Part IV. Employee Benefits. Chapter 12 Benefits Determination Process Chapter 13 Benefits Options McGraw-Hill/Irwin

Transcription

1 Part IV Employee Benefits 12-1 Chapter 12 Benefits Determination Process Chapter 13 Benefits Options

2 12-2 STRATEGIC POLICIES TECHNIQUES STRATEGIC OBJECTIVES ALIGNMENT COMPETITIVENESS CONTRIBUTORS Work Descriptions Evaluation/ INTERNAL Analysis Certification STRUCTURE Market Surveys Policy PAY Definitions Lines STRUCTURE Seniority Performance Merit INCENTIVE Based Based Guidelines PROGRAMS EFFICIENCY Performance Quality Customers Stockholders Costs FAIRNESS COMPLIANCE ADMINISTRATION Planning Budgeting Communication EVALUATION

3 12-3 Chapter 12 Benefits Determination Process

4 Learning Objectives After studying Chapter 12, students should be able to: 1. Discuss the reasons for the growth in employee benefits. 2. Discuss the important issues in benefit planning, design, and administration. 3. Explain the relationship between benefits and external equity. 4. Discuss the advantages and disadvantages of flexible benefits programs from the perspective of the employee and the employer. 5. Discuss the impact of government legislation on benefits programs and administration. 12-4

5 12-5 EMPLOYEE BENEFITS: that part of the total compensation package, other than pay for time worked, provided to employees in whole or in part by employer payments (e.g., life insurance, pension, workers compensation, vacation).

6 Changes in Benefit Costs: 1959, 1969, 1990, 1995, Percentage of Payroll (total)

7 12-7 Why the Growth in Employee Benefits? Wage and Employer Price Impetus Controls Cost Effectiveness of Benefits Unions Government Impetus

8 12-8 Benefits and Total Compensation!What What is expected from benefits?!what What is an appropriate mix of benefits?!how How much total compensation, including benefits, should be provided?!what What part should benefits comprise of the total compensation system?!what What expense levels are acceptable for each benefit offered?

9 Benefits and Total Compensation (continued)!which Which employees should be given or offered which benefits?!why Why is each type of benefit offered?!what What is being received in return for each benefit?!how How does having a comprehensive benefits package aid in minimizing turnover or maximizing recruiting and retention of employees?!how How flexible should the package of benefits be? 12-9

10 12-10 Strategic Reasons for Offering Benefits!Help Help attract employees!help Help retain employees!elevate Elevate the image of the organization with employees and other organizations!increase Increase job satisfaction

11 Key Issues In Benefits Planning, Design, and Administration Modifying Employee Benefits Allowing for Employee Input Providing Flexibility Establishing Specific Objectives Communicating Benefits Information

12 12-12 Flexible Benefits: Advantages! Employees choose packages that best satisfy their unique needs.! Flexible benefits help firms meet the changing needs of a changing workforce.! Increased involvement of employees and families improves understanding of benefits.! Flexible plans make introduction of new benefits less costly.! Cost containment: Organization sets dollar maximum. Employee chooses within the constraint.

13 12-13 Flexible Benefits: Disadvantages! Employees make bad choices and find themselves not covered for predictable emergencies.! Administrative burdens and expenses increase.! Adverse selection. Employees pick only the benefits they will use. The subsequent high benefit utilization increases its cost.! Subject to non-discrimination requirements in Section 125 of the Internal Revenue Code.

14 Financing Benefits Plans: Alternatives!Non-contributory!Employer pays total costs!contributory!costs shared between employer and employee!employee Employee financed!employee pays total costs for some benefits!by law the organization must bear the cost for some benefits 12-14

15 Employer Factors 1. Relationship to total compensation costs 2. Costs relative to benefits 3. Competitor offerings 4. Role of benefits in: Attraction Retention Motivation 5. Legal Requirements Employee Factors 1. Equity: fairness historically and in relationship to what others receive 2. Personal needs as linked to: Age Sex Marital status Number of dependents Benefits Package Factors Influencing Choice of Benefits Package

16 12-16 Key Benefits Legislation! Fair Labor Standards Act (FLSA)! Employee Retirement Income Security Act (ERISA)! Equal Pay Act! Securities and Exchange Act! Revenue Act! Older Worker s Benefit Protection Act! Retirement Equity Act! Family Medical Leave Act (FMLA)! COBRA! Tax Reform Act! OBRA! Health Insurance Portability and Accountability Act! Mental Health Parity Act! Small Business Job Protection Act

17 Administering the Benefits Program 12-17!Communicating about the benefits program!claims Claims processing!cost Cost containment

18 12-18 Communicating Employee Benefits!Required Required Communication!ERISA Requirements!COBRA Requirements!SEC SEC Requirements!Posting Requirements!Meetings Meetings with Employees!Multi-media Presentations!Print Print Media!Complaint Procedures Company Benefits

19 12-19 Cost Containment! Probationary Periods! Benefit Limitations! Co-pay! Administrative Cost Containment

20 12-20 Administrative Trends!Significant movement to outsourcing!retirement record keeping!complete enrollment and historical tracking!premium reconciliation!24 x 7 access for all functions!ivr, intranet, internet, and extranet capabilities!retaining Retaining strategic function internally

21 Summary! Given the rapid escalation in the cost of employee benefits over the past 15 years, organizations would do well to evaluate the effectiveness of their benefits adoption, retention, and termination procedures.! Specifically, how does an organization go about selecting employee benefits?! Are the decisions based on sound evaluation of employee preferences balanced against organizational goals of legal compliance and competitiveness?! Do the benefits chosen serve to attract, retain, and /or motivate employees? What is the return on benefits expenditures? 12-21

22 12-22 Review Questions 1. Your organization is spending over $4,000 per employee per year on benefits. However, employees don t seem happy. The CEO has instructed you to handle this benefits thing and fix things.what should you do? Why? 2. Your CEO has just read in the Wall Street Journal that employee benefits cost, on average, 38% of payroll. To save money, he suggests the company fire the benefits administrators, eliminate all benefits, and give employees a 38% pay hike. What arguments could you provide to persuade the CEO this is not a good idea?

23 12-23 Review Questions (continued) 3. You live in a region where the population is declining. The average age of your 600 person workforce is 43. Turnover is low. The labor market is stagnant. How do these facts influence your decisions about designing an employee benefits program? 4. How is the concept of external equity similar or different in discussing pay versus benefits? 5. Describe how a flexible benefits program might increase employee satisfaction with benefits at the same time that costs are being reduced.