Chapter Thirteen Benefits

Copyright © Houghton Mifflin Company. All rights reserved. 13–2 Chapter Outline The Role of Benefits in Reward Systems Types of Benefits Issues in Indirect Compensation

Copyright © Houghton Mifflin Company. All rights reserved. 13–3 The Role of Benefits in Reward Systems

Copyright © Houghton Mifflin Company. All rights reserved. 13–4 Issues of the Cost of Benefits The Cost of benefits is increasing far more rapidly than the cost of wages

Copyright © Houghton Mifflin Company. All rights reserved. 13–5 Figure 13.1: Employment Cost Index Source: Bureau or Labor Statistics, Employment Cost Index. (Available at: action=EC ectbrief)

Copyright © Houghton Mifflin Company. All rights reserved. 13–6 Table 13.1 Benefits in Relation to Total Compensation Source: “Employer Costs for Employee Compensation,” Bureau of Labor Statistics, June (Available at:

Copyright © Houghton Mifflin Company. All rights reserved. 13–7 Mandatory Protection Programs Social Security Unemployment Compensation Workers’ Compensation

Copyright © Houghton Mifflin Company. All rights reserved. 13–8 Issues with Social Security 2/3rds of workers in the US pay more toward SS/Medicare than they pay in income tax Not funded on an actuarial basis

Copyright © Houghton Mifflin Company. All rights reserved. 13–9 Issues with Social Security (cont’d) Designed for a previous era before the issues of: –Longevity –Number of retirees –Retirement age –Ratio of workers to retirees

Copyright © Houghton Mifflin Company. All rights reserved. 13–10 Unemployment Compensation Temporary income for out-of-work employees Recipients must be looking for work Income is at the rate of 50 to 80% of normal pay Managed by each state in accordance with Federal guidelines

Copyright © Houghton Mifflin Company. All rights reserved. 13–11 Workers’ Compensation No fault disability insurance for workers injured or killed on the job Employers pay premiums based on worker injury experience Established in accordance with state laws so provisions vary Since involves medical treatment, can be expensive for employers

Copyright © Houghton Mifflin Company. All rights reserved. 13–12 Other Types of Benefits Compensation for Time Not Worked –Holidays –Vacation –Sick Leave –Personal Days –Other Leaves

Copyright © Houghton Mifflin Company. All rights reserved. 13–13 Optional Benefit Programs Health Insurance Life and Disability Insurance Retirement/Pension Plans –Defined Contribution –Defined Benefit –Capital Accumulation –Cash Balance

Copyright © Houghton Mifflin Company. All rights reserved. 13–14 Optional Benefit Programs (cont’d) Other Benefits –Wellness Programs –Educational Assistance –Child Care Assistance

Copyright © Houghton Mifflin Company. All rights reserved. 13–15 Health Care Issues

Copyright © Houghton Mifflin Company. All rights reserved. 13–16 Figure 13.3 Percent Change in Health Spending Compared to Other Indicators Source: The Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits 2004 Annual Survey (Menlo Park, CA: Henry J. Kaiser Family Foundation, 2004).

Copyright © Houghton Mifflin Company. All rights reserved. 13–17 Methods of Coping with High Health Care Costs –Health Plan Redesign Deductible Coinsurance Coordinating Benefits –Health Funding Alternatives Preferred Provider Organization (PPO) Health Maintenance Organization (HMO) –Legal Requirements for Health Care –Health Benefits for Retirees –Health Benefits for Nonfamily Members

Copyright © Houghton Mifflin Company. All rights reserved. 13–18 Types of Pension Plans Defined Contribution –Benefits are a function of contributions plus gains or losses Defined Benefit –Benefits based on a formula that includes length of service and average earnings

Copyright © Houghton Mifflin Company. All rights reserved. 13–19 Types of Benefit Plans (cont’d) Capital Accumulation Plans –401(k) or thrift plans –Tax-deferred contributions Cash-Balance Plans –Combines the benefit formula of a define contribution with the investment security of a defined benefit plan.

Copyright © Houghton Mifflin Company. All rights reserved. 13–20 Regulations Governing Retirement Plans ERISA—employment Retirement Income Security Act of 1974 Single-Sex Pension Benefits GATT Treaty (1994)

Copyright © Houghton Mifflin Company. All rights reserved. 13–21 Health Benefits for Nonfamily Members More than 145 (29%) of Fortune 500 companies now offer domestic-partner benefits, more than quadruple the number that offered them in 1997.

Copyright © Houghton Mifflin Company. All rights reserved. 13–22 Issues in Indirect Compensation Cost Containment Flexible Benefit Option –Flexible Benefit Package (Cafeteria-Style Benefit Plan) Communicating About Benefits Work Family Issues

Copyright © Houghton Mifflin Company. All rights reserved. 13–23 Table 13.4 Most Popular Family Workplace Initiatives Source: Adapted from Society for Human Resource Management, “2001 Benefits Survey,” April (Available at:

Copyright © Houghton Mifflin Company. All rights reserved. 13–24 Review Strategic Importance of Variable Pay Linking Pay to Performance Individual Incentives Group Incentives Barriers to Pay-for-Performance Success Summary: Making Variable Pay Successful Executive Compensation The Role of Benefits in Reward Systems Types of Benefits Issues in Indirect Compensation