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Providing Benefits and Services
© 2008 Cengage Learning All rights reserved.
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The Strategic Importance of Benefits and Services
Employee Benefits and Services Are in-kind (noncash) payments to employees for their membership or participation in the organization. Are available on a noncontingent basis—employees receive the same benefits and services regardless of job performance. Key Strategic Challenge Offering benefits and services that maximize the return on the employer’s investments. L E A R N I N G G O A L 1 © 2008 Cengage Learning. All rights reserved. 3
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The Strategic Importance of Benefits and Services (cont’d)
Recruiting and Retaining Talent Controlling Costs of Benefit and Services Achieving Business Objectives Strategic Challenges © 2008 Cengage Learning. All rights reserved.
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EXHIBIT 12.1 Common Objectives of Benefits and Services Plans
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Controlling Benefit and Services Costs
In 1929—Total benefits payments averaged 5% of total pay. In 2007—Benefits were 30% of total pay (about $17,000 per employee). Wages and salaries are 40 times greater than 60 years ago; benefits and services are 500 times greater © 2008 Cengage Learning. All rights reserved.
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Recruiting and Retaining Talent
Innovative benefits and services packages are important for attracting and retaining employees. Flexible benefits plan Provides all employees with a base benefits and services package and then allows employees to choose some additional benefits and services from a wide array of options. Targeted benefits plan Provides different types and levels of benefits and services depending on an employee’s location and position in the organization. © 2008 Cengage Learning. All rights reserved.
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EXHIBIT 12.2 Achieving Business Objectives Using Benefits and Services
Benefits Response 1. To reduce total costs of doing business by 10% yearly. 1. Contain the rise in health care costs to 2% yearly and increase employee contributions by 2% yearly. 2. To develop a working environment that is founded on integrity, open communication, and individual growth. 2. Develop an employee career counseling system that provides employees with an opportunity to assess skills and develop competencies. Establish a tuition reimbursement program. 3. To establish the division as a recognized leader in support of its community. 3. Establish a corporate-giving matching fund. 4. To complete the downsizing of the company by the end of the third quarter. 4. Develop various termination subsidies such as severance pay, outplacement assistance, and early retirement benefits. 5. To cut accident rates 10% by year-end. 5. Establish an employee assistance program by year-end. Set up a free literacy training program to ensure that all employees can read job safety signs. © 2008 Cengage Learning. All rights reserved.
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EXHIBIT 12.3 Employee Benefits and Services within an Integrated HRM System
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Employee Benefits and Services Within an Integrated HRM System
Mandatory (Public) Protection Programs Are required by the federal and state governments Social Security, unemployment, workers’ compensation Voluntary Protection Programs Are offered by employers and are not required by law Health care, life insurance, disability, retirement L E A R N I N G G O A L 2 © 2008 Cengage Learning. All rights reserved.
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EXHIBIT 12.4 Mandatory and Voluntary Protection Programs
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EXHIBIT 12.5 Employer Costs for Benefits and Services (Cost per Hour Worked and as Percentage of Total Compensation, Private Industry) © 2008 Cengage Learning. All rights reserved.
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The External Environment
Laws and Regulations Growth in Benefits and Services Economic Conditions Union Bargaining © 2008 Cengage Learning. All rights reserved.
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The Organizational Environment
Business Strategy and Objectives Design of Employee Benefits and Services Size of Firm Corporate Culture © 2008 Cengage Learning. All rights reserved.
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EXHIBIT 12.6 Access to Benefits and Service by Firm Size
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© 2008 Cengage Learning. All rights reserved.
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Mandatory Protection Programs
Social Security Insurance Unemployment Compensation Benefits Workers’ Compensation and Disability Insurance Family and Medical Leave L E A R N I N G G O A L 4 © 2008 Cengage Learning. All rights reserved.
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Social Security Insurance
Enacted in 1935 as a forced savings plan intended to provide older Americans with a reliable source of income in retirement. Medicare provisions were added in 1966. Federal Insurance Contributions Act (FICA) 6.2% of the first $100,400 income for retirement and disability 1.45% of total income for hospital insurance (Medicare) Equal payroll tax contributions (7.65%) from the employer and the employee © 2008 Cengage Learning. All rights reserved.
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Unemployment Compensation
Is an insurance program that provides unemployment compensation as income for employees who lose their jobs. Jointly administered by federal and state governments. Tax rates for employers are based on location and employer history of layoff and dismissals. Level of benefits ranges 50-70% of base salary. © 2008 Cengage Learning. All rights reserved.
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Workers’ Compensation and Disability Insurance
Covers costs and lost income due to injuries or illnesses that result from on-the-job events Administered by states Fully financed by employers Managing workers’ compensation costs: Use health care cost-containment strategies (audit bills, develop preferred providers, etc.) Implement job safety programs Combine with disability management © 2008 Cengage Learning. All rights reserved.
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Family and Medical Leave
Family and Medical Leave Act (FMLA) Covers employers with 50 or more workers Required to grant up to 12 weeks of unpaid leave annually For birth/adoption of a child To care for immediate family member with serious health condition For employee with serious health condition Employee keeps preexisting health coverage and must be allowed to return to same or equivalent job. © 2008 Cengage Learning. All rights reserved.
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Voluntary Protection Programs
Benefits provided by employers that are not required by law include: Retirement income plans Capital accumulation plans Savings and thrift plans Supplemental unemployment Guaranteed pay L E A R N I N G G O A L 5 © 2008 Cengage Learning. All rights reserved.
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Legal Considerations Qualified Plan Nonqualified plan
Covers a broad class of employees Receives favorable tax treatment from IRS Nonqualified plan Covers only select groups of employees (e.g., senior management) Doesn’t adhere to the strict tax regulations, doesn’t receive favorable tax treatment. © 2008 Cengage Learning. All rights reserved.
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Types of Pension Plans Defined Benefit Plans
Benefits are fixed but vary with age and length of service Require funding to match benefit payouts. Provide predictable income after retirement Penalize employee mobility Are regulated by ERISA Are being replaced by defined contribution plans © 2008 Cengage Learning. All rights reserved.
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Types of Pension Plans (cont’d)
Defined Contribution Plans Contribution is fixed, payout is variable. Each employee has separate account. Employer may agree to match a percentage of employee contributions. Employer may contribute (contributory plan) or not (noncontributory plan). 401(k)s and 403(b)s Employer and employee contribute to the fund. Employee makes investment decisions. © 2008 Cengage Learning. All rights reserved.
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EXHIBIT 12.7 Types of Retirement Plans Offered
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EXHIBIT 12.8 401(k) Participation Rates (1984–2006)
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Pension Plans (cont’d)
Employee Stock Option and Profit Sharing Plans Ties value of plan to firm’s financial performance; violates sound financial principles for spreading risk by investing in a more diversified portfolio. Cash Balance Plan Pays a lump sum upon employees’ retirement or departure. Has become more popular as employee mobility has increased. Stock Report © 2008 Cengage Learning. All rights reserved.
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Legal Considerations Employee Retirement Income Security Act of 1974 (ERISA ) Protects benefits for workers covered by private pension plans; prohibits unfunded plans Specifies provisions for vesting (time when employer’s contribution belongs to employee) Portability: transfer of retirement funds to IRAs Pension Benefit Guaranty Corporation (PBGC) Administers an insurance program guaranteeing payment of retirement benefits if a plan is terminated. © 2008 Cengage Learning. All rights reserved.
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EXHIBIT 12.9 Largest PBGC Claims by Firms in Default since 1975
Largest 5 Claims Year Claim Vested Participants 1. United Airlines 2005 $7,093,803,951 122,541 2. Bethlehem Steel 2003 $3,654,380,116 97,015 3. US Airways $2,861,901,511 58,823 4. LTV Steel 2002 $1,959,679,993 80,961 5. National Steel $1,161,019,567 35,404 © 2008 Cengage Learning. All rights reserved.
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Health Care Benefits and Services
Medical Care Costs Most employees underestimate the medical benefit’s cost to the employer and view medical care as an entitlement. Employers pay an average of $11,500 for a health insurance plan that covers a family of four. Out of every benefits and services dollar spent, a quarter goes to health care. L E A R N I N G G O A L 6 © 2008 Cengage Learning. All rights reserved.
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Types of Health Insurance Plans
Conventional Insurance Plans Consumer-Driven Plans Health Savings Accounts (HSAs) Health Maintenance Organizations (HMOs) Point of Service Plans (POSs) Preferred Provider Organizations (PPOs) © 2008 Cengage Learning. All rights reserved.
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EXHIBIT 12.10 Percentage of Enrolled Workers by Type of Health Care Plan
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Wellness Programs Wellness Programs May include:
Proactive programs to prevent health problems May include: On-site exercise programs Stress-management training Assistance to stop smoking Weight-loss programs © 2008 Cengage Learning. All rights reserved.
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EXHIBIT 12.11 Wellness Benefits and Services
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Employee Assistance Programs (EAPs)
Assist employees with chronic personal problems that hinder job performance and attendance Employees referred to confidential counseling services Includes help with alcohol and drug dependencies, domestic problems, mental disorders, financial problems © 2008 Cengage Learning. All rights reserved.
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Paid Leave Off-the-Job Paid Leave On-the-Job Paid Leave
Holidays and Vacations Vacation pay or payment in lieu of vacation Deferral of vacation (banking) or loss of vacation days Mandated vacations in other countries Other Paid Leaves Volunteering, adoption, paternity and maternity leave, a day off for an employee’s birthday, and sabbaticals On-the-Job Paid Leave Rest periods, lunch periods, washup times, and clothes-changing and getting-ready times Use of onsite physical fitness facilities L E A R N I N G G O A L 7 © 2008 Cengage Learning. All rights reserved. 4
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Vacationing around the World
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EXHIBIT 12.12 Popular Off-the-Job Paid Leaves
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Managing Absenteeism In the U.S., daily absenteeism rate is 2-3% of total payroll. As the number of paid days off increases, the number of days of actual absence increases proportionally. Granting personal days (personal time off) may prevent unscheduled absenteeism. Programs that reward attendance may be more effective than disciplinary approaches that punish absenteeism. © 2008 Cengage Learning. All rights reserved.
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Work-Life Benefits and Services
Scheduling Alternatives Empower employees to decide how, when, and where to get their jobs done. Flextime Compressed workweeks Telecommuting Job sharing L E A R N I N G G O A L 8 © 2008 Cengage Learning. All rights reserved.
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EXHIBIT 12.13 Prevalence of Work/Life Benefits and Services
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Work-Life Benefits and Services
Child Care Benefits and Services Scholarships for children of employees Subsidized tutoring Care for sick children Subsidized college educations On-site or subsidized child care Child care referrals Extended leaves Benefits for employees with special needs children Workplace schools Employer-sponsored summer camps Elder Care Services Elder care referral services Extended leaves beyond the mandated FMLA requirement. Emergency elder care services Subsidies to help cover the cost of elder care Long-term care insurance. © 2008 Cengage Learning. All rights reserved.
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Work-Life Benefits (cont’d)
Domestic Partner Benefits and Services Employers provide domestic partner benefits and services to attract and retain talent, comply with the company’s nondiscrimination policy, and comply with local laws. Federal laws do not require employers to provide domestic partner benefits and services. L E A R N I N G G O A L 8 © 2008 Cengage Learning. All rights reserved.
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EXHIBIT 12.14 Other Popular Benefits and Services
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Administering Issues Administrative Issues
Communication Determining the Level of Flexibility Determining the Benefits and Services Package L E A R N I N G G O A L 10 © 2008 Cengage Learning. All rights reserved.
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Current Issues Health Care Benefits and Services
Medical cost control tactics: Shift health care costs to employees Hospital utilization programs Coordination of benefits Data analysis Prescription drug management Case management Auditing employee usage Benefits and Services for Retirees Employers are having increasing difficulty maintaining retiree health care and retirement benefits. L E A R N I N G G O A L 11 © 2008 Cengage Learning. All rights reserved.
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EXHIBIT 12.15 Recent Changes to Health Care Benefits and Services by Employers Offering Them
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TERMS TO REMEMBER Contributory plan Economic Recovery Tax Act of 1981
Employee Assistance Programs (EAPs) Employee benefits and services Employee Retirement Income Security Act of 1974 (ERISA) Family and Medical Leave Act (FMLA) Flexible benefits plans Health savings accounts (HSAs) Mandatory protection programs Noncontributory plan Nonqualified plan Pension Benefit Guaranty Corporation (PBGC) Portable benefits Primary care physicians (PCPs) Qualified plan Social Security Act of 1935 Targeted benefits plan Voluntary protection programs © 2008 Cengage Learning. All rights reserved.
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