Chapter

2. Chapter 12 Indirect Compensation: Employee Benefit Plans

3. 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. Classifying Benefits • Three broad categories exist for classifying benefits • Security and health • Payments for time not worked • Employee services

5. 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. Payments for Time Not Worked • Vacations • Holidays • Reporting Time • Personal excused absences • Grievances and negotiations • Sabbatical leaves

7. 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. 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. 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. 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. 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. 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. 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