Lecture 12 20th April 2011

8/7/2019 Lecture 12 20th April 2011

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2005 Prentice Hall Inc.All rights reserved.

PowerPoint Presentation by Charlie CookThe University of West Alabama

t e n t h e d i t i o n

Gary DesslerGary Dessler

ChapterChapter1313 PartPart 44 CompensationCompensation

Benefits and ServicesBenefits and Services


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2002 Southwestern College Publishing. All rightsreserved. 122

Compensation Quartile Strategies

Figure 125


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Compa-Ratio Example

Compa-ratio Thepaylevel divided bythemidpointofthepay

range.

110ratio-Compa100(midpoint)15.00

pay)(current$16.50Employee !pv!R

87ratio-Compa100(midpoint)15.00

pay)(current$13.05Employee !pv!J


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Types of Variable PayPlans

Figure 131


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Piece-Rate Systems

Straight Piece-Rate Systems Wagesare determined bymultiplyingthenumber

ofpiecesproduced bythepiecerateforoneunit.

Differential Piece-Rate Systems

Employeesarepaid onepiece-rateforunitsproduced uptoastandard outputand ahigherpiece-rate wageforunitsproduced overthestandard.


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Bonusesand Special IncentivePrograms

BonusA one-timepaymentthatdoesnotbecomepartof

the employees basepay.

Awards

Cashormerchandiseused asanincentivereward.

Recognition Awards

Recognitionofindividualsfortheirperformanceorserviceto customersinareastargeted bythefirm.

Service Awards

Rewardsto employeesforlengthyservice withanorganization.


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Common Executive Perks

Figure 1310


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SecurityBenefits (contd)

Severance PayA security benefitvoluntarilyoffered by employer

to employees wholosetheir jobs.

Paymentsare determined bythe employeeslevel

withintheorganizationand yearsofemployment. Other benefits (e.g., outplacementand continuedhealthinsurance) may beoffered inlieuofcashseverancepayments.


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PensionTermsand Concepts

ContributoryPlan Both employerand employeepaymoneyintothe

retirementfund.

Non-contributoryPlan

Allpension benefitsfundingispaid bythe employer.

Vesting

Therightofemployeestoreceive benefitsfromtheirpensionplans.

Portability

A pensionplanfeaturethatallows employeestomovetheir benefitsfromone employertoanother.


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Controlling Health-CareBenefitsCosts

Co-Payment Employeesarerequired topayaportionofthe

costofbothinsurancepremiumsand medicalcare.

Defined Contribution Plans for HealthBenefits

Employerprovidesasetamountthattheemployeemayspend onhealth-care coverage

benefits.


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Controlling Health-CareCosts (contd)

Managed CareApproachesthatmonitorand reducemedical costs

usingrestrictionsand marketsystemalternatives.

Preferred Provider Organization

A health-careproviderthatcontractwithanemployergrouptoprovidehealth-careservicestoemployeesata competitiverate.

Health Maintenance Organization (HMO)

A managed careplanthatprovidesservicesforafixed period onaprepaid basis.


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2005 Prentice Hall Inc. All rights reserved. 1313

Benefits

Benefits Indirectfinancialand nonfinancialpayments

employeesreceivefor continuingtheiremploymentwiththe company.

Types of employee benefit plans Supplementalpay:sickleaveand vacationpay

Insurance: workers compensation

Retirement:Pensions

Employeeservices: child-carefacilities


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Laws Affecting EmployeeBenefits

Retirement plans EmployeeRetirementIncomeSecurity Actof1975 (ERISA)

Economic Growthand Tax ReliefConciliation Actof2000

Job Creationand Worker Assistance Act

Health plans The Newborn MothersProtection Actof1996

The Mental HealthParity Actof1996

AgeDiscriminationin EmploymentAct

Health InsurancePortabilityand Accountability Actof1996

(HIPAA) Familyand Medical Leave Act(FMLA)

Americans withDisabilities Act(ADA)


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TypesofEmployeeBenefits

Pay for time not worked Insurance benefits

Retirement benefits

Services


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PayforTime NotWorked

Unemployment insurance Providesfor benefitsifapersonisunableto work

throughnofaultofhisorherown.

Payrolltax on employersthatis determined byan

employersrateofpersonnelterminations. Tax is collected and administered bythestate.

Vacations and holidays

Numberofpaid vacation days varies by employer.

Numberofholidays varies by employer.

Premiumpayfor workonholidays.


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PayforTime NotWorked (contd) Sick leave

Providespaytoan employee whenheorsheisoutofworkbecauseofillness.

Costs for misuse of sick leave

Pooled paid leave plans

Bereavement leave Givento employeesin caseofDeathofFamily Member

Parental leave

TheFamily Medical Leave Actof1993 (FMLA)

Up to 12 weeks of unpaid leave within a one-year period

Employees must take unused paid leave first.

Employees on leave retain their health benefits.

Employees have the right to return to their job or equivalentposition.


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PayforTime NotWorked (contd)

Severance payA one-timepaymentwhenterminatingan

employee.

Reasonsforgrantingseverancepay:

Acts as a humanitarian gesture and good publicrelations.

Mirrors employees two week quit notice.

Avoids litigation from disgruntled former employees.

Meets WorkerAdjustment and Retraining Notification(plant closing) Act requirements.

Reassures employees who stay on after the employerdownsizes its workforce of employers good intentions.


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PayforTime NotWorked (contd)

Supplemental unemployment benefits (SUB)

Paymentsthatsupplementthelaid-offorfurloughed employeesunemploymentcompensation.

The employer makes contributions to a reserve fund fromwhich SUB payments are made to employees for thetime the employee is out of work due to layoffs, reducedworkweeks, or relocations.

SUB payments are considered previously earned

compensation for unemployment calculation purposes.

It is union negotiated.


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InsuranceBenefits

Workerscompensation Providesincomeand medical benefitsto work-

related accidentvictimsortheir dependents,regardlessoffault.

Death or disability: a cash benefit based on earnings perweek of employment.

Specific loss injuries: statutory list of losses

Controlling worker compensation costs Screen out accident-prone workers.

Make the workplace safer.

Thoroughly investigate accident claims.

Use case management to return injured employees towork as soon as possible.


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InsuranceBenefits (contd)

Hospitalization, health, and disabilityinsurance

Provideforlossofincomeprotectionand group-rate coverageofbasic and majormedical

expensesforoff-the-job accidentsand illnesses. Accidental death and dismemberment

Disability insurance


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Health maintenance organization (HMO)

A medicalorganization consistingofspecialistsoperatingoutofa community-based health carecenter.

Provides routine medical services to employees who paya nominal fee.

Receives a fixed annual contract fee per employee fromthe employer (or employer and employee), regardless ofwhether it provides that person with service.


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Preferred provider organizations (PPOs)

Groupsofhealth careprovidersthatcontracttoprovidemedical careservicesatreduced fees.

Employees can select from a list of preferred individual

health providers.

Preferred providers agree to discount services and tosubmit to certain utilization controls, such as on thenumber of diagnostic tests they can order.

Employees using non-PPO-listed providers may pay allof the service costs or the portion of the costs above thereduced fee structure for services.


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OtherCost-SavingStrategies

1. Wellness programs

2. Disease management

3. Absence management

4. On-site primarycare

5. Eliminating cost-inefficient plans

6. M

oving tow

ard PPO

Figure 134Source: Shari Caudron, Health Care Costs: HRs Crisis Has Real Solutions, Workforce, February 2002, p. 30.


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New trends in health care cost control: Useofcost-containmentspecialists

Getting employeesmoreinvolved and empowered

Automatinghealth careplanadministration

Online selection software

Using defined contributionhealth careplans

Outsourcinghealth care benefitsadministration

Reducingor eliminatingretireehealth care

coverage

Joining benefitspurchasingalliances


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RetirementBenefits (contd)

Types of pension plans

Contributory: employees contributetotheplan.

Noncontributoryplans: employermakesall

contributionstotheplan. Qualified plans:plansthatmeetrequirementsfor

tax benefitsfor employer contributions.

Nonqualified plans:plansnotmeeting

requirementsforfavorabletax treatment.


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Types of pension plans (contd)

Defined contribution: contributionsofemployeesand employersarespecified; planpayoutsarenot.

Defined benefitplans:planpayoutsarespecified;however, contributionsmustbesufficienttoinsurepayouts.


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Other types of defined contribution plans Savingsand thriftplans

Employees contribute a portion of their earnings to afund; the employer usually matches this contribution inwhole or in part.

Deferred profit-sharingplans Employers contribute a portion of profits to the pension

fund, regardless of the level of employee contribution.

Employeestockownershipplans (ESOPs)

Qualified, tax-deductible stock bonus plans in whichemployers contribute company stock to a trust foreventual use by employees.


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Employee Retirement Income SecurityAct(ERISA) of1974

Restricts whatcompaniesmustdoinregard topensionplans. Inunionized companies, theunion

canparticipateinpensionplanadministration. PensionBenefits GuaranteeCorporation (PBGC)

Insures pensions of a qualified plan that terminateswithout sufficient funds to its meet obligations.

Guarantees only defined benefit plans, not defined

contribution plans.

Will only pay an individual a pension of up to about$27,000 per year.


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Employeesvesting rights underERISA Participantshavearightto 100% ofaccrued

benefitsafterfiveyearsofservice.

Employers may phase in vesting over a period of three to

seven years.

An employer canrequirethatan employeecompleteaperiod oftwoyearsservice beforebecoming eligibletoparticipateintheplan.

If an employer requires more than one year of servicebefore eligibility, the plan must grant employees full andimmediate vesting rights at the end of that period.


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Keypolicy issues in pension planning Membershiprequirements

Setting the minimum age or minimum service at whichemployees become eligible for a pension.

Benefitformula Determining pension payouts for individual employees.

Planfunding Funding the plan (contributory or noncontributory).

Vesting Meeting ERISA requirements for employer and employeecontributions that cannot be forfeited for any reason bythe vested employee.


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Pension alternatives Earlyretirementwindows

Specific employees (often age 50-plus) are offered theopportunity to voluntarily retire earlier than usual.

The financial incentive is generally a combination ofimproved or liberalized pension benefits plus a cashpayment.

OlderWorkersBenefitProtection Act (OWBPA)

Imposes limitations on waivers that purport to release aterminating employees potential claims against theemployer based on age discrimination.


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Pension alternatives (contd) Increasingportability

Defined benefit plans to defined contribution plans

Allows workers who leave the firm before retirement to

receive initial benefits at a younger age.

Cash balancepensionplans

Defined benefit plan in which the employer contributes apercentage of employees pay to the plan every year,and employees earn interest on this amount.

Provide the portability of defined contribution plans withthe employer funding of defined benefit plans.

Conversion to cash balance plans can have a disparateimpact on older workers nearing retirement.


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Family-FriendlyBenefits

On-site orsubsidizedchild care

Elder care

Fitness and medical

facilities Foodservices

Flexible work

scheduling

Telecommuting

Educationalsubsidies Sabbaticals

Loan programs for

home office equipment

Stock options Concierge services

Trauma counseling


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ExecutivePerquisites

Management loans Golden parachutes

Financial counseling

Relocation benefits

Sabbaticals

Severance pay

Outplacement

assistance

Companycars

Chauffeured limousines

Securitysystems

Companyplanes andyachts

Executive dining rooms

Physical fitness

programs Legalservices

Tax assistance

Expense accounts

Club memberships Season tickets

Credit cards

Childrens education


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FlexibleBenefitsPrograms

The cafeteria (flexible benefits) approach

Each employeeisgivena benefitsfund budgettospend onthe benefitsheorsheprefers.

The fund limits the total cost for each benefits package.

Core plus option plans establish a core set of benefitswhich are mandatory for all employees.

Flexible spending accounts

Enable employeestopayformedicaland otherexpenses withpretax dollars by depositingfundsintheiraccountsfrompayroll deductions.


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FlexibleWork Arrangements

Flextime

A plan whereby employees workdaysare builtaround a coreofmid-dayhours whenall workersarerequired to bepresent.

Workers canarrangetheirownstartingandstoppinghours beforeand afterthe coreperiod.

Positive effects on employee productivity, jobsatisfaction, satisfaction with work schedule, and

employee absenteeism. Positive effect on absenteeism was much greater than on

productivity.


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FlexibleWork Arrangements (contd)

Compressedworkweeks Increaseproductivity

Less disruption from shift changes

Longer time-off-work periods

Reduced absenteeism

Longer workdays; fewer workdays:

Four-day workweeks, with four 10-hour days.

Two days on, two days off, three days on, then two daysoff, two days on, and so forth.

Three 12-hour shifts, and then off for the next four days.


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OtherFlexibleWork Arrangements

Job sharingAllowingtwoormorepeopletoshareasinglefull-

time job.

Worksharing

A temporaryreductionin workhours byagroupofemployees during economic downturnsasawaytopreventlayoffs.

Telecommuting

Employees workathomeusingtelephonesandthe Internettotransmitletters, data, andcompleted worktothehomeoffice.


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KeyTerms

benefitssupplemental pay benefits

unemployment insurance

sick leave

severance pay

supplemental unemployment benefits

workers compensation

health maintenance organization (H O)

preferred provider organizations (PPOs)

group life insurance

Social Security

pension plans

defined benefit pension plan

defined contribution pension plan

401(k) plan

savings and thrift plandeferred profit-sharing plan

employee stock ownership plan (ESOP)

Employee Retirement Income Security Act

(ERISA)

vesting

Pension enefits Guarantee Corporation(P GC)

early retirement window

cash balance plans

employee assistance program

flexible benefits plan/cafeteria benefits plan

job sharing

work sharing

telecommuting

Documents

Lecture 12 20th April 2011