COMPENSATING EMPLOYEES

1
COMPENSATING EMPLOYEES

• Employee Benefits

2
Overview

• What Are Employee Benefits?
• External Internal Influences
• Growth in Employee Benefits
• Categories of Benefits
• The Benefit Package
• Communicating the Benefit Package
• Employee Preferences among Benefits

3
Employee Benefits Defined

• Rewards that the organization provide to
  employees for being members of the organization,
  and for their positions in the organization,
  usually not related to employee performance

4
External Influences
Expansion of social security
Employee Benefits
Wage controls
Social legislation
Health care costs
Competition
Union bargaining
Inflation
Federal tax policies
Source Susan Jackson Randall Schuler Managing
Human Resources
5
Internal Influences
Employee wants
Employee Benefits
Human resource philosophy
Business strategy and objectives
Source Susan Jackson Randall Schuler Managing
Human Resources
6
Potential Employee Benefits

• Accidental death, dismemberment Health
  maintenance organization fees Professional
  activities
• insurance Holidays (extra) Psychiatric services
• Birthdays (vacation) Home health care Recreation
  facilities
• Bonus eligibility Hospital-surgical-medical
  insurance Resort facilities
• Business and professional Incentive growth
  fund Retirement gratuity
• memberships Interest-free loans Sabbatical
  leaves
• Cash profit sharing Layoff pay Salary
• Club memberships Legal, estate-planning, and
  other Salary continuation
• Commissions professional assistance Savings
  plan
• Company medical assistance Loans of company
  equipment Scholarships for dependents
• Company-provided automobile Long-term disability
  benefit Severance pay
• Company-provided housing Matching educational
  donations Shorter or flexible work week
• Company-provided or subsidized Nurseries Sickness
  and accident insurance
• travel Nursing-home care Social Security
• Day care centers Opportunity for travel Social
  service sabbaticals
• Deferred bonus Outside medical services Split-doll
  ar life insurance
• Deferred compensation plan Paid attendance at
  business, State disability plans
• Deferred profit sharing professional, and other
  outside Stock appreciation rights

7
Growth in Employee Benefits

• Began in 1920s referred to as fringe
  benefits
• WWII saw large growth, due to government imposed
  wage freezes
• Today generally non-taxable (the future-?)
• Today referred to together with wages as Total
  Compensation
• Currently approx 40 of employers total labor
  cost.

8
Total Employee Benefits as a Percentage of
Payroll 1956-2001

• Source U. S. Chamber of Commerce Survey Research
  Center, Employee Benefits (Washington, D. C.
  Chamber of Commerce of the United States, 1997),
  p. 41 U. S. Chamber of Commerce Statistics and
  Research Center, The 2001 Employee Benefits Study
  (Washington, D. C. U. S. Chamber of Commerce,
  2001), p. 11.

9
Categories of Benefits

• Legally Required
• Retirement Related
• Insurance Related
• Payment for time not worked
• Other

10
Legally Required Benefits

• Social Security Federally administered
  insurance system
• Retirement benefits
• Disability benefits
• Health benefits
• Problems facing social security
• Unemployment Compensation
• Workers compensation

11
Social Security

• Created system of retirement benefits, later
  added disability, survivors benefits and
  Medicare
• With few exceptions, mandatory for employees and
  employers
• Federal payroll tax to fund retirement,
  disability and health benefits

12
Social Security

• Joint employer and employee contribution
• Retirement and Disability 6.2 of first
  87,000 (2003) of individual payroll
• Medicare 1.45 of individual payroll
• Administered by Social Security Administration
• Facing financial crisis
• 2017 benefits projected to exceed income
• Current federal borrowing from Social Security

13
Unemployment Compensation

• Designed to provide funds for employees who have
  lost jobs through no fault of their own and are
  seeking jobs
• Compensation for up to 26 weeks (some extensions)
• Administered by each state
• Payroll tax paid solely by employers

14
Workers Compensation

• Is meant to protect employees from loss of income
  and to cover expenses from job-related injuries
  or illness
• Administered by states
• Programs paid for by employers via insurance
  programs
• Premium expense directly tied to past experience
• A no-fault system

15
Retirement Benefits

• Designed to provide a source of income upon
  retirement
• Types of pension plans
• Defined Benefit
• Defined Compensation
• Cash Balance

16
Retirement Benefits (Continued)

• Defined Benefit Plans
• Benefits vary with age and length of service
• Provides predicable income after retirement as
  payment is calculated via formula
• Penalizes employee mobility
• Regulated by ERISA

17
Retirement Benefits (Continued)

• Defined Contribution Plan
• Each employee has separate account
• Employer may contribute (contributory) or not
  (non-contributory)
• 401K/403B (Qualified) plans
• Employer/employee contribute to plan
• Employee makes investment decisions

18
Retirement Benefits (Continued)

• Other types of Defined Contribution Plans
• Money Purchase Plans
• Tax deferred profit-sharing plans
• Employee stock and stock option plans
• Cash Balance Plans
• Pays a lump-sum upon employee departure
• Popular as employee mobility has increased

19
Pension Legislation

• Employee Retirement Income Security Act 1974
• Protects benefits for workers, prohibits unfunded
  plans
• Specifies provisions for vesting
• Other Legislation
• Retirement Equity Act
• Age Discrimination Act

20
Insurance Related Benefits

• Health Care Benefits and Services
• Medical Coverage
• Wellness Programs
• Employee Assistance Programs
• Disability Insurance

21
Medical Coverage

• Most employees underestimate cost and view
  medical care as an entitlement
• Companies that provide health insurance spend
  more that 13 cents of every dollar they make to
  pay for coverage
• Example For the big three automakers in U.S.,
  healthcare cost is the largest single component
  of cost in the making of an automobile

22
Medical Care Approaches

• Insurance Companies
• Provider Organizations
• Health Maintenance Organizations (HMOs)
• Preferred Provider Organizations (PPOs)
• Self-Funded Plans

23
Other Types of Benefits

• Payment for time not worked
• Paid holidays, vacations, among others
• Other food services, health and first aid,
  legal services, counseling services, educational
  and recreational services, day-care services,
  adoption assistance, purchase discounts

24
Benefit Packages

• Administrative issues include
• Determining a valued benefit package
• Providing benefits flexibility
• Managing and reducing benefit costs
• Communicating the benefits package

25
Communicating Benefit Packages

• Most employees do not understand
• Can be difficult to communicate
• Presentations important
• Most companies use passive, impersonal techniques
• Look to provide employee flexibility (selection)
  if possible

26
Flexible Benefit Plan

• Advantages
• Represent significant portion of compensation
• Employee can suit individual needs
• Can limit employer cost
• Positive impact on employee morale
• Helps to communicate costs of programs
• Possible positive tax implications to employee
• Useful in recruiting and retaining employees

27
Flexible Benefit Plan

• Disadvantages
• Expensive to administer
• Often face Union opposition
• Employee may not choose appropriately
• Tax implications

28
?
Questions