Labor Stats and Facts: Explaining the Spike in Lump-Sum Payments

When Bloomberg BNA published its annual report on negotiated first-year wage increases earlier this year, I received several calls from subscribers questioning our high figures for lump-sum payments. One even suggested that we had made a mistake. There’s no way, she said, that manufacturers in 2011 were paying out so much money up front. I assured her that the numbers were indeed accurate, but added that they didn’t tell the entire story.

It’s true that, based on data we collected from more than 900 settlements signed in 2011, the practice of front-loading union contracts with lump-sum payments and signing bonuses looks like it’s making a bit of a comeback. More employees received lump sums in 2011 than in the previous two years combined. In the manufacturing industry, the average contract’s first-year wage increase jumped from 1.8 percent to 3.2 percent when lump sums were included. Even more impressive, the weighted average increase, which takes into account the size of each contract, surged from 1.0 percent to an unheard of 7.3 percent when lump sums were factored in.

But that’s actually where the explanation becomes clear: There were relatively fewer manufacturing-industry contracts that included first-year lump-sum payments in 2011, but they featured much larger payouts, and for much larger bargaining units, than usual. Of the 38 manufacturing-industry contracts in 2011 that included lump-sum payments or bonuses in the first year, 13 called for bonuses of at least $3,000 or 3 percent. By comparison, of the 43 manufacturing-industry contracts that included the same kind of payments in 2010, only nine called for bonuses that big.

Many of the companies that negotiated these large bonuses in 2011 were industry giants, and at least three of them--GE, Lockheed Martin, and Armstrong Wood Industries--signed multiple contracts with different unions, each calling for generally the same large payout. (Armstrong’s pacts came after an extended lockout of workers; I suspect the settlement figures might have been influenced by an attempt to bury the hatchet with labor.)  Each of these contracts counted as a separate record, which would, understandably, inflate the average as a whole.

Perhaps most tellingly, the "Big Three" automakers all signed nationwide contracts in 2011—and they didn’t disappoint as well-known bonus-payers.

The truth is, as shown in a follow-up report on lump-sum paymentsLock  released Feb. 23, that lump-sum payments were contained in 15 percent of all contracts—the same percentage as last year.