Benefits Importance of indirect compensation Factors which influence indirect compensation Major types of employee benefits Costs and containment of benefits Administrative issues

Benefits Goals Attract and retain good employees Help employees meet security needs Motivate employees Reduce operating costs Enhance corporate image

Benefit Planning Employee objectives: Demographics, FMLA Organizational objectives: Strategic & Financial Union objectives Legal obligations: ERISA –Regulations: Include employees over 21, working 1000 hrs. /yr, funding and fiduciary liability –PBGA

Cost Containment Strategies Raise deductibles and co-payments Managed care (HMO, PPO) Limit services Second opinion Cap on coverage Self-insurance

External Influences Wage controls Expansion of social security Union bargaining Federal tax policies Social legislation Inflation Competition

Internal Influences Employee wants: Demographics and economic class of workers Management needs: Containing costs Business objectives: Strategic considerations

Major Categories of Benefits Pay for time not worked Security plans Health plans Employee services

Pay for Time not Worked Rest periods, lunch breaks, coffee breaks Sick leave Leave of absence, Family Leave - Mandated Holiday and vacations

Security Plans Retirement plans Unemployment insurance Severance pay Life insurance Disability pay

Retirement Plans Defined benefit : Benefits vary by age and length of service according to a formula. Set amount received. Funded mostly by employer Defined contribution: Each employee has an account to which personal and/or corporate contributions are made. Funded jointly

Defined Contribution Plans 401K ESOP Matched savings Simplified employment pension

Comparison of Plans Defined benefits –20 % of new plans –Must meet ERISA control –Guaranteed level of income but may not be enough to maintain standard of living –May be underfunded, but contributions are tax deductible to employer Defined contributions –80 % of new plans –No set funding requirement –No set income, based on profitability of investments –Value can go down –Less costly for employer, but contributions go up with income

Social Security Mandated Cost is 7.65 % of pay for employee and employer (including medicare) Currently on first $65,000 of pay for social security, no limit on medicare An income supplement not a pension plan Pay as you go puts future stress on system

Other Security Plans Unemployment insurance - Mandated Severance pay Life insurance Disability

Health benefits Hospitalization Physician services in hospital Major medical HMOs, PPOs Workmen’s compensation: Mandated Prescription, eye glasses, dental plans Medical spending accounts Medical savings accounts

Employee Services Subsidized food (cafeterias) Subsidized child care Tuition aid Credit unions

Administration EEO issues Costing benefits:Annual cost for all, Cost per employee, Percent of payroll, cents/hr. Cafeteria plans Communicating benefits Regulations: Civil rights, Age discrimination, Fiduciary

Backwards & Forwards Summing up: We’ve covered benefits from strategy to a menu of security and health benefits to issues in the administration of benefit programs. With benefits being a substantial part of the cost of labor, it is important for organizations to manage and communicate the programs well. Looking ahead: Next time we’ll consider employee motivational strategies available to management and human resources.