1. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Chapter 12 Indirect Compensation: Employee Benefit Plans

3. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Strategic Considerations in the Design of Benefits Programs  The organization’s stage of development  Projected rate of employment, growth, or downsizing  Geographic redeployment  Acquisitions  Expected changes in profitability  Each of these conditions suggests a change in the optimum “mix” of benefits to be consistent with long-term business plans

4. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Classifying Benefits  Three broad categories exist for classifying benefits  Security and health  Payments for time not worked  Employee services

5. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Security & Health Benefits  Life Insurance  Workers’ compensation  Disability Insurance  Hospitalization, surgical, and maternity coverage  Health maintenance organizations (HMOs)  Other medical coverage (dental, mental health, substance abuse)  Sick leave  Pension plans  Social Security  Unemployment insurance & supplemental unemployment insurance  Severance pay

6. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Payments for Time Not Worked  Vacations  Holidays  Reporting Time  Personal excused absences  Grievances and negotiations  Sabbatical leaves

7. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Employee Services  Employee Services – a broad range of benefits that employees qualify for purely by virtue of their membership in the organization, and not because of merit  Some examples include tuition aid, credit unions, auto insurance, company car, food service, stock-purchase plans, parking, fitness and wellness programs

8. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Gaining Control Over the Cost of Health Care  Band together with other companies to form a ‘purchasing coalition’ to negotiate better rates with insurers  Deal with hospitals and insurers as with any other suppliers  Induce employees to choose reduced medical coverage voluntarily through flexible-benefits plans  Negotiate directly with doctors  Require pre-admission certification

9. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Cafeteria, or Flexible, Benefits  Cafeteria Benefits – instead of all workers at a company getting the same benefits, each worker can pick and choose among alternative options “cafeteria style”  Workers are offered a package of benefits that include ‘basic’ and ‘optional’ items

10. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Basic and Flexible ‘Credits’ in the Cafeteria Benefits Plan  Basic  modest medical coverage  life insurance equal to a year’s salary  vacation time based on length of service  some retirement pay  Flexible ‘credits’ toward additional benefits  Full medical coverage  Dental and eye care  More vacation time  Additional disability income  Higher company payments to the retirement fund

11. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Employer Advantages in Offering Cafeteria Benefits  Under conventional plans, employers risk alienating employees if they cut benefits, regardless of increases in the costs of coverage  Flexible plans allow employers to pass some of the increases on to workers more easily  Instead of providing employees a set package of benefits, the employer and employee agree on a set amount of the employee’s salary to be used toward benefits  If the employee wants more, he/she pays

12. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Communicating Benefits to Employees  Make employees aware of them  Help employees understand the benefits information they receive in order to take full advantage of the plans  Make employees confident that they can trust the information they receive  Convince present and future employees of the worth or value of the benefits package

13. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Communicating the Value of Benefits Programs to Employees  Alternative metrics:  Annual cost of benefits for all employees  Cost per employee per year  Percentage of payroll  Cents per hour