powerpoint presentation by charlie cook the university of west alabama 12 getty images © 2008...

PowerPoint Presentation by Charlie CookThe University of West Alabama

PowerPoint Presentation by Charlie CookThe University of West Alabama

12

Get

ty Im

ages

© 2008 Cengage Learning All rights reserved.© 2008 Cengage Learning All rights reserved.

Providing Benefits and

Services

© 2008 Cengage Learning. All rights reserved. 12–2

The Strategic Importance of The Strategic Importance of Benefits and ServicesBenefits and Services

• Employee Benefits and ServicesEmployee Benefits and Services Are in-kind (noncash) payments to employees for Are in-kind (noncash) payments to employees for

their membership or participation in the organization.their membership or participation in the organization. Are available on a noncontingent basis—employees Are available on a noncontingent basis—employees

receive the same benefits and services regardless of receive the same benefits and services regardless of job performance.job performance.

• Key Strategic ChallengeKey Strategic Challenge Offering benefits and services that maximize the Offering benefits and services that maximize the

return on the employer’s investments.return on the employer’s investments.

L E A R N I N G G O A L

1


Recruiting and Retaining Talent

Recruiting and Retaining Talent

Controlling Costs of Benefit and

Services

Controlling Costs of Benefit and

Services

Achieving Business Objectives

Achieving Business Objectives

Strategic ChallengesStrategic

Challenges

The Strategic Importance of The Strategic Importance of Benefits and Services (cont’d)Benefits and Services (cont’d)


EXHIBIT 12.1 Common Objectives of Benefits and Services Plans


Controlling Benefit and Services CostsControlling Benefit and Services Costs

• In 1929In 1929——Total benefits payments Total benefits payments averaged 5% of total pay. averaged 5% of total pay.

• In 2007In 2007——Benefits were 30% of total pay Benefits were 30% of total pay (about $17,000 per employee). (about $17,000 per employee).

• Wages and salaries are 40 times greater Wages and salaries are 40 times greater than 60 years ago; benefits and services than 60 years ago; benefits and services are 500 times greaterare 500 times greater


Recruiting and Retaining TalentRecruiting and Retaining Talent

• Innovative benefits and services packages are Innovative benefits and services packages are important for attracting and retaining employees.important for attracting and retaining employees. Flexible benefits planFlexible benefits plan

Provides all employees with a base benefits and services Provides all employees with a base benefits and services package and then allows employees to choose some package and then allows employees to choose some additional benefits and services from a wide array of options.additional benefits and services from a wide array of options.

Targeted benefits planTargeted benefits plan Provides different types and levels of benefits and services Provides different types and levels of benefits and services

depending on an employee’s location and position in the depending on an employee’s location and position in the organization.organization.


EXHIBIT 12.2 Achieving Business Objectives Using Benefits and Services

Business Objective Benefits Response

1. To reduce total costs of doing business by 10% yearly.

1. Contain the rise in health care costs to 2% yearly and increase employee contributions by 2% yearly.

2. To develop a working environment that is founded on integrity, open communication, and individual growth.

2. Develop an employee career counseling system that provides employees with an opportunity to assess skills and develop competencies. Establish a tuition reimbursement program.

3. To establish the division as a recognized leader in support of its community.

3. Establish a corporate-giving matching fund.

4. To complete the downsizing of the company by the end of the third quarter.

4. Develop various termination subsidies such as severance pay, outplacement assistance, and early retirement benefits.

5. To cut accident rates 10% by year-end.

5. Establish an employee assistance program by year-end. Set up a free literacy training program to ensure that all employees can read job safety signs.


EXHIBIT 12.3Employee Benefits and Services within an Integrated HRM System


Employee Benefits and Services Employee Benefits and Services WithinWithinan Integrated HRM Systeman Integrated HRM System• Mandatory (Public) Protection ProgramsMandatory (Public) Protection Programs

Are required by the federal and state governmentsAre required by the federal and state governments Social Security, unemployment, workers’ compensationSocial Security, unemployment, workers’ compensation

• Voluntary Protection ProgramsVoluntary Protection Programs Are offered by employers and are not required by lawAre offered by employers and are not required by law

Health care, life insurance, disability, retirementHealth care, life insurance, disability, retirement


2


EXHIBIT 12.4 Mandatory and Voluntary Protection Programs


EXHIBIT 12.5 Employer Costs for Benefits and Services (Cost per Hour Worked and as Percentage of Total Compensation, Private Industry)


The External EnvironmentThe External Environment

Laws and Regulations

Laws and Regulations

Growth in Benefits and Services

Growth in Benefits and Services

Economic Conditions

Economic Conditions

Union Bargaining

Union Bargaining


The Organizational EnvironmentThe Organizational Environment

Business Strategy and Objectives

Business Strategy and Objectives

Design of Employee Benefits and

Services

Design of Employee Benefits and

Services

Size of FirmSize of Firm Corporate CultureCorporate Culture


EXHIBIT 12.6 Access to Benefits and Service by Firm Size


Mandatory Protection ProgramsMandatory Protection Programs

• Social Security InsuranceSocial Security Insurance

• Unemployment Unemployment Compensation BenefitsCompensation Benefits

• Workers’ Compensation Workers’ Compensation and Disability Insuranceand Disability Insurance

• Family and Medical LeaveFamily and Medical Leave


4


Social Security InsuranceSocial Security Insurance

• Enacted in 1935 as a forced savings plan Enacted in 1935 as a forced savings plan intended to provide older Americans with a intended to provide older Americans with a reliable source of income in retirement.reliable source of income in retirement.

• Medicare provisions were added in 1966.Medicare provisions were added in 1966.• Federal Insurance Contributions Act (FICA)Federal Insurance Contributions Act (FICA)

6.2% of the first $100,400 income for retirement and 6.2% of the first $100,400 income for retirement and disabilitydisability

1.45% of total income for hospital insurance 1.45% of total income for hospital insurance (Medicare)(Medicare)

Equal payroll tax contributions (7.65%) from the Equal payroll tax contributions (7.65%) from the employer and the employeeemployer and the employee


Unemployment CompensationUnemployment Compensation

• Is an insurance program that provides Is an insurance program that provides unemployment compensation as income for unemployment compensation as income for employees who lose their jobs.employees who lose their jobs. Jointly administered by federal and state Jointly administered by federal and state

governments.governments.

Tax rates for employers are based on location and Tax rates for employers are based on location and employer history of layoff and dismissals.employer history of layoff and dismissals.

Level of benefits ranges 50-70% of base salary.Level of benefits ranges 50-70% of base salary.


Workers’ Compensation and Workers’ Compensation and Disability InsuranceDisability Insurance

• Covers costs and lost income due to injuries or Covers costs and lost income due to injuries or illnesses that result from on-the-job eventsillnesses that result from on-the-job events Administered by statesAdministered by states

Fully financed by employersFully financed by employers

• Managing workers’ compensation costs:Managing workers’ compensation costs: Use health care cost-containment strategies (audit Use health care cost-containment strategies (audit

bills, develop preferred providers, etc.)bills, develop preferred providers, etc.)

Implement job safety programsImplement job safety programs

Combine with disability managementCombine with disability management


Family and Medical LeaveFamily and Medical Leave

• Family and Medical Leave Act (FMLA)Family and Medical Leave Act (FMLA) Covers employers with 50 or more workersCovers employers with 50 or more workers Required to grant up to 12 weeks of unpaid leave Required to grant up to 12 weeks of unpaid leave

annually annually For birth/adoption of a childFor birth/adoption of a child To care for immediate family member with serious health To care for immediate family member with serious health

conditioncondition For employee with serious health conditionFor employee with serious health condition

Employee keeps preexisting health coverage and Employee keeps preexisting health coverage and must be allowed to return to same or equivalent job.must be allowed to return to same or equivalent job.


Voluntary Protection ProgramsVoluntary Protection Programs

• Benefits provided by employers that are not Benefits provided by employers that are not required by law include:required by law include:

Retirement income plansRetirement income plans

Capital accumulation plansCapital accumulation plans

Savings and thrift plansSavings and thrift plans

Supplemental unemploymentSupplemental unemployment

Guaranteed payGuaranteed pay


5


Legal ConsiderationsLegal Considerations

• Qualified Plan Qualified Plan

Covers a broad class of employeesCovers a broad class of employees

Receives favorable tax treatment from IRSReceives favorable tax treatment from IRS

• Nonqualified planNonqualified plan

Covers only select groups of employees (e.g., senior Covers only select groups of employees (e.g., senior management)management)

Doesn’t adhere to the strict tax regulations, doesn’t Doesn’t adhere to the strict tax regulations, doesn’t receive favorable tax treatment.receive favorable tax treatment.


Types of Pension Plans Types of Pension Plans

• Defined Benefit PlansDefined Benefit Plans Benefits are fixed but vary with age and length of Benefits are fixed but vary with age and length of

serviceservice Require funding to match benefit payouts.Require funding to match benefit payouts. Provide predictable income after retirementProvide predictable income after retirement Penalize employee mobilityPenalize employee mobility Are regulated by ERISAAre regulated by ERISA Are being replaced by Are being replaced by

defined contribution plansdefined contribution plans


Types of Pension Plans (cont’d)Types of Pension Plans (cont’d)

• Defined Contribution PlansDefined Contribution Plans Contribution is fixed, payout is variable.Contribution is fixed, payout is variable. Each employee has separate account.Each employee has separate account. Employer may agree to match a percentage of Employer may agree to match a percentage of

employee contributions.employee contributions. Employer may contribute (contributory plan) or not Employer may contribute (contributory plan) or not

(noncontributory plan).(noncontributory plan).

• 401(k)s and 403(b)s401(k)s and 403(b)s Employer and employee contribute to the fund.Employer and employee contribute to the fund. Employee makes investment decisions.Employee makes investment decisions.


EXHIBIT 12.7 Types of Retirement Plans Offered


EXHIBIT 12.8 401(k) Participation Rates (1984–2006)


Pension Plans (cont’d)Pension Plans (cont’d)

• Employee Stock Option and Profit Sharing PlansEmployee Stock Option and Profit Sharing Plans Ties value of plan to firm’s financial performance; Ties value of plan to firm’s financial performance;

violates sound financial principles for spreading risk violates sound financial principles for spreading risk by investing in a more diversified portfolio.by investing in a more diversified portfolio.

• Cash Balance PlanCash Balance Plan Pays a lump sum upon Pays a lump sum upon

employees’ retirement or employees’ retirement or departure.departure.

Has become more popular Has become more popular as employee mobility has as employee mobility has increased. increased.

Stock Report


Legal ConsiderationsLegal Considerations

• Employee Retirement Income Security Act of Employee Retirement Income Security Act of 1974 (ERISA )1974 (ERISA ) Protects benefits for workers covered by private Protects benefits for workers covered by private

pension plans; prohibits unfunded planspension plans; prohibits unfunded plans Specifies provisions for vesting (time when Specifies provisions for vesting (time when

employer’s contribution belongs to employee)employer’s contribution belongs to employee) Portability: transfer of retirement funds to IRAsPortability: transfer of retirement funds to IRAs

• Pension Benefit Guaranty Corporation (PBGC)Pension Benefit Guaranty Corporation (PBGC) Administers an insurance program guaranteeing Administers an insurance program guaranteeing

payment of retirement benefits if a plan is terminated.payment of retirement benefits if a plan is terminated.


EXHIBIT 12.9 Largest PBGC Claims by Firms in Default since 1975

Largest 5 Claims Year Claim Vested

Participants

1. United Airlines 2005 $7,093,803,951 122,541

2. Bethlehem Steel 2003 $3,654,380,116 97,015

3. US Airways 2003 $2,861,901,511 58,823

4. LTV Steel 2002 $1,959,679,993 80,961

5. National Steel 2003 $1,161,019,567 35,404


Health Care Benefits and ServicesHealth Care Benefits and Services

• Medical Care CostsMedical Care Costs Most employees underestimate the medical benefit’s Most employees underestimate the medical benefit’s

cost to the employer and view medical care as an cost to the employer and view medical care as an entitlement.entitlement.

Employers pay an average of $11,500 for a health Employers pay an average of $11,500 for a health insurance plan that covers a family of four.insurance plan that covers a family of four.

Out of every benefits and services dollar spent, a Out of every benefits and services dollar spent, a quarter goes to health care.quarter goes to health care.


6


Types of Health Insurance PlansTypes of Health Insurance Plans

Conventional Insurance Plans

Conventional Insurance Plans

Health Maintenance Organizations

(HMOs)

Health Maintenance Organizations

(HMOs)

Point of Service Plans (POSs)

Point of Service Plans (POSs)

Preferred Provider

Organizations (PPOs)

Preferred Provider

Organizations (PPOs)

Consumer-Driven Plans

Health Savings Accounts (HSAs)

Consumer-Driven Plans

Health Savings Accounts (HSAs)


EXHIBIT 12.10 Percentage of Enrolled Workers by Type of Health Care Plan


Wellness ProgramsWellness Programs

• Wellness ProgramsWellness Programs Proactive programs to prevent health problemsProactive programs to prevent health problems

• May include:May include:

On-site exercise programsOn-site exercise programs

Stress-management trainingStress-management training

Assistance to stop smokingAssistance to stop smoking

Weight-loss programsWeight-loss programs


EXHIBIT 12.11 Wellness Benefits and Services


Employee Assistance Programs (EAPs)Employee Assistance Programs (EAPs)

• Assist employees with chronic personal Assist employees with chronic personal problems that hinder job performance and problems that hinder job performance and attendanceattendance

• Employees referred to confidential counseling Employees referred to confidential counseling servicesservices

• Includes help with alcohol and drug Includes help with alcohol and drug dependencies, domestic problems, dependencies, domestic problems, mental disorders, financial problemsmental disorders, financial problems


Paid LeavePaid Leave

• Off-the-Job Paid LeaveOff-the-Job Paid Leave Holidays and Vacations Holidays and Vacations

Vacation pay or payment in lieu of vacationVacation pay or payment in lieu of vacation Deferral of vacation (banking) or loss of vacation daysDeferral of vacation (banking) or loss of vacation days Mandated vacations in other countriesMandated vacations in other countries

Other Paid LeavesOther Paid Leaves Volunteering, adoption, paternity and maternity leave, a day Volunteering, adoption, paternity and maternity leave, a day

off for an employee’s birthday, and sabbaticalsoff for an employee’s birthday, and sabbaticals

• On-the-Job Paid LeaveOn-the-Job Paid Leave Rest periods, lunch periods, washup times, and Rest periods, lunch periods, washup times, and

clothes-changing and getting-ready timesclothes-changing and getting-ready times Use of onsite physical fitness facilitiesUse of onsite physical fitness facilities


7


Vacationing around the World


EXHIBIT 12.12 Popular Off-the-Job Paid Leaves


Managing AbsenteeismManaging Absenteeism

• In the U.S., daily absenteeism rate is 2-3% of In the U.S., daily absenteeism rate is 2-3% of total payroll.total payroll.

As the number of paid days off increases, the number As the number of paid days off increases, the number of days of actual absence increases proportionally.of days of actual absence increases proportionally.

Granting personal days (personal time off) may Granting personal days (personal time off) may prevent unscheduled absenteeism.prevent unscheduled absenteeism.

Programs that reward attendance may be more Programs that reward attendance may be more effective than disciplinary approaches that punish effective than disciplinary approaches that punish absenteeism.absenteeism.


Work-Life Benefits and ServicesWork-Life Benefits and Services

• Scheduling Alternatives Scheduling Alternatives Empower employees to decide how, when, and Empower employees to decide how, when, and

where to get their jobs done.where to get their jobs done. FlextimeFlextime Compressed workweeksCompressed workweeks TelecommutingTelecommuting Job sharingJob sharing


8


EXHIBIT 12.13 Prevalence of Work/Life Benefits and Services


Work-Life Benefits and ServicesWork-Life Benefits and Services• Child Care Benefits and Child Care Benefits and

ServicesServices Scholarships for children of Scholarships for children of

employeesemployees Subsidized tutoringSubsidized tutoring Care for sick childrenCare for sick children Subsidized college educationsSubsidized college educations On-site or subsidized child On-site or subsidized child

carecare Child care referralsChild care referrals Extended leavesExtended leaves Benefits for employees with Benefits for employees with

special needs childrenspecial needs children Workplace schoolsWorkplace schools Employer-sponsored summer Employer-sponsored summer

campscamps

• Elder Care ServicesElder Care Services Elder care referral servicesElder care referral services Extended leaves beyond the Extended leaves beyond the

mandated FMLA requirement.mandated FMLA requirement. Emergency elder care servicesEmergency elder care services Subsidies to help cover the Subsidies to help cover the

cost of elder care cost of elder care Long-term care insurance.Long-term care insurance.


Work-Life Benefits (cont’d)Work-Life Benefits (cont’d)

• Domestic Partner Benefits and ServicesDomestic Partner Benefits and Services Employers provide domestic partner benefits and Employers provide domestic partner benefits and

services to attract and retain talent, comply with the services to attract and retain talent, comply with the company’s nondiscrimination policy, and comply with company’s nondiscrimination policy, and comply with local laws.local laws.

Federal laws do not require employers to provide Federal laws do not require employers to provide domestic partner benefits and services.domestic partner benefits and services.


8


EXHIBIT 12.14 Other Popular Benefits and Services


Administering IssuesAdministering Issues

Administrative Issues

Administrative Issues

CommunicationCommunicationDetermining the Level of Flexibility

Determining the Level of Flexibility

Determining the Benefits and

Services Package

Determining the Benefits and

Services Package


10


Current IssuesCurrent Issues

• Health Care Benefits and ServicesHealth Care Benefits and Services Medical cost control tactics:Medical cost control tactics:

Shift health care costs to employeesShift health care costs to employees Hospital utilization programsHospital utilization programs Coordination of benefitsCoordination of benefits Data analysisData analysis Prescription drug managementPrescription drug management Case managementCase management Auditing employee usageAuditing employee usage

• Benefits and Services for RetireesBenefits and Services for Retirees Employers are having increasing difficulty maintaining Employers are having increasing difficulty maintaining

retiree health care and retirement benefits.retiree health care and retirement benefits.


11


EXHIBIT 12.15 Recent Changes to Health Care Benefits and Services by Employers Offering Them


TERMS TO REMEMBERTERMS TO REMEMBER

• Contributory planContributory plan

• Economic Recovery Tax Act Economic Recovery Tax Act of 1981of 1981

• Employee Assistance Employee Assistance Programs (EAPs)Programs (EAPs)

• Employee benefits and Employee benefits and servicesservices

• Employee Retirement Income Employee Retirement Income Security Act of 1974 (ERISA)Security Act of 1974 (ERISA)

• Family and Medical Leave Act Family and Medical Leave Act (FMLA)(FMLA)

• Flexible benefits plansFlexible benefits plans

• Health savings accounts Health savings accounts (HSAs)(HSAs)

• Mandatory protection Mandatory protection programsprograms

• Noncontributory planNoncontributory plan

• Nonqualified planNonqualified plan

• Pension Benefit Guaranty Pension Benefit Guaranty Corporation (PBGC)Corporation (PBGC)

• Portable benefitsPortable benefits

• Primary care physicians Primary care physicians (PCPs)(PCPs)

• Qualified planQualified plan

• Social Security Act of 1935Social Security Act of 1935

• Targeted benefits planTargeted benefits plan

• Voluntary protection Voluntary protection programsprograms

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