[Congressional Record Volume 145, Number 156 (Monday, November 8, 1999)]
[Senate]
[Pages S14287-S14288]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mrs. HUTCHISON (for herself, Mr. Nickles, Mr. Brownback, Mr. 
        Voinovich, Mr. Ashcroft, Mr. Craig, Mr. Enzi, Mr. Thomas, and 
        Mr. Helms):
  S. 1878. A bill to amend the Fair Labor Standards Act of 1938 to 
provide that an employee's ``regular rate'' for purposes of calculating 
compensation will not be affected by certain additional payments; to 
the Committee on Health, Education, Labor, and Pensions.


                      bonus incentive act of 1999

  Mrs. HUTCHISON. Mr. President, I rise today to introduce the Bonus 
Incentive Act of 1999. I am joined in introducing this bill by my 
colleagues, Senators Nickles, Brownback, Voinovich, Ashcroft, Craig, 
Enzi, and Thomas. This important legislation will give America's hourly 
wage workers the same ability to receive performance-based bonuses that 
salaried employees currently have.
  Mr. President, under the Fair Labor Standards Act, employers who give 
performance-based bonuses (usually at the end of the year) must go back 
and recalculate each employee's hourly base rate of pay and thus any 
overtime pay they received must be adjusted accordingly. Often, the 
employer must spend many hours of accountants' time for relatively 
minor adjustments in overtime pay.
  This unnecessary and overly burdensome requirement discourages many 
employers (those who even know about this obscure provision) from 
providing a performance-based bonus system to their hourly wage 
employees, while salaried or ``exempt'' employees can enjoy such 
bonuses. Other employers attempt to comply with the law by 
reclassifying bonuses as not being performance-based. The net result of 
this law has been to hamper the productivity of the American worker and 
to trap unwary employers with unnecessary paperwork and even fines.
  My legislation, the companion of which has been passed by the House 
Education and Workforce Committee, would allow performance-based 
bonuses to be paid to employees without the need to recalculate 
overtime pay, provided that employees are made fully aware of the 
requirements of receiving such bonuses and provided that such bonuses 
are not used as a substitute for hourly pay.
  Mr. President, when the Fair Labor Standards Act (FLSA) was enacted 
in 1938, over 60 years ago, employers typically rewarded only their 
management personnel for the level of their achievement with 
performance-based bonuses. Such bonus programs for employees were very 
rare. But times have changed, and so has the American workplace. With 
the rise of the service-sector, post-industrial economy, increased 
competition from overseas, and the growing importance of workplace 
productivity and efficiency, ``gainsharing'' and other performance-
based bonus programs for workers are commonplace.
  Such programs are as varied as they are common. The model that comes 
first to mind is a bonus based on the number of items a factory worker 
produces in a month, quarter, or year. But gainsharing programs are 
equally effective in the service sector. Pam Farr, former senior vice 
president for Marriott Lodging and now president of the Cabot Advisory 
Group, recently testified before the House Education and the Workforce 
Committee that Marriott used gainsharing plans for housekeeping and 
customer service personnel that rewarded employees for the cleanliness 
of rooms, and customer service evaluations. Cordant Technologies, which 
makes solid rocket boosters for the space shuttle, rewards its workers 
for achieving goals involving workplace safety, customer satisfaction, 
and indirect cost reduction.
  Whatever type of gainsharing arrangement an employer may have, there 
can be no doubt that these programs increase workers' pay, 
productivity, and contribute to higher customer satisfaction and better 
workplace relations. Studies have demonstrated that employees who 
participate in gainsharing arrangements on average receive about 5 to 
10 percent more pay from such participation, and many bonus programs 
allow employees to increase their base pay by as much as 50 percent.

  Employees who participate in these programs also report being more 
satisfied on the job and to have a more positive attitude toward their 
employer. A 1981 survey by the General Accounting Office found that 
over 80 percent of firms they interviewed reported improvements in 
labor-management relations from such programs. Grievances in such 
companies dropped 50 percent, and absenteeism by 20 percent when 
gainsharing was offered to workers.

[[Page S14288]]

  Unfortunately, the majority of performance-based bonus programs are 
offered only to one segment of the American workforce: those employees 
who are salaried and therefore ``exempt'' from many of the strictures 
of the Fair Labor Standards Act. The other 70-plus million Americans 
who get paid by the hour are precluded from fully participating in 
these programs. Why is this? If performance bonuses work so well, why 
aren't they offered to more hourly wage workers?
  The answer is that the 61-year-old FLSA requires that when such 
bonuses are provided to hourly workers, the employer must then re-
calculate each employee's ``regular rate'' of pay, which in turn 
requires a recalculation of worker's overtime pay. This process of 
recalculating employee overtime can consume substantial administrative 
time, often for very little in the way of additional overtime pay. One 
human resources director testified before Congress that it took four 
people 160 hours to calculate the bonuses for 235 employees.
  This requirement can be particularly burdensome for many of the 
nation's millions of small businesses that may not have computer 
hardware and software that can run these types of calculations. For 
employers who must try to do these calculations by hand, it can be such 
a headache that the employer will either drop the bonus program 
altogether or simply ignore the law, both of which are obviously 
undesirable outcomes.
  The Bonus Incentive Act I am introducing today will alleviate this 
unnecessary and counterproductive requirement, and allow all employees 
to participate equally in gainsharing programs. In fact, by extending 
these programs to hourly wage employees who, on average, make less than 
their salaried counterparts, this bill could be a significant shot-in-
the-arm to their take home pay. The Employee Policy Foundation reports 
that a median wage U.S. worker could earn between an additional $17,000 
and $26,000 over a 20-year period by participating in a performance-
based bonus plan.
  Why would anyone oppose this bill, Mr. President? It is good for 
employers and employees alike. It means less paperwork and more pay, 
less bureaucracy and more productivity.
  Some have raised the concern that employers may somehow attempt to 
disguise regular hourly pay as gainsharing bonuses. While it would take 
a very ambitious employer to make such a scheme profitable, 
particularly considering the impact such conduct would have on employee 
morale, there are protections in the bill against such a possibility.
  First, the employer must provide all employees, in writing, a 
detailed description of what the requirements and benefits of the 
gainsharing plan will be. The actual formula by which the bonus is to 
be calculated must also be spelled-out. There can be no doubt about 
what the employee would be required to do and what he or she would 
stand gain.
  Second, the employer is absolutely prohibited from using a 
performance-based bonus to in any way replace the hourly wage pay the 
employee would otherwise have received. In fact, the bill requires that 
the plan be ``established and maintained in good faith for the purpose 
of distributing to employees additional remuneration over and above the 
wages and salaries that are not dependent upon the existence of such 
plan.'' If an employer should violate this and, for example, but 
workers pay and substitute that for bonus pay, that employer would be 
subject to the same civil and even criminal sanctions as he would for 
any violation of the Fair Labor Standards Act, which is vigorously 
enforced by the U.S. Department of Labor's Wage and Hour Division.
  But the truth is, Mr. President, that there is very little reason for 
employers today to abuse this provision, and every reason in the world 
to use it for the betterment of employees and to the long-term success 
of the company. If the tremendous economic revolution and growth we 
have witnessed in the last two decades has taught us anything, it is 
that wealth is not a zero-sum game. Our economy continues to outstrip 
that of the rest of the world not because we have more natural 
resources: other countries have more oil, gold, timber, and other 
resources than we. It is because the productive capacity, ingenuity, 
and entrepreneurship of the American people is allowed to flourish 
under our system.
  Outdated laws such as this must be revised if we are to continue to 
enjoy the growing fruits of our labor. The Bonus Incentive Act will 
help accomplish this goal, and I urge my colleagues to support and pass 
it.
                                 ______