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Instructions

Write a letter to the current United States President, and put forth arguments regarding why you support or are against an increase in minimum wage. In your letter, discuss whether managers should be given a higher minimum wage or be paid overtime. Address what the minimum weekly salary should be for bona fide executives, administrators, or professionals. 

Your letter should be at least one full page/ All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying APA style citations. Draft the letter using proper, formal letter writing format. Must use the attached template

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  • Inside addresses
  • Formal greeting
  • Introduction
  • Purpose for the letter
  • Rationale for your request and research to support your opinion and ideas
  • Respectful appreciation for the president taking the time to consider your suggestions
  • Formal closure including your name

THE IMPLICATIONS OF INCOME INEQUALITY W ith more Americans turning their attention to the disparity between executive and

employee pay and the fight to raise the minimum wage, organizations increasingly

find themselves exposed to a wide range of reputational and financial risks.

by Will Kramer

NIGEL TRAVIS IS THE CHAIRMAN AND CEO OF DUNKIN’ BRANDS, THE PARENT COMPANY OF DUNKIN’ DONUTS AND

Baskin-Robbins. And as of his July appearance on CNNMoney, where he commented on the news that New York’s Wage

Boaid recommended that fast tood workers earn S15 per hour, he is also an internet merne. A picture of Travis has circulated on

social media with the caption, Dunkin Donuts’ CEO says S15 an hour is outrageous.’ He makes 84,889 an hour.”

Several articles in major newspapers have also criticized Travis with headlines like Dunkin’ Donuts CEO tone deaf on mini­ mum wage” in The Boston Globe and “Dunkin’ CEO says raising minimum wage to $i5-per-hour is ‘absolutely outrageous’…as he lives in mansion and makes $10 million per year” in the Daily Mail. Seattle Times columnist Jon Talton went so far as to call Travis “the best advocate for the $15 minimum wage,” writing that “when high-paid executives get hysterical about improving the pay of their workers, it doesn’t help their case.”

Nigel Travis is not the first corporate leader to be targeted by advocacy groups and the media for a compensation package that dwarfs those of the company’s workers, and he certainly won’t be the last. In August, the Securities and Exchange Commission adopted a final rule that will require every public company to disclose the ratio of their CEO ’s total compensation compared to that of the organization’s median worker. Although the rule does not go into effect until the fiscal year beginningjan. 1,2017, its adoption has already drawn concern throughout the business

community. Considering the uproar stemming from Travis’ brief commentary on a proposed minimum wage increase, cor­ porate leaders must assess all o f the risks that can stem from the increasing focus on income inequality.

THE CONTEXT OF INCOME INEQUALITY W H IL E t h e United States has always been an economically unequal society, most economists agree that inequality has been increasing since the 1970s. According to the Economic Policy Institute, a nonprofit and nonpartisan think tank, the CEO-to- worker compensation ratio was 20:1 in 1965 and grew steadily to almost 296:1 in 2013. Meanwhile, Emmanuel Saez and Gabriel Zucman, economic researchers at the University of California, Berkeley, found that the share of all wealth owned by the richest 0.1% of Americans has grown from 7% in 1978 to 22% in 2012.

22 November 2015

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Until recently, many Americans seemed not to know or care about the growing divide in income and wealth. Even at the height of the so-called Great Recession in 2009, only 47% of Americans polled by Pew Research agreed that there were “very strong” or “strong” conflicts between the nation’s rich and the poor. By late 2011, that figure had grown to 66%. Since then, income inequality has become a regular topic of political debate and public discourse.

Many observers attribute the increasing focus on wealth and economic inequality to the Occupy Wall Street movement that began in New York City’s Zuccotti Park in September 2011 and spread to cities and towns across the country. Although the protestors were derided at the time for not outlining a clear platform of demands, their efforts to provoke public discussion about income inequality and the divide between the 99% and the 1% has had a lasting impact.

Less than a year later, in November 2012, approximately 200 fast food workers in New York went on strike, demanding a $15 minimum wage in what was then the largest labor action in the industry. The “Fight for 15” movement grew from there, hold­ ing strikes and walk-outs, filing lawsuits over wage theft, and generally keeping the issue of income inequality prominent in the media. On April 15, 2015, roughly 60,000 workers in more than 200 cities across the United States took part in the largest coordinated protest by low-wage workers in history. By then, the movement had grown beyond the fast food industry to include home-care workers, child-care staff, security guards and anyone who earned less than what they considered to be a living wage.

As of mid-2015, Seattle, San Francisco and Los Angeles have begun phasing in a $15 minimum wage. Democratic presidential candidate Sen. Bernie Sanders introduced Congressional legisla­ tion to raise the federal minimum wage to $15 per hour. W hat was once considered inconceivable has become more and more commonly accepted as a necessary and even moral imperative for many American businesses.

THE RISKS OF THE PAY RATIO DISCLOSURE RULE A RECENT online presentation by business law firm Dorsey & W hitney LLP and Cam Hoang, senior counsel and assistant corporate secretary at General Mills, examined many of the risks public companies face as a result of the SEC’s new pay ratio disclosure rule. At the most obvious level, Dorsey & Whitney predicts that companies with high ratios between CEO and median worker pay may see negative consequences related to media coverage and public relations. The compensation for the CEOs of public companies is already disclosed in SEC filings,

and such disclosures have led to negative attention for companies with highly-compensated executives. For example, the AFL-CIO reports that one of the most highly-trafficked sections of its web­ site it its Executive PayWatch page, which names the 100 most highly-compensated CEOs in America alongside testimonials from low-wage workers at their companies. Similarly, California- based nonprofit As You Sow recently published a report entitled The 100 Most Overpaid CEOs: Executive Compensation at S&P 500 Companies. Apart from potentially influencing public opin­ ion, the AFL-CIO, As You Sow and like-minded organizations also lobby institutional investors, such as mutual and pension funds, to closely examine executive compensation data for their stock holdings as a measure of shareholder value. This attention will only increase as information about the relative compensation of public companies’ median employees becomes public.

Beyond the public relations implications, Dorsey & Whitney also noted potential employee-related issues for firms with low median employee pay, such as reduced morale and a negative impact on hiring and retention. While pay is often a taboo sub­ ject among co-workers, disclosing the median compensation for workers at any firm will inevitability lead employees to compare themselves against that measure. Particularly for those who fall below the median, this information may hurt morale and pro­ ductivity, and even lead some to seek employment elsewhere if they feel the median compensation is too low to justify putting more time and effort toward moving up in the organization. Conversely, morale may be boosted among those employees who are paid above the median thanks to their improved understand­ ing of their value within the organization.

Finally, it remains an open question how the public will be affected by this information. In a recent working paper, Harvard Business School researchers Bhavya Mohan, Michael Norton and Rohit Deshpande found in six separate studies that pay ratio disclosure can indeed affect the intentions of consumers. Given an informed choice, they found consumers would prefer to pur­ chase from firms with relatively low CEO-to-median-workerpay ratio such as 5:1 or even 60:1, as opposed to firms with high ratios such as 1000:1. Lower CEO-to-median-worker pay ratios also improved consumer perceptions of products at different price points as well as their ratings of the firm’s warmth and compe­ tence. Further, the researchers found that firms with a high CEO- to-median-worker pay ratio must offer a 50% price discount to achieve the same customer satisfaction that a firm with a low ratio achieves at full price.

From negative publicity to reduced investor stock valuation, and from reduced employee morale to diminished customer opinion, it appears that the increased social focus on income inequality from the SEC’s pay ratio rule may have significant potential risk management implications for public companies.

24 N ovem ber 2015

MITIGATING PAY RATIO DISCLOSURE RISKS GIVEN THAT the ever-increasing disparity between executive and worker pay is such a widespread phenomenon, risk managers at individual companies might be at a loss to imagine what they alone can do to address the issue. Fortunately, experts in the field have already begun to weigh in.

Eleanor Bloxham, founder and CEO ofThe Value Alliance, an advisory firm for multinational public companies and pri­ vate start-ups, provided a comment letter to the SEC support­ ing the pay ratio disclosure rule as an important development for both investors and companies. She acknowledged the risks of the new rule for public companies, but also suggested its implementation could be an opportunity for corporate leaders to reexamine their compensation strategies for the long-term benefit of their employees and shareholders.

Because the SEC rule requires the calculation of total com­ pensation including benefits, Bloxham suggested that com­ panies could increase employee stock ownership as a method to boost the compensation of the median worker. Even more important, she said, corporate leaders need to begin to under­ stand how their employees actually live in order to better inform decision-making about compensation.

One unconventional way to increase this understanding would be to take a note from the Undercover Boss television show where executives work alongside low-level employees, Bloxham said. In her experience, too many companies have gotten away from the age-old strategy of “management by walking around.” Crucially, she noted, “communication at the workers [regarding compensation] is not going to get anywhere. Instead, we need communications that begin with understanding and learning from the workers, and with the workers.”

For a company with a higher CEO-to-median-worker com­

pensation ratio, there is no easy answer to how it will mitigate the risks to its reputation, stock value, employee morale and customer opinion. One thing risk managers can agree upon is that the time to begin addressing these issues is now, rather than in 2017.

THE BROADER IMPLICATIONS FOR ALL ORGANIZATIONS PERHAPS THE greatest risk to American organizations regard­ ing income inequality is the greatest unknown: How far will the public take its concern? W hat began as the rallying cry of an encampment of disenfranchised people in New York City has gone on to propel one of the largest labor movements in recent memory and has imbedded itself into the consciousness of Americans of all races, classes and creeds. The unfairness of the current economic system is no longer just a discussion topic in universities and coffee shops, but in factories and on the streets of every American city.

W hile the SEC’s pay ratio rule only directly impacts public companies, privately-held organizations should consider the likelihood that their stakeholders and customers may begin ask­ ing for this information as well. As the Fight for 15 movement continues to have success, employers offering less to their work­ ers may rightly wonder how that decision will affect their repu­ tation in their communities and among their own employees.

All indications are that discussions around income inequal­ ity and specific proposals such as the $15 minimum wage will only increase as the 2016 election season ramps up. Corporate leaders must therefore begin intentionally addressing the related risks, or risk joining D unkin’ Brands’ Nigel Travis in the world of internet infamy. ■

Will Kramer CPCU, A R M -E , A R M -P , is an independent risk management

consultant and writer.

Risk Management 25

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Your Name

Your Address (or the address of your organization if applicable)

City, ST

Today’s Date

Addressee (who you’re sending the letter to)

Their title (if applicable)

Their organization (if applicable)

Their address

City, ST

Dear Mr./Ms. Their Last Name: (use To Whom It May Concern if you do not know the addressee’s name)

Do not indent the first line of your paragraphs in a business letter. Generally, a business letter will have

three paragraphs: the first introduces your purpose, the second offers more details, and the third offers

closing comments and opportunities for further communication. The first paragraph of your letter is your

chance to introduce yourself and state the purpose of your letter (Example 1: My name is John Doe, and I

am writing to apply for the position of Assistant Financial Manager as advertised on your company’s

website. Example 2: My name is Jane Smith, and I am writing to express my extreme

pleasure/disappointment with my family’s experience at your establishment last weekend.) You can offer

some general context for your purpose, but you should not go into great detail in this first paragraph.

The second paragraph is the most detailed. In this paragraph, you should state your case, essentially. If

you are writing to apply for a position, tell your reader of your qualifications, experience, relevant history,

etc. Where you can, offer specifics; if you are applying for a teaching position, instead of simply telling

your addressee that you have experience teaching grades K-12, tell your addressee how several of your

classroom policies were adopted as standards by your department. If you are submitting an application in

any form, remember that the committee/manager probably has to read through letters from many different

applicants, and you want your letter to stand out. If you are writing a letter to praise/criticize an

organization’s goods or services, offer the details of your experience: answer the who, what, when, and

where. Did you receive service at a particular branch or location? Did a specific associate assist you?

Were there any extenuating circumstances particular to your experience? This will probably end up being

the longest paragraph of your letter, or, if necessary, you can split the paragraph into two smaller

paragraphs.

Your third paragraph should wrap up your letter by briefly restating your purpose and its importance. You

should thank your reader for their time and offer your hopes for the outcome of your letter (that you get

chosen for a desired position, that a grievance is resolved, that a particularly helpful employee is praised,

etc.). Finally, offer your reader a way to contact you in case they need more information, want to follow

up, or set up an interview time. End your letter with a simple farewell (usually “Sincerely”).

Sincerely,

Type your name

This is an example of a traditional

business letter format. When

constructing your assignment, you

should first and foremost follow the

constraints of your assignment. If

you are instructed to use APA

formatting for your business letter,

make sure to double space and

include a title page, in-text citations,

and a References page as needed.

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