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Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
12Indirect Compensation: Employee Benefit Plans
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Strategic Considerations in the Design of Strategic Considerations in the Design of Benefits ProgramsBenefits Programs
The organization’s stage of development Projected rate of employment, growth, or downsizing Geographic redeployment Acquisitions Expected changes in profitability Each of these conditions suggests a change in the optimum “mix”
of benefits to be consistent with long-term business plans
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Classifying BenefitsClassifying Benefits
Three broad categories exist for classifying benefits Security and health Payments for time not worked Employee services
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Security & Health BenefitsSecurity & Health Benefits
Life Insurance Workers’ compensation Disability Insurance Hospitalization, surgical, and maternity coverage Health maintenance organizations (HMOs) Other medical coverage (dental, mental health, substance abuse) Sick leave Pension plans Social Security Unemployment insurance & supplemental unemployment insurance Severance pay
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Payments for Time Not WorkedPayments for Time Not Worked
Vacations Holidays Reporting Time Personal excused absences Grievances and negotiations Sabbatical leaves
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Employee ServicesEmployee Services
Employee Services – a broad range of benefits that employees qualify for purely by virtue of their membership in the organization, and not because of merit Some examples include tuition aid, credit unions, auto insurance,
company car, food service, stock-purchase plans, parking, fitness and wellness programs
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Gaining Control Over the Cost of Gaining Control Over the Cost of Health CareHealth Care
Band together with other companies to form a ‘purchasing coalition’ to negotiate better rates with insurers
Deal with hospitals and insurers as with any other suppliers Induce employees to choose reduced medical coverage voluntarily
through flexible-benefits plans Negotiate directly with doctors Require pre-admission certification
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Cafeteria, or Flexible, BenefitsCafeteria, or Flexible, Benefits
Cafeteria Benefits – instead of all workers at a company getting the same benefits, each worker can pick and choose among alternative options “cafeteria style” Workers are offered a package of benefits that include ‘basic’ and
‘optional’ items
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Basic and Flexible ‘Credits’ in the Basic and Flexible ‘Credits’ in the Cafeteria Benefits PlanCafeteria Benefits Plan
Basic modest medical coverage life insurance equal to a year’s salary vacation time based on length of service some retirement pay
Flexible ‘credits’ toward additional benefits Full medical coverage Dental and eye care More vacation time Additional disability income Higher company payments to the retirement fund
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Employer Advantages in Employer Advantages in Offering Cafeteria BenefitsOffering Cafeteria Benefits
Under conventional plans, employers risk alienating employees if they cut benefits, regardless of increases in the costs of coverage
Flexible plans allow employers to pass some of the increases on to workers more easily Instead of providing employees a set package of benefits, the employer
and employee agree on a set amount of the employee’s salary to be used toward benefits
If the employee wants more, he/she pays
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Communicating Benefits to EmployeesCommunicating Benefits to Employees
Make employees aware of them Help employees understand the benefits information they receive in
order to take full advantage of the plans Make employees confident that they can trust the information they
receive Convince present and future employees of the worth or value of the
benefits package
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Communicating the Value Communicating the Value of Benefits Programs to Employeesof Benefits Programs to Employees
Alternative metrics: Annual cost of benefits for all employees Cost per employee per year Percentage of payroll Cents per hour
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