Career Planning and Development

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    Benefits and Services
                 Chapter 12

    Indirect Financial Compensation
       Indirect financial compensation is called
        ‘benefits’ and services.
           It can be defined as all employer-provided rewards
            and services, other than wages or salaries, arising
            from the following categories:
                Legally required social insurance payments, private
                 insurance, retirement plans
                Payment for time not worked;
                Extra cash payments other than bonuses based on
                Costs of services like cafeterias, clothing allowances, and so

    Indirect Financial Compensation

    Unlike pay for performance and other incentive
     plans, most benefits and services are
     available to workers as long as they are
     employed by an organization regardless of
     seniority or performance.

    Career Planning and
       Recall the Diagnostic Model
                   External                        Internal
                Environmental                   Environmental
                  Influences                      Influences

    Acquiring         Rewarding            Developing        Maintaining
     Human             Human                Human             Human
    Resources                              Resources         Resources

             Socially           Competitive         Competitive
            Responsible         High Quality        High Quality
             Practices            Products            Services
       Benefits and services can range from 20 to 60
        percent of payroll.
           Why Do Employers Offer Benefits and Services?
                Some employers provide these programs to keep the
                 organization competitive in recruiting and retaining
                Others provide them to keep a union out, or because the
                 union has won them during negotiations.
                Another reason is that benefits increase employees’
           In a study of benefits, it was found that none of these
            reasons explained the degree to which benefits and
            services were provided.
       Who Makes Decisions about Benefits?
           Specialists such as the Society of
            Professional Benefit Administrators.
           For large organizations, there may be a
            specialist called Manager or Director of
            Employee Benefits.

        Benefits and
      Services Function          Operating Managers            HR Managers
                                 Preliminary budget
    Benefits and services                                  Preliminary budget
                                 approved or adjusted by
    budget                                                 developed by HRM
                                 top management
    Voluntary benefits and       Programs approved by      Programs recommended
    services                     OM (top management)       by HRM
    Communication of             OM cooperates with
                                                           Primary duty of HRM
    benefits and services        HRM
    Evaluation of benefits
                                                           Done by HRM
    and services
    Administration of benefits
                                                           Done by HRM
    and services programs

    Economic and Labor Market
       In tight labor markets organizations seeking the
        best employees compete by offering better
        benefits and services, which are nontaxable
       The composition of the labor market affects the
        type of benefits and services offered.
           Women
           Aging Workforce

    Mandated Programs
       Unemployment Insurance
           Part of the Social Security Act of 1935
           Objectives of the program
                To provide periodic cash income to workers during short
                 periods of involuntary unemployment.
                To help the unemployed find jobs
                To encourage employers to stabilize employment
                To stabilize the labor supply by providing benefits so that
                 skilled and experienced workers are not forced to seek other
                 jobs during short-term unemployment.

 Mandated Programs
    Social Security
        Part of the Social Security Act of 1935
        The basic concept was that the employee and employer were to
         pay taxes that would cover the retirement payments each
         employee would later receive in a self-funding insurance
        In the U.S., social security is known as a transfer payment
         whereby current workers support the aging workforce.
            How would this type of administration be affected by the
             ‘baby-boom’ generation?
            How about an aging workforce?

        Social security payments make up about one-third of total
         federal outlays in the United States.

 Mandated Programs
    Worker’s Compensation
        Financial protection offered to employees who
         incur expenses as a result of job-related
         illnesses or accidents.
        Employers pay the entire cost of workers’
         compensation insurance.
             The cost of premiums is tied directly to each
              employer’s past experience with job-related
              accidents and illnesses.

 Voluntary Benefits
    Compensation for Time Off
        Holidays, vacation, sick-leave, funeral leave,
         jury duty, and other personal leaves, such as
         to fulfill military obligations.
        Paid Holidays
        Paid Vacations
        International vacation benefits
        Personal time off

 Voluntary Benefits
    Sick Leave
        Protects against loss of income during short-
         term disability due to non-work-related
         sickness or injury (usually 1 sick day per
         month or 12 sick days per year.)
        The benefit usually accrues over time, but
         upon termination most organizations do not
         pay for any sick leave not taken.

 Family Leave
    In February 1993, the U.S. passed the Family
     and Medical Leave Act that says that most
     employers with 50 or more employees must
     provide up to 12 weeks of unpaid leave to
     eligible employees during any 12-month period.
           Examples might include the birth of a child, adoption, or
            placement of a foster child, and the serious illness, injury, or
            mental condition of a family member.
           The employee must be allowed to return to the same job or
            an equivalent job.

 Family Leave
    Maternity and parental leave
        Maternity leave is usually limited to six weeks, with or
         without pay.
        The experience with family leave policies in Europe
         offers several lessons:
             A limited program of leave benefits has a positive effect on
              productivity and creates few problems for employers;
             Basic coverage should be established by law, giving
              employers the option to extend or change it;
             And basic parental leave benefits should carry some form of
              financial payment.

 Employer-Purchased Insurance
    Mid-sized and large employers can buy insurance more
     cheaply than can individuals.
    Health insurance
        In the U.S., approximately 82% of full-time employees of mid-
         sized to large private firms participated in employer-provided
         health care plans in 1993.
        Some of the more rapidly expanding benefits include
         prescription drugs, vision care, mental health services, and
         dental care.
        Consolidated Omnibus Budget Reconciliation Act of 1985
         (COBRA) stipulates that employers with more than 20
         employees are required to offer continuation of health care
         coverage for 18 to 36 months after termination of an employee.

 Income in Retirement
    Retirement Income from Savings and
        Employees covered by private pensions are
         more likely to save money for retirement than
         those without them.
    Tax Deferred Contributions
        Individual Retirement Accounts (IRAs)
        401K Plans

 ERISA – Employee Retirement
 Income Security Act
 Major Provisions
  Eligibility Requirements

  Benefits formula

  Vesting

  Portability

  Fiduciaries

  Reporting/Disclosure

 Pension Benefits
    Defined Benefit Pension Plan
        Specifies the benefit workers will get at
         retirement. The amount is typically a fixed
         monthly income for life or a lump-sum cash
        The employer is responsible for annual
         contributions (called pension expense) that is
         based on projected growth of the plan and the
         required payments over the life of the plan.

 Pension Benefits
    Defined Contribution Pension Plan
        Usually specifies the employer’s contribution
         but cannot predetermine the employee’s
         actual pension benefit.
        DC plans include savings accounts, profit-
         sharing plans, and stock ownership plans.

 Employee Services
    Stock Ownership Plans – many companies encourage
     employees to purchase company stock (often at good
     prices) as a form of incentive.
    Education Programs – e.g. tuition reimbursement
    Pre-retirement Programs – helps employees plan for
    Child Care – alternatives include flexible work hours,
     telecommuting, and on-site programs.
        Studies of companies offering these programs have consistently
         revealed that absenteeism and turnover fall while job satisfaction,
         productivity, and loyalty increase significantly.

 Employee Services
    Elder Care – includes providing disability
     insurance for employees that covers nursing-
     home care, referral services, and training
    Financial Services – some employers offer
     matching plans for savings and retirement.
    Social and Recreational Programs – include
     recreational facilities, and community
     involvement programs.

 Flexible Benefit Plans and
 Reimbursement Accounts
    Flexible Benefits Plan (a.k.a. ‘Cafeteria Plans’) allows
     employees to choose between two or more types of
     benefits. Common choices include health care, life
     insurance, disability insurance, and a cash option.

    Reimbursement Accounts or Flexible Spending
     Accounts allow for pretax deductions for expenses not
     covered by regular benefits package.

     Flexible benefits and reimbursement accounts can increase
     employees’ satisfaction and save employers from spending money
     on coverage that the employees don’t want.

 Managing an Effective Benefits
    Major considerations
        Mandated programs must be funded.
        There is little evidence that benefits and services
         really motivate performance. Nor do they necessarily
         increase satisfaction.
        Most employees view benefits and services as
         entitlements or rights.
        Unions, competitors, and industry trends continue to
         pressure managers to provide or increase voluntary
        Costs of benefits and services continue to increase
 Managing an Effective Benefits
    Step 1: Set Objectives and Strategy
     for Benefits
        Pacesetter strategy. Be first with the newest
         benefits employees desire.
        Comparable benefits strategy. Match the
         benefits programs similar organizations offer.
        Minimum benefits strategy. Offer the
         mandatory benefits and those that are most
         desired and least costly.

 Managing an Effective Benefits
    Step 2: Involve Participants and Unions
        Encourage employees’ participation is decision
         making on benefits and services.
        When the organization is unionized, it is vital that the
         union leadership be involved.
    Step 3: Communicate Benefits
        ERISA requires employers to communicate with
         employees by sending them an annual report on the
         pension plan and basic information on their pensions.
    Step 4: Monitor Costs Closely

 Managing an Effective Benefits
    Cost-Benefit Analysis of Benefits
        The costs of benefits can be calculated fairly
         easily in terms of total costs, cost per
         employee per year, as a percentage of payroll,
         or cost per employee per hour.

        However, there has been little significant
         outside research on the effects of benefits on

     Benefits and Services
             End of Chapter 12


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