ch 6 -_benefits_compensation

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

10-1

Human Resource Management Chapter 7

COMPENSATION MANAGEMENT


10-2

HRM in Action: Unique Benefits

• Organizations are continually competing for top caliber employees

• Unique benefits can take many forms

• It is often a way of saying “Keep up the good work.”

The basic components of employee compensation and benefits

Employee compensation and benefits are basically divided into :

•Guaranteed pay/Pay – monetary (cash) reward paid by an employer to an employee based on employee/employer relations. The most common form of guaranteed pay is the basic salary.

•Variable pay/Incentives – monetary (cash) reward paid by an employer to an employee that is contingent on discretion, performance or results achieved. The most common forms are bonuses and sales incentives.

•Benefits – programs an employer uses to supplement employees’ compensation, such as paid time off, medical insurance, company car, and more.


10-3


10-4

Benefits (Indirect Financial Compensation)

All financial rewards that are not paid directly to the employee

STATUTORY BENEFITS


10-5


10-6

Benefits in a Total Compensation Program External EnvironmentInternal Environment

Compensation

Indirect (Benefits)

Legally Required Benefits

Employees Provident Fund (EPF)

Social Security

Gazetted payments

Gazetted paid leaves

Human Resource Development Fund

Financial NonfinancialThe Job Job EnvironmentDirect

EPF• was formally founded after the enactment of the Employees Provident Fund Act 1991

(Act 452), • grants employees retirement benefits via a body that is intended to manage their

savings• intended to help employees from both private and non-pensionable public sectors

save a fraction of their salary in a lifetime banking scheme, to be used in an event that the employee is temporarily or no longer fit to work.

• The EPF primarily applies to retirement, but sickness, disabilities or unemployment are also covered. The EPF also provides a framework for employers to meet legal and moral obligations to their employees.

• While in savings, a member's EPF savings may be used as investments for companies deemed profitable and permissible by the organisation, from which dividends are banked to respective members' accounts.

• Alternately, members may use their EPF savings in their own investments, although such activities are not covered by the EPF and the members are to bear any losses made.


10-7

http://en.wikipedia.org/wiki/Pension

http://en.wikipedia.org/wiki/Retirement

http://en.wikipedia.org/wiki/Disability

http://en.wikipedia.org/wiki/Unemployment

http://en.wikipedia.org/wiki/Investment

http://en.wikipedia.org/wiki/Halal

http://en.wikipedia.org/wiki/Dividend


10-8

Social Security

• The Social Security Organisation (SOCSO) operates as a social insurance programme managed by the government of Malaysia to provide financial assistance to employees and their families in the event of accidents, resulting in death, disablement, or affliction with occupational diseases.

•Employees with a monthly income of RM 3000 and below, along with their employers are required to make contributions.

http://www.perkeso.gov.my/

Gazetted payments

• 60 days maternity leaves• Paid holidays : at least 11 days of gazetted public holidays• Paid annual leave

- <2 years service : 8 days- 2>x<5 years : 12 days- >5 years : 16 days

• Paid sick leave for calendar year- <2 years service : 14 days- 2>x<5 years : 18 days- >5 years : 22 days- Hospitalization : 60 days


10-9

HRDF• established under the legal requirements of the Human Resources Development

Act 1992 (now known as the Pembangunan Sumber Manusia Berhad Act 2001).

• is a pool of funds that comprises Human Resources Development levies collected from employers of the manufacturing and service sectors as listed in the First Schedule of the Pembangunan Sumber Manusia Berhad Act 2001 (liable registrants) as well as optional registrants.

• is part of the Government’s initiative to encourage the private sector employers in the manufacturing and service sectors to retrain and upgrade the skills of their employees in line with the needs of their business and industrialisation strategy of the country.

• from January 2005, the HRDF has been extended to include employers from 8 more industries under the services sector.

• Employers who are registered with the PSMB and fulfilled the payment conditions are eligible to apply for training grants or financial assistance under the Human Resources Development Fund (HRDF).


10-10

The objectives

• Increase the supply of highly-skilled workers.• Enhance the knowledge of workers and equip them with

up-to-date skills.• Prevent the skills of workers from becoming obsolete in

a changing technological environment.• Upgrade the quality and productivity of workers.• Cultivate a training culture amongst employers.• Maintain and enhance the competitiveness of Malaysian

products through skills retraining and • Accelerate the process of technology transfer• Assist in the attainment of the industrialisation objective

of the country


10-11


10-12

Worker’s Compensation

• Expenses resulting from job-related accidents or illnesses

• Administered by states• Program paid for by

employers• Premium expense directly

tied to past experience

NON-STATUTORY BENEFITS


10-13


10-14

Discretionary Benefits (Voluntary)

• Time-off payment• Health care

• Life insurance• Subsidies & services

• Retirement plans• Allowances

• Educational fee assistance


10-15

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, travel time


10-16

Health Care

• Employers spend $300 billion annually on health insurance for employees, dependents, and retirees

• Health insurance typically constitutes 25% of employer’s benefit costs

• Premiums for average family of 4 now cost about $11,000 a year


10-17

Life Insurance

Group life insurance commonly provided benefit to protect employee’s family in event of death

Subsidies & services

» Laundry service» Relocation» Child care» Educational assistance

» Food service/subsidized cafeterias

» Financial services

» Legal services» Scholarships for dependents


10-18


10-19

Retirement Plans

• Defined benefits plans• Defined contribution plan• Cash balance plan


10-20

Customized Benefit Plans

• Employees make yearly elections to determine benefit package by choosing between taxable cash and numerous benefits

• 20 years ago or so firms offered uniform package that generally reflected typical employee

• Today, workforce has become considerably more heterogeneous


10-21

Cash Balance Plans

• Plan with elements of both defined benefit and defined contribution plans

• Pension Benefit Guaranty Corporation usually insures cash balance plans

• Employer contributes to each participant’s account annually, and investment earnings are at set amount


10-22

Family and Medical Leave Act of 1993 (FMLA)

• Private employers with 50 or more employees and governmental employers regardless of number of employees

• 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


10-23

Payment for Time Not Worked - Paid Vacations

• Provide workers with opportunity to rest, become rejuvenated and more productive

• Encourage employees to remain with firm • Increases with seniority • Between 1/3 and 1/2 of employed adults do

not take as much vacation as they have coming to them

• 35% of U.S. workers feel stressed about work even while on vacation


10-24

Vacation Days Taken a Year

• Italians take 42 days

• French take 37 days

• Brazilians take 34 days

• Canadians take 26 days

• Americans take 13 days


10-25

Payment for Time Not Worked - Sick Pay and Paid Time Off

• Many firms allocate each employee certain number of days of sick leave

• 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


10-26

Payment for Time Not Worked - Sabbaticals

• Temporary leaves of absence from organization, usually at reduced pay

• Used for years in academic community

• Some companies are now using

• Helps reduce turnover and prevents burnout


10-27

Factors Contributing to the High Cost of Health Care

• Aging population

• Growing demand for medical care

• Increasingly expensive medical technology

• Inefficient administrative processes


10-28

Major Medical Benefits

Plans provide for major medical benefits to cover extraordinary expenses that result from long-term or serious health problems


10-29

Dental and Vision Care

Employers typically pay entire costs for both types of plans except for a deductible


10-30

Disability Protection

Provides monthly benefit to employees who, due to illness or injury, are unable to work for extended period


10-31

Employee Stock Option Plan (ESOPs)

• 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


10-32

Supplemental Unemployment Benefits (SUB)

• Provide additional income for employees receiving unemployment insurance benefits

• Usually financed by company

• Tend to benefit newer employees


10-33

Employee Services

• Relocation• Child care• Educational assistance• Food service/subsidized

cafeterias• Financial services• Legal services• Scholarships for dependents


10-34

Compensation Vehicles Utilized in a Customized Benefit Plans Compensation Approach

• Accidental death, dismemberment insurance• Birthdays (vacation)• Bonus eligibility• Business and professional membership• Cash profit sharing• Club memberships• Commissions• Company medical assistance• Company-provided automobile• Company-provided housing• Company-provided or -subsidized travel• Day care centers• Deferred bonus• Deferred compensation plan• Dental and eye care insurance• Discount on company products• Education costs• Educational activities (time off)• Free checking account• Free or subsidized lunches• Group automobile insurance• Group homeowners’ insurance• Group life insurance

• Health maintenance organization fees• Home health care• Hospital-surgical-medical insurance• Incentive growth fund• Interest-free loans• Long-term disability benefit• Matching educational donations• Nurseries• Nursing home care• Outside medical services• Personal accident insurance• Price discount plan• Recreation facilities• Resort facilities• Sabbatical leaves• Salary continuation• Savings plan• Scholarships for dependents• Severance pay• Sickness and accident insurance• Stock appreciation rights• Stock bonus plan• Stock purchase plan


10-35

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


10-36

Health-Care Legislation

• Consolidated Omnibus Budget Reconciliation Act (COBRA)

• Health Insurance Portability and Accountability Act (HIPAA)

• Employee Retirement Income Security Act (ERISA)

• Older Workers Benefit Protection Act (OWBPA)

• Pension Protection Act (PPA)


10-37

Communicating Information about Benefits Package

• Workers need to fully understand benefits that are provided them

• Many times organizations do not have to improve benefits to keep best employees


10-38

Nonfinancial Compensation

• Historically, compensation departments in organizations have not dealt with nonfinancial factors

• This is changing


10-39

Nonfinancial Compensation in a Total Compensation Program External EnvironmentInternal Environment

Direct Indirect (Benefits) The Job

Skill Variety Task Identity Task Significance Autonomy Feedback

Job Environment

Sound Policies Competent Employees Congenial Coworkers Appropriate Status

Symbols

Working Conditions

Workplace Flexibility Flextime Compressed Workweek Job Sharing Telecommuting Part-time Work

Financial Nonfinancial


10-40

The Job Itself as a Nonfinancial Compensation Factor

Answering following questions can provide considerable insight into value of job:

• Is job meaningful and challenging?• Is there recognition for accomplishment?• Do I get feeling of achievement from doing job?• Is there possibility for increased responsibility?• Is there opportunity for growth and advancement?• Do I enjoy doing the job itself?


10-41

Job Characteristics Theory

• Employees experience intrinsic compensation when jobs rate high on five core job dimensions

• Skill variety - Extent work requires number of different activities for successful completion

• Task identity - Extent job includes identifiable unit of work carried out from start to finish


10-42

Job Characteristics Theory (Cont.)

• Task significance - Impact job has on other people

• Autonomy - Individual freedom and discretion employees have in performing their jobs

• Feedback - Amount of information employees receive about how well they have performed job


10-43

Job Environment as a Nonfinancial Compensation Factor

• Sound policies• Capable managers• Competent employees• Congenial coworkers• Appropriate status

symbols• Working conditions


10-44

Workplace Flexibility (Work-Life Balance)

• Flextime

• Compressed workweek

• Job sharing

• Telecommuting

• Part-time work


10-45

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


10-46

Illustration of Flextime

Flexible Time Core TimeFlexible

Time (Lunch)

Core Time Flexible Time

6 a.m. 9 a.m. 6 p.m.3 p.m.Noon

Bandwidth


10-47

Compressed Workweek

• Arrangement of work hours that permits employees to fulfill their work obligation in fewer days than typical 5-day workweek

• Four 10-hour days

• Often greater job satisfaction


10-48

Job Sharing

• Two part-time people split duties of one job in some agreed-on manner and are paid according to contributions

• Partners must be compatible, have good communication skills and trust must exist between job sharers and their manager


10-49

Two in a Box

• Companies such as Intel Corporation and Goldman Sachs Group, Inc. are giving two managers the same responsibilities and the same title and letting them decide how the work is to be divided


10-50

Telecommuting

• Work arrangement whereby employees, called teleworkers or telecommuters, are able to remain at home, or away from office, and perform work using computers and other electronic devices that connect them with office


10-51

Part-Time Work

• Some people do not either want or need full-time employment

• Part-time work was listed as the most important flexible work option

• Adds many highly qualified individuals to labor market by permitting both employment and personal needs to be addressed


10-52

Other Compensation Issues

• Severance pay• Comparable worth• Pay secrecy• Pay compression

Factors influencing compensation plan

• Organizational factors- Ability to pay- Organizational politics- Organizational policy

• Labour market factors- Cost of living- Economy- Compensation survey- Trade union- Legal

• Employee’s factors- Performance based compensation- Seniority- Experience- Potential- Political influences- Luck

• Job factors- Job analysis- Job description- Job evaluation


10-53


10-54

Severance Pay

• Compensation designed to assist laid-off employees as they search for new employment

• Typically offer 1-2 weeks of pay for every year of service, up to some predetermined maximum


10-55

Comparable Worth

• Requires value for dissimilar jobs, such as company nurse and welder, to be compared under some form of job evaluation, and pay rates for both jobs to be assigned according to their evaluated worth

• Supreme Court has ruled the law does not require comparable worth


10-56

Pay Secrecy

• Some organizations keep pay rates secret for various reasons

• If firm’s compensation plan is illogical, secrecy may be appropriate


10-57

Pay Compression

• Hiring new employees at pay rates comparable to, or higher than, those of current employees who have been with firm for several years and who hold same or higher-rated jobs

• May also occur when pay adjustments are made at lower end of job hierarchy without commensurate adjustments at top

ch 6 -_benefits_compensation

Education

pearson education

prentice hall10

prentice hallcopyright

prentice hallepfwas

employees compensation

members epf savings

unique benefits organizations

benefitsemployee compensation