cost under the Fair Labor Standards Act would 

be motivated, especially in policing where a lot of them aren't covered by collective 

bargaining, to reissue a plan that designates a portion of the employee's bonuses that used 

to be in the base rate. Why wouldn't they do it? The bill says they can do it if they are in 

good faith, and so I think they can do it when you get a reduction in pay. 
22

Ms. Woolsey. Does H.R. 1602 make the workplace more or less family friendly? 

Mr. Leibig. Well, obviously, you can debate about that, but I think it makes it less 

family friendly for a couple of reasons. The base pay could go down. The pay that the 

management controls goes up. 

 For instance, there is some talk about how do you make the workplace more 

flexible. If you have a workplace that is more flexible, where people have more say over 

working different hours and stuff, it is obviously to their advantage as they flex their 

hours if they work more time and get more; and if they work less time they sacrifice it. 

So I think it is family friendly. 

 The bill does damage to family, but in the current system it is family friendly 

because it would reduce take-home pay. It would also be a motivation to increase hours 

because it would cost less for each overtime hour so there would be pressure to increase 

the length of the work week, have employees work longer hours rather than to hire a new 

employee, because each hour of overtime would be cheaper. 

Vice Chair Biggert. The gentlewoman's time has expired, and we have to vote. So I 

would like to thank the witnesses, and if there is no further business, the Subcommittee 

stands adjourned. 

Whereupon, at 2:34 p.m., the Subcommittee was adjourned. 
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Table of Indexes 

Mr. Ballenger, 14, 15, 16, 17 

Mr. Court, 19 

Mr. Culberson, 4 

Mr. Fay, 14 

Mr. Leibig, 10, 15, 16, 17, 18, 21, 22 

Mr. Owens, 17, 18, 19 

Mrs. Biggert, 1, 4, 5, 7, 10, 11, 14, 17, 19, 20, 22 

Ms. Thomas, 18, 20 

Ms. Woolsey, 20, 21, 22