hrm10e chap14

Human ResourceHuman ResourceManagementManagement

TENTH EDITONTENTH EDITON

© 2003 Southwestern College Publishing. All rights reserved. PowerPoint Presentation

by Charlie Cook

PowerPoint Presentation

by Charlie Cook

Managing Employee BenefitsManaging Employee BenefitsManaging Employee BenefitsManaging Employee Benefits

Chapter 14Chapter 14

SECTION 4Compensating

Human Resources

SECTION 4Compensating

Human Resources

Robert L. Mathis Robert L. Mathis John H. Jackson John H. Jackson

© 2002 Southwestern College Publishing. All rights reserved. 14–2

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

After you have read this chapter, you should be able to:

– Define a benefit and identify two strategic reason why employers provide benefits.

– Distinguish between mandated and voluntary benefits and list three examples of each.

– Describe two security benefits.

– List and define at least six pension-related terms.

– Explain the importance of health-care cost management and identify some methods of achieving it.


Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)

– Discuss the growth of family-oriented and time-off benefits and their importance to many employees.

– Summarize benefits communication and flexible benefits as considerations in benefits administration.


BenefitsBenefitsBenefitsBenefits

Benefit– An indirect compensation given to an

employee or group of employees as a part of organizational membership.

Strategic Perspectives on Benefits– Benefits absorb social costs for health care and

retirement.– Benefits influence employee decisions about

employers (e.g., recruitment and retirement).– Benefits are increasingly seen as entitlements.– Benefit costs are about 40% of total payroll

costs.


How the Benefit Dollar Is SpentHow the Benefit Dollar Is SpentHow the Benefit Dollar Is SpentHow the Benefit Dollar Is Spent

Figure 14–1Source: Based on information in Employee Benefits, 2000 edition (Washington, D.C.: U.S. Chamber of Commerce, 2000).


Benefit Needs AnalysisBenefit Needs AnalysisBenefit Needs AnalysisBenefit Needs Analysis

Benefit Needs Analysis– A comprehensive look at all aspects of

benefits.• How much total compensation?• What part of total compensation should benefits

comprise?• What expense levels are acceptable for each benefit?• Which employees should get which benefits?• What are we getting in return for the benefit?• How will offering benefits affect turnover, recruiting,

and retention of employees?• How flexible should the benefits package be?


Types of BenefitsTypes of BenefitsTypes of BenefitsTypes of Benefits

Figure 14–2


Security BenefitsSecurity BenefitsSecurity BenefitsSecurity Benefits

Worker’s Compensation– Benefits provided to persons injured on the job.

Unemployment Compensation– A Federal/state payroll tax that funds state

unemployment systems.– Involuntary unemployment and actively seeking

work is required for persons to claim benefit. Supplemental Unemployment Benefits (SUB)

– A union-negotiated benefit provision that pays a supplemental amount to laid-off employees who are drawing unemployment compensation.


Security Benefits (cont’d)Security Benefits (cont’d)Security Benefits (cont’d)Security Benefits (cont’d)

Severance Pay– A security benefit voluntarily offered by

employer to employees who lose their jobs.– Payments are determined by the employee’s

level within the organization and years of employment.

– Other benefits (e.g., outplacement and continued health insurance) may be offered in lieu of cash severance payments.


Services During SeveranceServices During SeveranceServices During SeveranceServices During Severance

Figure 14–3

Source: Linda Jones, “Severance Policies in Place at Most Organizations,” Human Resource Executive, May 1, 2001, 28. Used with permission.


Median Age at Retirement by GenderMedian Age at Retirement by GenderMedian Age at Retirement by GenderMedian Age at Retirement by Gender

Figure 14–4Source: U.S. Bureau of Labor Statistics. *Projected.


Retirement Security BenefitsRetirement Security BenefitsRetirement Security BenefitsRetirement Security Benefits

Retirements and Age Discrimination– Age Discrimination in Employment Act

(ADEA) prohibits mandatory retirement age provisions.

Social Security Act of 1935– Established a system providing old age,

survivor’s, disability, and retirement benefits.– Federal payroll tax on both the employer and

the employee.– Benefit payments are based on employee’s

lifetime earnings.


Pension PlansPension PlansPension PlansPension Plans

Pension Plans– Retirement benefits established and funded

by employers and employees. Traditional Benefit Plans

– Defined-benefit plans• Employees are promised a definite pension amount

based on age and length of service.

– Defined-contribution plans• Employer makes an annual payment to an employee’s

account.• Benefit payout is determined by the financial

performance of the employee’s retirement.


Pension PlansPension PlansPension PlansPension Plans

Cash Balance Plans– A hybrid plan that defines retirement benefits

in terms of a hypothetical account balance. Employee Retirement Income Security Act (ERISA)– Regulates pension funds to assure their

soundness.– Requires firms to offer retirement plans to all

employees if offered to any employees.– Accrued benefits must be paid to departing

employees.– Requires minimum funding for IRS approval

and purchase of plan termination insurance.


Pension Terms and ConceptsPension Terms and ConceptsPension Terms and ConceptsPension Terms and Concepts

Contributory Plan– Both employer and employee pay money into the

retirement fund. Non-contributory Plan

– All pension benefits funding is paid by the employer.

Vesting– The right of employees to receive benefits from

their pension plans. Portability

– A pension plan feature that allows employees to move their benefits from one employer to another.


Individual RetirementIndividual RetirementIndividual RetirementIndividual Retirement

KeoghPlans

KeoghPlans

IndividualRetirement

Accounts (IRAs)

IndividualRetirement

Accounts (IRAs)

401(k) and403 (b) Plans

401(k) and403 (b) Plans

Individual Individual Retirement Retirement

OptionsOptions

Individual Individual Retirement Retirement

OptionsOptions


401(k) for Small Business401(k) for Small Business401(k) for Small Business401(k) for Small Business

Figure 14–5

Source: Based on data in Virginia Munger Kahn, “Pension Plans for Everyone,” Business Week Small Biz, July 16, 2001, 22.


Controlling Health-Care Benefits CostsControlling Health-Care Benefits CostsControlling Health-Care Benefits CostsControlling Health-Care Benefits Costs

Co-Payment– Employees are required to pay a portion of

the cost of both insurance premiums and medical care.

Defined Contribution Plans for Health Benefits– Employer provides a set amount that the

employee may spend on health-care coverage benefits.


Controlling Health-Care Costs (cont’d)Controlling Health-Care Costs (cont’d)Controlling Health-Care Costs (cont’d)Controlling Health-Care Costs (cont’d)

Managed Care– Approaches that monitor and reduce medical

costs using restrictions and market system alternatives.

Preferred Provider Organization– A health-care provider that contract with an

employer group to provide health-care services to employees at a competitive rate.

Health Maintenance Organization (HMO)– A managed care plan that provides services

for a fixed period on a prepaid basis.


Increases in Health-Care Benefits CostsIncreases in Health-Care Benefits Coststo Employersto Employers

Increases in Health-Care Benefits CostsIncreases in Health-Care Benefits Coststo Employersto Employers

Figure 14–6Source: U.S. Bureau of Labor Statistics, U.S. Department of Labor, 2002.


Health-Care LegislationHealth-Care LegislationHealth-Care LegislationHealth-Care Legislation

COBRA Provisions– Former employees, their spouses, and

eligible dependents are covered for 18 to 36 months

– Up to 102% of group premium costs paid by the former employee.

HIPPA Provisions– Allows employees to switch their health

insurance plan from one company to another, regardless of pre-existing health conditions.

– Health plans must continue to cover sick employees.


U.S. Population Lacking Health InsuranceU.S. Population Lacking Health InsuranceU.S. Population Lacking Health InsuranceU.S. Population Lacking Health Insurance

Figure 14–7Source: U.S. Census Bureau, 2002.


Other BenefitsOther BenefitsOther BenefitsOther Benefits

BenefitsBenefitsBenefitsBenefits

Relocation Relocation ExpensesExpenses

Relocation Relocation ExpensesExpenses

Life, Disability, Life, Disability, Legal InsurancesLegal Insurances

Life, Disability, Life, Disability, Legal InsurancesLegal Insurances

Educational Educational AssistanceAssistance

Educational Educational AssistanceAssistance

Social and Social and RecreationalRecreational

Social and Social and RecreationalRecreational

Family-Oriented Family-Oriented BenefitsBenefits

Family-Oriented Family-Oriented BenefitsBenefits

Family-Care Family-Care BenefitsBenefits

Family-Care Family-Care BenefitsBenefits

Credit Unions Credit Unions Purchase Discounts Purchase Discounts

Stock InvestmentStock Investment

Credit Unions Credit Unions Purchase Discounts Purchase Discounts

Stock InvestmentStock Investment


Family Medical Leave Act (FMLA)Family Medical Leave Act (FMLA)Family Medical Leave Act (FMLA)Family Medical Leave Act (FMLA)

Coverage– Employers with 50 or more employees

Requirements– Employers must allow eligible employees to

take up to a total of 12 weeks of unpaid leave to attend to a family or serious medical condition.

– Employees have the right to continued health benefits and the right to return to their job.


Most Common Paid Holidays in the U.S.Most Common Paid Holidays in the U.S.Most Common Paid Holidays in the U.S.Most Common Paid Holidays in the U.S.

Figure 14–8


Companies Offering Different Types of Paid Time OffCompanies Offering Different Types of Paid Time OffCompanies Offering Different Types of Paid Time OffCompanies Offering Different Types of Paid Time Off

Figure 14–9Source: “Employee Benefits Survey Technical Note,” Compensation and Working Conditions (Washington, DC: U.S. Bureau of Labor Statistics), Fall 2000.


Time-Off BenefitsTime-Off BenefitsTime-Off BenefitsTime-Off Benefits

Holiday Pay– Eligibility

Vacation Pay

Leaves of Absence– Family Leave– Medical and Sick Leave– Paid Time-Off (PTO)

Plans– Military Leave– Election Leave– Jury-duty Leave– Funeral Leave


Benefits AdministrationBenefits AdministrationBenefits AdministrationBenefits Administration

Benefits Communication– Benefits Statements

• Annual “personal statement of benefits” that translates the benefits into dollars to show their worth.

– HRIS and Benefits Communication• HRIS information allows employees to obtain benefits

information on-line.


Typical Division of HR Responsibilities:Typical Division of HR Responsibilities:Benefits AdministrationBenefits Administration

Typical Division of HR Responsibilities:Typical Division of HR Responsibilities:Benefits AdministrationBenefits Administration

Figure 14–10


Flexible BenefitsFlexible BenefitsFlexible BenefitsFlexible Benefits

Flexible Benefit Plan– A plan (flex or cafeteria) that allows employees

to select the benefits they prefer from groups of benefits established by the employer.

Flexible Spending Accounts– An account that allows employees to

contribute pre-tax dollars to buy additional benefits (e.g., life insurance).

Problems with Flexible Plans– Inappropriate benefits package choices– Adverse selection and use of specific benefits

by higher-risk employees


Pension and Retirement Functions on the InternetPension and Retirement Functions on the InternetPension and Retirement Functions on the InternetPension and Retirement Functions on the Internet

Figure 14–11

hrm10e chap14

Documents

benefits benefits

flexible benefits

voluntary benefits

aspects of benefits

benefits communication

benefits administration

benefits package

accrued benefits