Benefits and Services
Embed Size (px)
DESCRIPTION
Benefits and Services
Citation preview
Chapter 13Unemployment insurance
Severance pay
Pension planning
© 2003 Prentice Hall, Inc.
Other personal services
© 2003 Prentice Hall, Inc.
The pros and cons of various employee benefit plans
Four main types of plans:
Supplemental pay benefits
Insurance benefits
Retirement benefits
Employee services
Page 363
The previous chapter, Pay for Performance and Financial Incentives,
explained how to use financial incentives to motivate employees.
The main purpose of this chapter is to improve your ability to
weigh the pros and cons of various employee benefit plans. We
discuss four main types of plans: supplemental pay benefits (such
as sick leave and vacation pay); insurance benefits (such as
workers’ compensation); retirement benefits (such as pensions); and
employee services (such as child care facilities). We’ll see that
employees’ preferences for various benefit plans differ, and that
it’s therefore useful to individualize benefits packages.
This chapter completes our discussion of employee compensation and
benefits. The next chapter, Labor Relations and Collective
Bargaining, starts a new part of this book, and focuses on another
important HRtask, labor and management relations.
© 2003 Prentice Hall, Inc.
After Studying This Chapter You Should Be Able To:
Name and define each of the main pay for time not worked
benefits
Describe each of the main insurance benefits
Discuss the main retirement benefits
Outline the main employees services benefits
Explain the main flexible benefit programs
Page 363
They are indirect financial and non-financial payments due to
employment
Benefits are a major expense for most employers
Are 41% as a percentage of payroll
Page 363
“What are your benefits?” is the first question many applicants
ask. Benefits— indirect financial and non-financial payments
employees receive for continuing their employment with the
company—are an important part of just about every employee’s
compensation. They include things like health and life insurance,
pensions, time off with pay, and child care facilities.
Benefits as a percentage of payroll are about 41% today. That
translates to around $15,000 in total annual benefits per employee,
or close to $7 per payroll hour. Payments for time not worked
represent the biggest chunk of benefits payments, followed by
legally required payments for unemployment compensation, retirement
plan payments, insurance payments, and severance pay.
© 2003 Prentice Hall, Inc.
Shown below are percentages of 33 million employee’s benefits
Page 364
Most full-time employees in the United States receive benefits.4 In
one survey of about 33 million full-time employees, roughly 89%
received paid holidays, 96% got paid vacations, and 77% received
employer-provided medical coverage. Similarly, 80% of employees
benefit from some type of employer-supported retirement plan, and
about 87% receive life insurance benefits.
© 2003 Prentice Hall, Inc.
Insurance benefits
Retirement benefits
Pay For Time Not Worked
Also called supplemental pay benefits is usually the most costly
benefit provided
What are some examples of pay for time not worked?
A real 1000 pound gorilla
Page 364
Pay for time not worked—also called supplemental pay benefits—is
the 1,000-pound gorilla of most benefits plans. It is generally an
employer’s most costly benefit because of the large amount of time
off that many employees receive. According to a new U.S. Chamber of
Commerce annual survey, paid time off was the most costly company
benefit in 1999, at 30% of total benefits; medical benefits (26%)
were the second most expensive benefit.6 Common time-off-with pay
periods include holidays, vacations, jury duty, funeral leave,
military duty, personal days, sick leave, sabbatical leave,
maternity leave, and unemployment insurance payments for laid-off
or terminated employees.
Instructor’s note:
Holidays, vacations, jury duty, funeral leave, military duty,
personal days, sick leave, sabbatical leave, maternity leave, and
unemployment insurance payments for laid-off or terminated
employees
© 2003 Prentice Hall, Inc.
Provide for benefits if a person is unable to work
Checklist to follow to reduce unemployment payouts
All states have
Page 364-5
All states have unemployment insurance or compensation acts. These
provide for benefits if a person is unable to work through no fault
of his or her own. The benefits derive from a tax on employers that
can range from 0.1% to 5% of taxable payroll in most states. An
employer’s unemployment tax rate reflects its rate of personnel
terminations. States have their own unemployment laws, but they all
follow federal guidelines. Firms aren’t required to pay everyone
they dismiss unemployment benefits— only those released through no
fault of their own. Thus, strictly speaking, a worker fired for
chronic lateness can’t legitimately claim benefits.
© 2003 Prentice Hall, Inc.
One week after 6 months to 1 year of service
Two weeks after 1 to 5 years of service
Three weeks after 5 to 10 years of service
Four weeks after 15 to 25 years of service
Five weeks after 25 years of service
Average 10 days per year
Page 366
Shown are how many holiday days off employee’s of various countries
receive each year.
© 2003 Prentice Hall, Inc.
Sick Leave
Sick leave
Paid time off (PTO) reduces the use of sick leave for
non-illness
Page 368
Sick leave provides pay to employees when they’re out of work due
to illness. Most sick leave policies grant full pay for a specified
number of sick days—usually up to about 12 per year. The sick days
usually accumulate at the rate of, say, one day per month of
service. Sick leave pay causes difficulty for many employers. The
problem is that while many employees use their sick days only when
they are legitimately sick, others use sick leave as extensions to
vacations, whether they are sick or not. In one survey, for
instance, personal illnesses accounted for only about 45% of
unscheduled sick leave absences. Family issues (27%), personal
needs (13%), a mentality of “entitlement” (9%), and stress (6%)
were other reasons cited.
© 2003 Prentice Hall, Inc.
Parental leave is an important benefit
Half of workforce is female
Many men and women are single parents
President Clinton signed FMLA 1993
Leave form
Page 369
Parental leave is an important benefit. About half of workers today
are women, and about 80% will become pregnant during their work
lives.15 Furthermore, many women and men are heads of single-parent
households. Partly as a response, former president Clinton signed
the Family and Medical Leave Act of 1993 (FMLA). Among its
provisions, the law stipulates that:
1. Private employers of 50 or more employees must provide eligible
employees up to 12 weeks of unpaid leave for their own serious
illness, the birth or adoption of a child, or the care of a
seriously ill child, spouse, or parent.
2. Employers may require employees to take any unused paid sick
leave or annual leave as part of the 12-week leave provided in the
law.
3. Employees taking leave are entitled to receive health benefits
while they are on unpaid leave, under the same terms and conditions
as when they were on the job.
4. Employers must guarantee employees the right to return to their
previous or equivalent position with no loss of benefits at the end
of the leave; however, thelaw provides a limited exception from
this provision to certain highly paid employees.
© 2003 Prentice Hall, Inc.
A humanitarian gesture
Employers require 2 weeks notice so only fair to provide 2 weeks
severance
Cuts down on litigation
Usually 1 week severance pay for each year worked
Page 370
Many employers provide severance pay—a one-time payment when
terminating an employee. Severance pay makes sense on several
grounds. It is a humanitarian gesture, and good public relations.
In addition, most managers expect employees to give them at least
one or two weeks’ notice if they plan to quit; it therefore seems
appropriate to provide at least one or two weeks’ severance pay if
an employee is being dismissed. Avoiding litigation from
disgruntled former employees is another reason for severance pay.
And the Worker Adjustment and Retraining Notification (“plant
closing”) Act requires covered employers to give employees 60 days’
written notice (but not severance pay) of plant closures or mass
layoffs.
About half the employees receiving severance pay get lump-sum
amounts; the other half receive salary continuation for a time.
The
average maximum severance is 39 weeks for executives and about 30
weeks for other downsized employees.24 Severance pay at the rate of
one week of severance pay for each year of service is the policy at
about half the firms responding to one survey
© 2003 Prentice Hall, Inc.
Supplemental unemployment benefits -provide for a “guaranteed
annual income” in certain industries
Page 370
Supplemental Unemployment Benefits
In some industries, such as automaking, shutdowns to reduce
inventories or change machinery are common, and laid-off or
furloughed employees must depend on unemployment insurance. Some
companies pay supplemental unemployment benefits. As the name
implies, these supplement the employee’s unemployment compensation,
and help the person maintain his or her standard of living for the
time he or she is out of work. They provide benefits over and above
state employment compensation for three contingencies: layoffs,
reduced workweeks, and relocations.
© 2003 Prentice Hall, Inc.
Workers’ compensation
Benefits can be monetary or medical
Reducing claims and saving premiums
Screen out accident-prone workers
Use case management
Page 374
Workers’ compensation laws26 aim to provide sure, prompt income and
medical benefits to work-related accident victims or their
dependents, regardless of fault. Every state has its own workers’
compensation law and administrative commission, and some run their
own insurance programs. However, most require employers to carry
workers’ compensation insurance with private state-approved How
Benefits Are Determined Workers’ compensation benefits can be
monetary or medical. In the event of a worker’s death or
disablement, the person’s dependents are paid a cash benefit based
on prior earnings—usually one-half to two-thirds the
worker’s average weekly wage, per week of employment. For workers’
compensation to cover an injury or work-related illness, one
must only prove that it arose while the employee was on the job.
Controlling Workers’ Compensation Costs Minimizing the number of
workers’ compensation claims (and therefore accidents and lost
hours) is an important goal for all employers. While the employer’s
insurance company usually pays the claims, the costs of the
premiums depend on the number and dollar amount of claims.
In practice, there are several ways to reduce such claims. You can
screen out accident-prone workers. You can reduce accident-causing
conditions in your facilities. And you can reduce the accidents and
health problems that trigger these claims—for instance, by
instituting effective safety and health programs and complying with
government safety standards.
Case management is an increasingly popular option. It is “the
treatment of injured workers on a case-by-case basis by an assigned
manager, usually a registered nurse, who coordinates with the
physician and health plan to determine which care settings are the
most effective for quality care and cost.”
© 2003 Prentice Hall, Inc.
Insight
Weirton steel established a workers’ compensation program to
review, contain, and reduce the costs of workers’
compensation.
Page 374
Weirton’s workers’ compensation program, with its aggressive,
proactive approach toward case reduction, has reduced the number of
cases and produced substantial cost savings. In the mid-1990’s,
workers’ comp cases dropped from 140 monthly to 77; payouts dropped
from $153,000 monthly to $101,000. The firm expanded its efforts
with a “zero-accidents” program in 2001.
© 2003 Prentice Hall, Inc.
Nearly all large companies provide major medical insurance
Plans must comply with ADA laws
Optional eye-care and dental coverage
Accidental death and dismemberment coverage is another option
HMO’s and PPO’s
Page 375
Health and hospitalization insurance looms large in many people’s
choice of employer, because such insurance is so expensive. Most
employers—about 80% of medium and large firms and 69% of small
firms—therefore offer their employees some type of hospitalization,
medical, and disability insurance; along with life insurance, these
benefits form the cornerstone of most benefits programs.
Hospitalization, health, and disability insurance helps protect
against hospitalization costs and the loss of income arising from
off-the-job accidents or illness.
Many employers also sponsor insurance plans that cover
health-related expenses like eye care and dental services. In most
employer-sponsored dental plans, employees pay a specific amount of
deductible dental expenses (typically $25 or $50 each year) before
the plan kicks in with benefits. Accidental death and dismemberment
coverage provides a lump-sum benefit in addition to life insurance
benefits when death is accidental. It also provides benefits in
case of accidental loss of limbs or sight.
Health maintenance organization (HMO)
A prepaid health care system that generally provides routine
round-the-clock medical services as well as preventive medicine in
a clinic-type arrangement for employees, who pay a nominal fee in
addition to the fixed annual fee the employer pays.
Preferred provider Organizations (PPOs)
Groups of health care providers that contract with employers,
insurance companies, or third-party payers to provide medical
care
services at a reduced fee.
© 2003 Prentice Hall, Inc.
Increase annual deductibles
Require medical contributions
Use gatekeepers
Page 375
Reducing Health Benefits Costs Caught between rising health
benefits costs and the belt tightening occurring in firms today,
many managers find controlling and reducing health care costs high
on their to-do lists. As a result, many employers have been
changing their medical plans to do the following:
1. Move away from 100% medical cost payments. Over 70% of plans
include a deductible.
2. Increase annual deductibles. Almost 40% of firms use a
deductible of $150 or more.
3. Require medical contributions. Most employers require employee
contributions to their medical premiums.
4. Use gatekeepers. Using general practitioners as gatekeepers to
channel patients to the appropriate specialists and/or hospitals
was “very effective” in reducing costs, according to 69% of
employers in one survey.
© 2003 Prentice Hall, Inc.
Page 376
5. Encourage preventive health care. This is a popular option. One
survey found that 56% of the firms were sponsoring drug and alcohol
abuse programs; 31% stop smoking sessions; 45% physical fitness
classes; and 18% had exercise facilities on the premises. Seventy
percent were training employees in first aid and CPR. Fifty-four
percent offered tips about how to use company health benefits
wisely. Others offered preventive care programs including
mammograms, prostate exams, and well-baby care. Thirty-nine percent
of respondents in another survey used financial incentives to
encourage good health (such as higher premiums for smokers).
Unfortunately, it’s not clear whether wellness programs reduce
health care costs or boost performance; in one survey, only about 1
in 10 employers even tried to put a dollar figure on savings.
6. Form health care coalitions.51 In Memphis, Tennessee, 11
self-insured employers including FedEx and Holiday Inn formed a
coalition to study health care costs, identify more efficient
health care providers, and use their purchasing power to obtain
discounts on health and hospital care prices.
7. Manage the cost of AIDS. Several insurance companies have
concluded that the best way to manage the cost of AIDS is to treat
the AIDS sufferer in his or her home, and to allow that cost to be
paid under the medical benefits plan (as is often not allowed now).
There is also a growing emphasis on individual case management
(ICM). The insurance company assigns a special ICM nurse to the
patient
and designs an individualized treatment plan. The plan considers
the patient’s
ability to care for him- or herself, the availability of others to
help in the person’s
treatment, and the patient’s age and condition.
© 2003 Prentice Hall, Inc.
Page 376
Mental Health Benefits Employers spend just over 8% of their health
plan dollars on mental health treatment.54 These costs are rising
because of widespread drug and alcohol problems, an increase in the
number of states that require employers to offer a minimum package
of mental health benefits, and the fact that other health care
claims are higher for employees with high mental health
claims.
The Pregnancy Discrimination Act This act requires employers to
treat women affected by pregnancy, childbirth, or related medical
conditions the same as any employees not able to work, with respect
to all benefits, including sick leave and disability benefits, and
health and medical insurance.
COBRA Requirements The ominously titled COBRA—Comprehensive Omnibus
Budget Reconciliation Act—requires most private employers to
continue to make health benefits available to terminated or retired
employees and their families for a period of time, generally 18
months. The former employee must pay for the coverage, as well as a
small fee for administrative costs.
Long-Term Care Today, the oldest baby boomers are in their 50s, and
long-term care insurance—care to support people in their old age—is
emerging as the key new employee benefit.
© 2003 Prentice Hall, Inc.
In addition to hospitalization and medical benefits, most employers
provide group life insurance.
Must address policy issues of:
Benefits-paid schedule
Supplemental benefits
Page 377
Life Insurance
In addition to hospitalization and medical benefits, most employers
provide group life insurance plans. As with health insurance,
employees can obtain lower rates in a group plan. And group plans
usually accept all employees —including new non-probationary
ones—regardless of health or physical condition.
© 2003 Prentice Hall, Inc.
Boomers stampede into retirement with most turning 65 in 2011
Social security, pension plans and saving plans are primary
means
Page 378
As the 77 million or so baby boomers born between 1946 and 1964
stampede into retirement, employers are revising and improving
their retirement benefits. The first contingent of baby boomers
turns 65 in the year 2011, and many reportedly won’t wait that long
to retire; 38% of boomers aged 45 to 52 want to retire by age 55.
Employers are therefore being more aggressive about enhancing their
retirement plans. The major retirement benefits are the federal
Social Security program and employer pension/retirement plans, like
the 401(k).
© 2003 Prentice Hall, Inc.
People over 62
Full payments available at age 65 (soon to be 67)
Page 378
Social Security
Most people assume that Social Security provides income only when
they are over 62, but it actually provides three types of benefits.
The familiar retirement benefits provide an income if you retire at
age 62 or thereafter and are insured under the Social Security Act.
Second are survivor’s or death benefits. These provide monthly
payments to your dependents regardless of your age at death, again
assuming you are insured under the Social Security Act. Finally,
there are disability payments. These provide monthly payments to
employees who become totally disabled (and their dependents) if
they work and meet certain requirements. The Social Security system
also administers the Medicare program, which provides a wide range
of health services to people 65 or over.
In 2001, the employer and employee each paid 7.65% of the
employee’s gross salary, up to $80,400. “Full retirement age”
according to Social Security is 65—the usual age for retirement.
However, full retirement age is rising: It will soon be 67 for
those born in 1960 or later.
© 2003 Prentice Hall, Inc.
About ½ of full time workers have some pension plan
Plans classified as:
Contributory vs. noncontributory
Qualified vs. nonqualified
Page 378
Pension Plans
Pensions provide income to individuals in their retirement, and
just over half of full-time workers participate in some type of
pension plan at work. We can classify pension plans in three basic
ways: contributory versus noncontributory plans; qualified versus
nonqualified plans; and defined contribution versus defined benefit
plans. The employee contributes to the contributory pension plan,
while the employer makes all contributions to the noncontributory
pension plan.
© 2003 Prentice Hall, Inc.
Defined benefit pension plan - contains a formula for determining
retirement benefits
Defined contribution pension plan - a plan in which the employer’s
contribution to employee’s retirement or savings funds is
specified
Definitions
Page 378
With defined benefit plans, the employee knows ahead of time the
pension benefits he or she will receive. Defined contribution plans
specify what contribution the employee and employer will make to
the employee’s retirement or savings fund.
© 2003 Prentice Hall, Inc.
Employer arranges account management
Page 379
401(k) Plans Plans based on section 401(k) of the Internal Revenue
Code, called 401(k) plans, are popular defined contribution plans.
Here an employee authorizes the employer to deduct a certain amount
of money from his or her paycheck before taxes and to invest it in
the 401(k) plan. This results in a pretax reduction in pay, so the
employee pays no tax on those set-aside dollars until after he or
she retires (or removes the money from the 401(k) plan). The
employee decides how much the employer will deduct and deposit in
the 401(k) plan; the person can deduct up to the legal maximum (the
IRS sets an annual dollar limit—$10,500 in 2001).
Savings and thrift plan - plan where employees contribute some of
their earnings to a fund; the employer may match this contribution
in whole or in part.
© 2003 Prentice Hall, Inc.
Other Defined Contribution Plans
Deferred profit-sharing plan - a plan in which a certain amount of
profits is credited to each employee’s account, payable at
retirement, termination, or death
Employee stock ownership plan (ESOP) - a qualified, tax-deductible
stock bonus plan in which employers contribute stock to a trust for
eventual use by employees
Definition
Page 380
In deferred profit-sharing plans, employers typically contribute a
portion of their profits to the pension fund, regardless of the
level of employee contribution. An employee stock ownership plan
(ESOP) is a qualified, tax-deductible stock bonus plan in which
employers contribute stock to a trust for eventual use by
employees. Overall, about 91% of employers in one recent survey
offer 401(k) salary reduction plans; 67% also offer defined benefit
pension plans alongside their 401(k)s, and 18% offer other deferred
profit-sharing
savings plans.
Membership requirements
Benefit formula
Plan funding
Page 380
Pension Planning
Pension planning is complicated, partly because of the many federal
laws governing pensions.
The Employee Retirement Income Security Act (ERISA) of 1974
restricts what companies can, cannot, and must do in regard to
pension plans and the following must be considered.
Membership requirements. For example, what is the minimum age or
minimum service at which employees become eligible for a
pension?
Benefit formula. This usually ties the (defined) pension to the
employee’s final earnings, or an average of his or her last three
or four years’ earnings.
Plan funding. How will you fund the plan? Will it be contributory
or noncontributory?
Vesting. Vested funds are the money employer and employee have
placed in the latter’s pension fund that cannot be forfeited for
any reason. The employees’ contributions are always theirs, of
course. However, until the passage of ERISA, many pension plans
didn’t vest the employer’s contribution till the employee retired.
So you could have worked for a company for 30 years and been left
with no pension if the company went out of business 1 year before
you were to retire.
Pension Benefits Guarantee Corporation (PBGC) Established under
ERISA to ensure that pensions meet
vesting obligations; also insures pensions should a plan terminate
without sufficient funds to meet its vested obligations.
© 2003 Prentice Hall, Inc.
Page 381
Early-Retirement Windows Some plans take the form of
early-retirement window arrangements in which specific employees
(often age 50-plus) are eligible to participate. The “window” means
that for a limited time, the company opens up the opportunity for
employees to retire earlier than usual. The financial incentive is
generally a combination of improved or liberalized pension benefits
plus a cash payment.
Portability Today’s needs for flexible staffing and the realities
of ongoing corporate restructurings are also prompting employers to
make their pension plans more portable.
Cash Balance Pension Plans These are defined benefit plans for
federal tax purposes, but they work differently. In a typical
defined benefit plan, the employer multiplies the employee’s
average pay over the last few years of his or her employment by a
predetermined multiple, and the result represents the person’s
annual retirement income.
© 2003 Prentice Hall, Inc.
Page 383
Credit Unions Credit unions are usually separate businesses
established with the employer’s assistance to help employees with
borrowing and saving needs.
Counseling Services Many firms provide a wide range of counseling
services. These include financial counseling (for example, how to
overcome existing indebtedness); family counseling (for marital
problems and so on); career counseling; outplacement counseling
(for helping terminated or disenchanted employees find new jobs);
preretirement counseling; and legal counseling through legal
insurance plans.
Employee Assistance Programs (EAPS) Employee assistance programs
provide counseling and/or treatment for problems such as substance
abuse, gambling, or stress. Fifty to 75 percent of all employers
with 3,000 or more employees offer EAPs, and there are several
models in use.94 For example, with the in-house
© 2003 Prentice Hall, Inc.
EAP
Key steps for launching a successful EAP program include:
Specify goals and philosophy. Include the short- and long-term
goals you expect the employee and firm to achieve.
Develop a policy statement. Here, define the program’s purpose,
employee eligibility, the roles and responsibility of various
personnel in the organization, and procedures for using the
plan.
Ensure professional staffing. Consider the professional and state
licensing requirements.
Maintain confidential record-keeping systems. Everyone involved
with the EAP, including secretaries and support staff, must
understand the importance of confidentiality. Also ensure files are
locked, access is limited and monitored, and identifying
information is minimized.
Train supervisors. Supervisors should understand the program’s
policies, procedures, and services, as well as the
company’s policies regarding confidentiality. Train them to
recognize the symptoms of problems like substance abuse, and to
encourage employees to use the EAP.
Be aware of legal issues. For example, in most states counselors
must disclose suspicions of child abuse to an appropriate state
agency. Get legal advice on establishing the EAP, carefully screen
the credentials of the EAP staff, and obtain professional liability
insurance for the EAP.
© 2003 Prentice Hall, Inc.
Job Services
Subsidized child care with either an in-house facility or cost
defrayed
Elder care
Other benefits
Food services
Education subsidies
Page 385
Job-Related Services
Job-related services like child care make it easier for employees
to perform their jobs.
Subsidized Child Care Today, over 50% of all U.S. women with
children under six years old are in the workplace, and a Commerce
Department survey reported there were almost 10 million children
younger than age five requiring child care. Child care is thus an
increasingly desirable benefit.
Elder Care With an aging population, elder care has become more of
an issue for many employees. Elder care benefits are important for
much the same reasons as are child care benefits: The
responsibility for caring for an aging relative can affect
the
employee’s performance at work.
Other Job-Related Benefits Some employers provide subsidized
employee transportation. Educational subsidies such as tuition
refunds have long been popular benefits for employees seeking to
continue or complete their educations.
Educational subsidies such as tuition refunds have long been
popular benefits for employees seeking to continue or complete
their educations.
© 2003 Prentice Hall, Inc.
Page 385
How do employees adjust their schedules when they must care for an
elderly family member? One study found that 64% took sick days or
vacation time, 33% decreased work hours, 22% took leaves of
absence, 20% changed their job status from full to part time, 16%
quit their jobs, and 13% retired early. The problem will grow more
acute as the segment of the population over age 65 grows from about
35 million today to 82 million in 2050.
© 2003 Prentice Hall, Inc.
Ninety percent of employees said these programs were very
important
Family friendly firms are on “best to work for” lists
Are these types of programs are useful? Do they improve
productivity?
Page 386
Family-friendly benefits
On-site child care, fitness and medical facilities, flexible work
scheduling, telecommuting, occasional sabbaticals, loan programs
for home computers, stock options, concierge services, even
insurance for the family pet are all part of the compensation
package in the new workplace.
Effect on Performance - There is not a lot of evidence. Many firms
that implement these plans do so as part of broader
commitment-building programs. These typically also include, for
instance, emphasizing employee development, promotion from within,
and open communications. Benefits like these don’t come cheap. For
example, the CEO of one firm that provides concierge services to
employees estimates that for a large company, concierge services
cost $100,000 per year. Aetna found it saved $400,000 by making
employees at its Blue Bell, Pennsylvania, office buy their own
coffee and tea. Excite@home saved $165,000 by eliminating free
sodas.
Effect on Performance But do these family-friendly programs improve
productivity? There is not a lot of evidence. Many firms that
implement these plans do so as part of broader commitment-building
programs. These typically also include, for instance, emphasizing
employee development, promotion from within, and open
communications. Implemented in this manner, studies suggest
work/life benefits may in fact contribute to employees’ willingness
to “go the extra mile” for their employers.
© 2003 Prentice Hall, Inc.
Research Insight
Society for Human Resource Management found that 58% offer
flextime, 31% compressed workweeks, and 24% allow child to be
brought to work in an emergency
Page 386
Executive Perquisites
Perks range from use of the executive washroom to use of the
corporate jet
Some conventional perk$ include:
Page 388
Perks can range from substantial to almost insignificant. In
addition to a $200,000 annual salary, for instance, the president
of the United States has free use of the White House and Camp David
(not to mention a fleet of limousines, Air Force One, and various
helicopters). On the other hand, perks may entail little more than
the right to use the executive washroom.
Many popular perks fall between these extremes. These include
management loans (which typically enable senior officers to
exercise their stock options); salary guarantees (also known as
golden parachutes), to protect executives if their firms become
targets of acquisitions or mergers; financial counseling (to handle
top executives’ investment programs); and relocation benefits,
often including subsidized mortgages, purchase of the executive’s
current house, and payment for the actual move.
© 2003 Prentice Hall, Inc.
Certain benefits must be present
Can be structured as a flexible spending account or core plus
option plan
Page 388
The Cafeteria Approach
Because employees do have different preference for benefits, more
employers today let employees individualize their benefits plans.
The “cafeteria” approach is the main way to do this. (The terms
flexible benefits plan and cafeteria benefits plan are generally
used synonymously.) A cafeteria plan is one in which the employer
gives each employee a benefits fund budget, and lets the person
spend it on the benefits he or she prefers, subject to two
constraints. First, the employer must carefully limit total cost
for each benefits package. Second, each benefits plan must include
certain required items—for example, Social Security, workers’
compensation, and unemployment insurance. New IRS regulations
should make cafeteria plans more attractive, by making them more
flexible.
© 2003 Prentice Hall, Inc.
Often desired by employees
Computerization helps
Page 390
Flexible Programs: Pros and Cons
Flexible benefits programs have pros and cons.142 Flexibility is of
course the main advantage: Employees can choose the package that
suits them best, and the firm can adapt to workers’ changing needs.
Flexible programs also make it cheaper to introduce new benefits,
since the employer doesn’t have to lock them in for all employees.
However, employees may make bad choices and find themselves not
covered for emergencies, and the administrative costs of such plans
can be burdensome.
Computers and Benefits Administration
Whether it is flexible benefits or some other plan, computers play
an important role in benefits administration. PC-based systems let
employees interactively update and manipulate their benefits
packages, as do various Web sites like www.401k.com. Inter- and
intranet systems enable employees to get medical information about
hospitals and doctors and to do interactive financial planning and
investment modeling.
© 2003 Prentice Hall, Inc.
Find medical information
Big and small companies use online systems
Page 390
Group insurance rates are lowered
Downside includes liability issues and loyalty
Page 390
Employee leasing firms arrange for all the employer’s employees to
be transferred to the leasing firm’s payroll including
benefits.
Group insurance rates are lowered.
The downside includes liability issues and loyalty as employees no
longer work directly for the company.
© 2003 Prentice Hall, Inc.
Incentives are paid to employees whose work is above standard
Benefits, on the other hand, are given to all employees who work
for a company
Four types of benefits: pay supplements, insurance, retirement, and
services
Page 391
Supplemental pay benefits provide pay for time not worked including
unemployment insurance, vacation and holiday pay, severance pay,
and supplemental unemployment
Insurance benefits include workers’ compensation, group
hospitalization, accident and disability, and group life
Page 391
Most employers provide benefits like employee services including
food services, recreational opportunities, legal advice, credit
unions, and counseling
Page 392
Employees prefer individualizing the organization’s benefits
plans
Flexible benefits plans, also called the cafeteria approach, allow
the employee to put together their own plan, subject to cost limits
and the inclusion of non-optional items
89
96
77
80
87
0
20
40
60
80
100