1. Copyright © 2014 Pearson Education Human Resource Management Global Edition 13th Edition Chapter 10 Indirect Financial Compensation (Benefits) and Nonfinancial Compensation 10-1 Copyright © 2014 Pearson Education

2. Learning Objectives Describe some unique employee benefits, define indirect financial compensation (benefits), and explain what is included in a total reward package. Describe legally required benefits. Define discretionary benefits and explain the various types of discretionary benefits. Explain the different kinds of health care legislation and describe the relationship between smoke-free workplaces and the Patient Protection and Affordable Care Act. Explain premium pay. 10-2

3. Copyright © 2014 Pearson Education Learning Objectives (Cont.) Explain voluntary benefits. Describe customized benefit plans. Describe the importance of communicating information about the benefits package. Describe the job itself and the job environment as components of nonfinancial compensation. Describe workplace flexibility (work-life balance) factors and global customized benefits. 10-3

4. Copyright © 2014 Pearson Education HRM in Action: Unique Employee Benefits More and more companies are providing unique benefits Companies were trying out use of unique benefits Used employee benefits to clearly differentiate them from their competitors 10-4

5. Copyright © 2014 Pearson Education Indirect Financial Compensation (Benefits) All financial rewards that are not paid directly to the employee 10-5

6. Copyright © 2014 Pearson Education Discretionary Versus Voluntary Benefits Discretionary benefits: Benefits made as result of unilateral management decisions in nonunion firms and from labor– management negotiations in unionized firms Voluntary benefits: Usually entirely paid by employee, but employer typically pays administrative cost 10-6

7. Copyright © 2014 Pearson Education Indirect Financial Compensation (Benefits) in a Total Compensation Program External Environment Internal Environment 10-7 Compensation Indirect (Benefits) Legally Required Benefits Social Security Unemployment Compensation Workers’ Compensation Discretionary Benefits Payment for Time Not Worked Health Care Life Insurance Retirement Plans Disability Protection Employee Stock Option Plans Employee Services Premium Pay Voluntary Benefits Financial Nonfinancial The Job Job EnvironmentDirect 10-7

8. Copyright © 2014 Pearson Education Total Rewards All ways in which people are rewarded when they come to work Pay, benefits, and other non-financial rewards Put together to make coherent and integrated whole Directed toward maximum attainment of corporate goals All items that add value to an employee 10-8

9. Copyright © 2014 Pearson Education Mandated Benefits (Legally Required) Social Security Unemployment compensation Workers’ compensation 10-9

10. Copyright © 2014 Pearson Education Social Security System of retirement benefits Federal payroll tax to fund unemployment and retirement benefits Amendments include disability insurance, survivors’ benefits, and Medicare 10-10

11. Copyright © 2014 Pearson Education Unemployment Compensation Laid off individual receives compensation for up to 26 weeks Administered by states Payroll tax paid solely by employers 10-11

12. Copyright © 2014 Pearson Education Workers’ Compensation Expenses resulting from job-related accidents or illnesses Administered by states Program paid for by employers Premium expense directly tied to past experience 10-12

13. Copyright © 2014 Pearson Education Discretionary Benefits Payment for time not worked Health care Life insurance Retirement plans Disability protection Employee stock option plans (ESOP) Employee services 10-13

14. Copyright © 2014 Pearson Education Payment for Time Not Worked: Paid Vacations Provide workers with opportunity to rest, become rejuvenated, and thus more productive Encourage employees to remain with firm Typically increases with seniority Americans do not take full advantage of their vacation benefits 10-14

15. Copyright © 2014 Pearson Education Payment for Time Not Worked: Sick Pay and Paid Time Off Many firms allocate each employee a certain number of days of sick leave per year Some managers are very critical of sick leave programs Paid time off (PTO): Certain number of days off provided each year that employees can use for any purpose 10-15

16. Copyright © 2014 Pearson Education Results-only Work Environment Allows employees to work wherever and whenever they wish as long as they complete projects on time There is no schedule and no limit for earned vacation and leave time 10-16

17. Copyright © 2014 Pearson Education Payment for Time Not Worked: Sabbaticals Temporary leaves of absence from organization, usually at reduced pay Used in academic community for years Recently entered the private sector Help reduce turnover and prevents burnout 10-17

18. Copyright © 2014 Pearson Education Payment for Time Not Worked: Other Forms Perform civic duties Handle personal affairs Jury duty National Guard or military reserve Voting time Bereavement time Rest periods, coffee breaks, lunch periods, cleanup time, and travel time 10-18

19. Copyright © 2014 Pearson Education Factors Contributing to the High Cost of Health Care Aging population Growing demand for medical care Increasingly expensive medical technology Inefficient administrative processes 10-19

20. Copyright © 2014 Pearson Education Forms of Managed-Care Health Organizations Health maintenance organizations (HMOs) cover all services for fixed fee, but exercise control over which doctors and health facilities member may use. Preferred provider organizations (PPOs) are managed-care health organizations where incentives are provided to members to use services within system; out-of-network providers may be used at greater cost. 10-20

21. Copyright © 2014 Pearson Education Forms of Managed-Care Health Organizations (cont.) Point-of-service (POS) requires a primary care physician and referrals to see specialists, as with HMOs, but permits out-of- network health care access. Exclusive provider organizations (EPOs) offer smaller PPO provider network and usually provide few, if any, benefits when out- of-network provider is used. 10-21

22. Copyright © 2014 Pearson Education Consumer-Driven Health Care Plans Each employee given set amount of money annually with which to purchase health care coverage Involves high-deductible insurance coverage combined with a tax-advantaged account like a health saving account (HRA), health reimbursement accounts (HRA), and flexible saving account (FSA) 10-22

23. Copyright © 2014 Pearson Education Health Savings Account (HSA) Tax-free health spending and savings account Available to individuals and families who have qualified high-deductible health insurance policies as determined by IRS Can put a maximum of $6,250 a year in a pretax account Not use HSA for over-the-counter drugs 10-23

24. Copyright © 2014 Pearson Education Health Reimbursement Accounts Allow employer to set aside funds to reimburse medical expenses paid by participating employees No limit on employer’s contributions Can be rolled over from year to year 10-24

25. Copyright © 2014 Pearson Education Flexible Spending Account (FSA) Health benefit plan established by employers Allows employees to deposit certain portion of pre-tax salary into account to be used for eligible expenses (Maximum - $2,500) Forfeit any amount left unspent in account at year end Not used for over-the-counter medications 10-25

26. Copyright © 2014 Pearson Education On-Site Health Care Way of curbing health care costs while providing an employee benefit Permits employers to better manage and at times reduce growth of health care costs Assists in treating minor illnesses and injuries and provides follow-up care 10-26

27. Copyright © 2014 Pearson Education Major Medical Benefits Provided to cover extraordinary expenses that result from long-term or serious health problems Use of deductibles is a common feature 10-27

28. Copyright © 2014 Pearson Education Dental and Vision Care Dental and vision care are popular benefits Employers typically pay the entire costs for both types of plans except for a deductible 10-28

29. Copyright © 2014 Pearson Education Health Care Legislation Employee Retirement Income Security Act (ERISA) Consolidated Omnibus Budget Reconciliation Act (COBRA) Older Workers Benefit Protection Act (OWBPA) Health Insurance Portability and Accountability Act (HIPAA) Family and Medical Leave Act Pension Protection Act (PPA) Patient Protection and Affordable Care Act (PPACA) 10-29

30. Copyright © 2014 Pearson Education Employee Retirement Income Security Act of 1974 (ERISA) Strengthens existing and future retirement programs Intended to ensure when employees retire they receive deserved pensions Does not force employers to create employee retirement plans 10-30

31. Copyright © 2014 Pearson Education Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) Gives employees opportunity to temporarily continue coverage they would otherwise lose because of termination, layoff, or other change in employment status Applies to employers with 20 or more employees May keep coverage for up to 18 months after employment ceases Individual must pay for insurance 10-31

32. Copyright © 2014 Pearson Education Older Workers Benefit Protection Act of 1990 (OWBPA) Amendment to Age Discrimination in Employment Act Prohibits discrimination in administration of benefits on basis of age Permits early retirement incentive plans as long as they are voluntary Establishes wrongful termination waiver requirements 10-32

33. Copyright © 2014 Pearson Education Health Insurance Portability and Accountability Act of 1996 (HIPAA) Protection for Americans who change jobs, are self-employed, or have preexisting medical conditions Makes health insurance portable and continuous Eliminates ability of insurance companies to reject coverage 10-33

34. Copyright © 2014 Pearson Education Family and Medical Leave Act of 1993 (FMLA) Private employers with 50 or more employees and all governmental employers Up to 12 workweeks of unpaid leave per year for absences due to: –Employee’s own serious health condition –Need to care for newborn or newly-adopted child, seriously ill child, parent, or spouse 10-34

35. Copyright © 2014 Pearson Education Pension Protection Act of 2006 (PPA) Strengthens funding rules for defined benefit pension plans Ensures that employers make greater contributions to their pension funds Must be fully funded in by 2013 10-35

36. Copyright © 2014 Pearson Education Patient Protection and Affordable Care Act of 2010 (PPACA) Often called “Health Care Reform Bill.” Everyone required to have insurance by 2014 Children can stay on parents’ policy to age 26 Insurance companies cannot cancel a policy if the insured gets sick Cannot be denied insurance simply because of a preexisting condition No maximum limit on insurance coverage No waiting time for coverage if person has pre- existing condition 10-36

37. Copyright © 2014 Pearson Education Trends & Innovations: Smoke-free Workplaces and the Patient Protection and Affordable Care Act Act provides that companies with health plans that spend much more than average will have to pay an additional federal tax Smokers increase health care costs Companies must cut benefits or cut trend of rising medical costs to avoid levy 10-37

38. Copyright © 2014 Pearson Education Life Insurance Group life insurance is a commonly provided benefit to protect employee’s family in event of death Some plans call for the employee to pay part of the premium 10-38

39. Copyright © 2014 Pearson Education Retirement Plans Defined benefits plans Defined contribution plan Cash balance plan 10-39

40. Copyright © 2014 Pearson Education Defined Benefit Plans Provide participant with fixed benefit upon retirement Typically based on participant’s final years’ average salary and years of service Use has declined in recent years Older workers tend to prefer them 10-40

41. Copyright © 2014 Pearson Education Defined Contribution Plans Require specific contributions by employer for employee Shift from defined benefits to defined contribution pension plans Retirement income depends upon investment success of pension fund 10-41

42. Copyright © 2014 Pearson Education 401(k) Plan Defined contribution plan in which employees may defer income up to maximum allowed amount Some employers match employee contributions 50 cents for each dollar deferred Recent recession was not been kind to 401(k) accounts 10-42

43. Copyright © 2014 Pearson Education Cash Balance Plans Elements of both defined benefit and defined contribution plans Help employers who are looking for ways to maximize retirement contributions Employer normally bears responsibility for and risks of managing assets 10-43

44. Copyright © 2014 Pearson Education Disability Protection Workers’ compensation protects employees from job-related accidents and illnesses Some firms provide additional protection that is more comprehensive Long-term disability provides a monthly benefit to employees who due to illness or injury are unable to work for an extended period 10-44

45. Copyright © 2014 Pearson Education Employee Stock Option Plan (ESOP) Firm contributes stock shares to a trust Trust allocates stock to participating employee accounts according to employee earnings Some employees want ability to sell their shares prior to retirement, which ESOPs do not allow Enron experience very negative 10-45

46. Copyright © 2014 Pearson Education Employee Services Child care Educational assistance Food service/subsidized cafeterias Scholarships for dependents Relocation benefits Domestic partner benefits 10-46

47. Copyright © 2014 Pearson Education Child Care 80% of employees miss work due to unexpected child-care coverage issues Every $1 invested in backup child care yields $3 to $4 in returned productivity and benefit 10-47

48. Copyright © 2014 Pearson Education Educational Assistance Improves employee retention Many different ways to reimburse workers 10-48

49. Copyright © 2014 Pearson Education Food Services/Subsidized Cafeterias Companies believe they get high payback in terms of employee relations. Hope to gain: –Increased productivity –Less wasted time –Enhanced employee morale –Healthier workforce 10-49

50. Copyright © 2014 Pearson Education Scholarships for Dependents Some companies provide scholarships for dependents Boosts employee recruitment and retention 10-50

51. Copyright © 2014 Pearson Education Relocation Benefits Company-paid shipments of household goods and temporary living expenses Cover all or a portion of the real estate costs associated with buying a new home and selling the old home Relocation packages vary Moving may impact quality of life 10-51

52. Copyright © 2014 Pearson Education Domestic Partner Benefits Unmarried domestic partners are more often being included as qualified for coverage under employee benefit plans Growing trend to offer benefits to same-sex domestic partners of employees 10-52

53. Copyright © 2014 Pearson Education Premium Pay Compensation paid to employees for working long periods of time or working under dangerous or undesirable conditions Hazard pay: Pay for work under extremely dangerous conditions Shift differentials: Pay for inconvenience of working less desirable hours 10-53

54. Copyright © 2014 Pearson Education Voluntary Benefits 100% paid by employee, but employer typically pays administrative cost Employees benefit because their premiums typically reflect group discounting Takes pressure off firms to add employer-paid benefits 10-54

55. Copyright © 2014 Pearson Education Customized Benefit Plans Employees make yearly elections to determine benefit package Choose between taxable cash and benefits. 20 years ago, firms offered uniform package that reflected typical employee Today’s workforce more heterogeneous 10-55

56. Copyright © 2014 Pearson Education Communicating Information About the Benefits Package Workers need to fully understand benefits Organizations often do not have to improve benefits to keep best employees Employee Retirement Income Security Act Patient Protection and Affordable Care Act 10-56

57. Copyright © 2014 Pearson Education Nonfinancial Compensation in a Total Compensation Program External Environment Internal Environment 10-57 DirectIndirect (Benefits)The Job Meaningful Appreciated Satisfying Learning Enjoyable Challenging Job Environment Sound Policies Capable Managers Competent Employees Congenial Co-workers Appropriate Status Symbols Working Conditions Workplace Flexibility Flextime Compressed Workweek Job Sharing Telecommuting Part-time Work FinancialNonfinancial

58. Copyright © 2014 Pearson Education The Job Itself as a Nonfinancial Compensation Factor Job itself can be very powerful motivational factor Some jobs can be so stimulating the employee is anxious to get to work each day Given prospect of getting a generous raise by leaving this job, this worker may quickly say “No” 10-58

59. Copyright © 2014 Pearson Education Job Environment as a Nonfinancial Compensation Factor Sound policies Capable managers Competent employees Congenial coworkers Appropriate status symbols Working conditions 10-59

60. Copyright © 2014 Pearson Education Work-Life Balance Focus on solving personal issues that detract from employee’s work Can be key factor in attracting and retaining employees Moved from being a great benefit to a business necessity Workforce today not homogeneous 10-60

61. Copyright © 2014 Pearson Education Work-Life Balance Factors: Flextime Practice of permitting employees to choose, with certain limitations, their own working hours Work same number of hours per day as they would on standard schedule Many firms are using flextime 10-61

62. Copyright © 2014 Pearson Education Illustration of Flextime 10-62 Flexible TimeCore Time Flexible Time (Lunch) Core TimeFlexible Time 6 a.m. 9 a.m. 6 p.m.3 p.m.Noon Bandwidth

63. Copyright © 2014 Pearson Education Work-Life Balance Factors: Compressed Work Week Permits employees to fulfill their work obligation in fewer days than typical 5-day workweek Four 10-hour days Often greater job satisfaction 10-63

64. Copyright © 2014 Pearson Education Work-Life Balance Factors: Job Sharing Two part-time people split duties of one job Partners must be compatible, have good communication skills Trust must exist between job sharers and their manager 10-64

65. Copyright © 2014 Pearson Education Work-Life Balance Factors: Two in a Box Give two executives the same responsibilities and same title and letting them decide how the work is to be divided Full-time job for both executives Requires work and constant communication 10-65

66. Copyright © 2014 Pearson Education Work-Life Balance Factors: Telecommuting Employees are able to remain at home, or away from office, and perform work using computers and other electronic devices More popular in recent years 10-66

67. Copyright © 2014 Pearson Education Work-Life Balance Factors: Part- Time Work Some do not want or need full-time employment Highly educated professionals are often choosing part-time opportunities Recent recession caused many workers to take part-time jobs 10-67

68. Copyright © 2014 Pearson Education A Global Perspective: Global Customized Benefits Global company may find a standardized benefits program for all employees impractical and unsuccessful Must understand culture of each country because culture will have major impact on benefits workers desire 10-68

69. Copyright © 2014 Pearson Education 10-69