Human resource management mondy 13th edition chapter 10

Learning Objectives• Describe some unique employee benefits, define indirect financial compensation benefits, and explain what is included in a total reward package.. Indirect Financia

Human Resource Management

13th Edition

Chapter 10 Indirect Financial Compensation

(Benefits) and Nonfinancial

Compensation

Learning Objectives

• Describe some unique employee benefits, define

indirect financial compensation (benefits), and

explain what is included in a total reward package.

• Describe legally required benefits.

• Define discretionary benefits and explain the various types of discretionary benefits.

• Explain the different kinds of health care legislation and describe the relationship between smoke-free workplaces and the Patient Protection and

Affordable Care Act.

• Explain premium pay.

Learning Objectives (Cont.)

• Explain voluntary benefits.

• Describe customized benefit plans.

• Describe the importance of communicating

information about the benefits package.

• Describe the job itself and the job environment

as components of nonfinancial compensation.

• Describe workplace flexibility (work-life balance) factors and global customized benefits.

HRM in Action: Unique Employee

Benefits

• More and more companies are

providing unique benefits

• Companies were trying out use of

unique benefits

• Used employee benefits to clearly

differentiate them from their competitors

Indirect Financial Compensation

(Benefits)

All financial rewards that are not paid

directly to the employee

Discretionary Versus Voluntary

Benefits

• Discretionary benefits: Benefits made as

a result of unilateral management

decisions in nonunion firms and from

labor–management negotiations in

unionized firms

• Voluntary benefits: Usually entirely paid

by employee, but employer typically pays administrative cost

Indirect Financial Compensation (Benefits)

in a Total Compensation Program

External Environment Internal Environment

Compensation

Indirect (Benefits)

Legally Required Benefits

Social Security Unemployment Compensation Workers’ Compensation

Discretionary Benefits

Payment for Time Not Worked Health Care Life

Insurance Retirement Plans Disability Protection Employee Stock Option Plans Employee Services

Premium Pay

The Job Job Environment Direct

Total Rewards

• All ways in which people are rewarded

when they come to work

• Pay, benefits, and other non-financial

Mandated Benefits (Legally Required)

• Social Security

• Unemployment compensation

• Workers’ compensation

Social Security

• System of retirement benefits

• Federal payroll tax to fund

unemployment and retirement benefits

• Amendments include disability

insurance, survivors’ benefits, and

Medicare

Unemployment Compensation

• Laid off individual receives

compensation for up to 26 weeks

• Administered by states

• Payroll tax paid solely by employers

Workers’ Compensation

• Expenses resulting from job-related

accidents or illnesses

• Administered by states

• Program paid for by employers

• Premium expense directly tied to past

experience

Payment for Time Not Worked:

Paid Vacations

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

productive

• Encourage employees to remain with firm

• Typically increases with seniority

• Americans do not take full advantage of

their vacation benefits

Payment for Time Not Worked: Sick

Pay and Paid Time Off

• Many firms allocate each employee a

certain number of days of sick leave per year

• Some managers are very critical of sick leave programs

• Paid time off (PTO): Certain number of

days off provided each year that

Results-only Work Environment

• Allows employees to work wherever and whenever they wish as long as they

complete projects on time

• There is no schedule and no limit for

earned vacation and leave time

Payment for Time Not Worked:

Sabbaticals

• Temporary leaves of absence from

organization, usually at reduced pay

• Used in academic community for years

• Recently entered the private sector

• Help reduce turnover and prevents

burnout

Payment for Time Not Worked:

Other Forms

• Perform civic duties

• Handle personal affairs

Factors Contributing to the High

Cost of Health Care

• Aging population

• Growing demand for medical care

• Increasingly expensive medical

technology

• Inefficient administrative processes

Forms of Managed-Care Health

Organizations

• Health maintenance organizations (HMOs)

cover all services for fixed fee, but exercise control over which doctors and health

facilities member may use

• Preferred provider organizations (PPOs)

are managed-care health organizations

where incentives are provided to members to use services within system; out-of-network

providers may be used at greater cost.

Forms of Managed-Care Health

Organizations (cont.)

• Point-of-service (POS) requires a primary

care physician and referrals to see

specialists, as with HMOs, but permits network health care access.

out-of-• Exclusive provider organizations (EPOs)

offer smaller PPO provider network and

usually provide few, if any, benefits when of-network provider is used.

out-Consumer-Driven Health

Care Plans

• Each employee given set amount of money annually with which to purchase health care coverage

• Involves high-deductible insurance coverage

a health saving account (HRA), health

reimbursement accounts (HRA), and

flexible saving account (FSA)

Health Savings Account (HSA)

• Tax-free health spending and savings

account

• Available to individuals and families who have qualified high-deductible health

insurance policies as determined by IRS

• Can put a maximum of $6,250 a year in a pretax account

Health Reimbursement Accounts

• Allow employer to set aside funds to

reimburse medical expenses paid by

participating employees

• No limit on employer’s contributions

• Can be rolled over from year to year

Flexible Spending Account (FSA)

• Health benefit plan established by

employers

• Allows employees to deposit certain portion

of pre-tax salary into account to be used for eligible expenses (Maximum - $2,500)

• Forfeit any amount left unspent in account

at year end

• Not used for over-the-counter medications

On-Site Health Care

• Way of curbing health care costs while providing an employee benefit

• Permits employers to better manage

and at times reduce growth of health

care costs

• Assists in treating minor illnesses and injuries and provides follow-up care

Major Medical Benefits

Provided to cover extraordinary

expenses that result from long-term or serious health problems

Use of deductibles is a common

feature

Dental and Vision Care

•Dental and vision care are popular benefits

•Employers typically pay the entire

costs for both types of plans except for a deductible

Health Care Legislation

• Employee Retirement Income Security Act (ERISA)

• Consolidated Omnibus Budget Reconciliation Act

(COBRA)

• Older Workers Benefit Protection Act (OWBPA)

• Health Insurance Portability and Accountability Act (HIPAA)

• Family and Medical Leave Act

• Pension Protection Act (PPA)

• Patient Protection and Affordable Care Act (PPACA)

Employee Retirement Income

Security Act of 1974 (ERISA)

• Strengthens existing and future retirement programs

• Intended to ensure when employees retire they receive deserved pensions

• Does not force employers to create

employee retirement plans

Consolidated Omnibus Budget

Reconciliation Act of 1985 (COBRA)

• Gives employees opportunity to temporarily continue coverage they would otherwise

lose because of termination, layoff, or other change in employment status

• Applies to employers with 20 or more

employees

• May keep coverage for up to 18 months

after employment ceases

Older Workers Benefit Protection

Act of 1990 (OWBPA)

• Amendment to Age Discrimination in

Employment Act

• Prohibits discrimination in administration

of benefits on basis of age

• Permits early retirement incentive plans

as long as they are voluntary

• Establishes wrongful termination waiver requirements

Health Insurance Portability and Accountability Act of 1996 (HIPAA)

• Protection for Americans who change

jobs, are self-employed, or have

preexisting medical conditions

• Makes health insurance portable and

continuous

• Eliminates ability of insurance

companies to reject coverage

Family and Medical Leave Act of

1993 (FMLA)

• Private employers with 50 or more

employees and all governmental

employers

• 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

Pension Protection Act of 2006

(PPA)

• Strengthens funding rules for defined benefit pension plans

• Ensures that employers make greater

contributions to their pension funds

• Must be fully funded in by 2013

Patient Protection and Affordable

Care Act of 2010 (PPACA)

• Often called “Health Care Reform Bill.”

• Everyone required to have insurance by 2014

• Children can stay on parents’ policy to age 26

• Insurance companies cannot cancel a policy if

the insured gets sick

• Cannot be denied insurance simply because of a preexisting condition

• No maximum limit on insurance coverage

• No waiting time for coverage if person has

pre-existing condition

Trends & Innovations: Smoke-free

Workplaces and the Patient Protection and

Affordable Care Act

• Act provides that companies with health plans that spend much more than

average will have to pay an additional

federal tax

• Smokers increase health care costs

• Companies must cut benefits or cut

trend of rising medical costs to avoid

Life Insurance

•Group life insurance is a commonly

provided benefit to protect employee’s family in event of death

•Some plans call for the employee to pay part of the premium

Retirement Plans

• Defined benefits plans

• Defined contribution plan

• Cash balance plan

Defined Benefit Plans

• Provide participant with fixed benefit

upon retirement

• Typically based on participant’s final

years’ average salary and years of

service

• Use has declined in recent years

• Older workers tend to prefer them

Defined Contribution Plans

• Require specific contributions by

employer for employee

• Shift from defined benefits to defined

contribution pension plans

• Retirement income depends upon

investment success of pension fund

401(k) Plan

• Defined contribution plan in which

employees may defer income up to

maximum allowed amount

• Some employers match employee

contributions 50 cents for each dollar

deferred

• Recent recession was not been kind to 401(k) accounts

Cash Balance Plans

• Elements of both defined benefit and

defined contribution plans

• Help employers who are looking for

ways to maximize retirement

contributions

• Employer normally bears responsibility for and risks of managing assets

Disability Protection

•Workers’ compensation protects employees from job-related accidents and illnesses

•Some firms provide additional protection

that is more comprehensive

•Long-term disability provides a monthly

benefit to employees who due to illness or

injury are unable to work for an extended

period

Employee Stock Option Plan

(ESOP)

• 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

Employee Services

• Child care

• Educational assistance

• Food service/subsidized cafeterias

• Scholarships for dependents

• Relocation benefits

• Domestic partner benefits

Child Care

• 80% of employees miss work due to

unexpected child-care coverage issues

• Every $1 invested in backup child care yields $3 to $4 in returned productivity and benefit

Educational Assistance

• Improves employee retention

• Many different ways to reimburse

workers

Food Services/Subsidized

Cafeterias

• Companies believe they get high

payback in terms of employee relations

• Hope to gain:

–Increased productivity

–Less wasted time

–Enhanced employee morale

Scholarships for Dependents

• Some companies provide scholarships for dependents

• Boosts employee recruitment and

retention

home and selling the old home

• Relocation packages vary

• Moving may impact quality of life

Domestic Partner Benefits

• Unmarried domestic partners are more often being included as qualified for

coverage under employee benefit plans

• Growing trend to offer benefits to sex domestic partners of employees

same-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

Voluntary Benefits

• 100% paid by employee, but employer typically pays administrative cost

• Employees benefit because their

premiums typically reflect group

discounting

• Takes pressure off firms to add

employer-paid benefits

Customized Benefit Plans

• Employees make yearly elections to

determine benefit package

• Choose between taxable cash and

benefits

• 20 years ago, firms offered uniform

package that reflected typical employee

• Today’s workforce more heterogeneous

Communicating Information About the Benefits Package

• Workers need to fully understand benefits

• Organizations often do not have to

improve benefits to keep best employees

• Employee Retirement Income Security

Act

• Patient Protection and Affordable Care

Act

Nonfinancial Compensation in a Total Compensation Program

External Environment Internal Environment

Direct Indirect (Benefits) The Job

Meaningful Appreciated Satisfying Learning Enjoyable Challenging

Job Environment

Sound Policies Capable Managers Competent Employees Congenial Co-workers Appropriate Status Symbols

Working Conditions

Workplace Flexibility

Flextime Compressed Workweek Job Sharing

Telecommuting time Work

The Job Itself as a Nonfinancial

Compensation Factor

• Job itself can be very powerful motivational factor

• Some jobs can be so stimulating the

employee is anxious to get to work each

day

• Given prospect of getting a generous raise

by leaving this job, this worker may quickly say “No”

Job Environment as a Nonfinancial

Work-Life Balance Factors:

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 flextime

Illustration of Flextime

Flexible Time Core Time

Flexible Time (Lunch)

Core Time Flexible Time

Bandwidth

Work-Life Balance Factors:

Compressed Work Week

• Permits employees to fulfill their work

obligation in fewer days than typical day workweek

5-• Four 10-hour days

• Often greater job satisfaction

Work-Life Balance Factors: Job

Sharing

• Two part-time people split duties of one job

• Partners must be compatible, have

good communication skills

• Trust must exist between job sharers

and their manager

Work-Life Balance Factors: Two

in a Box

• Give two executives the same

responsibilities and same title and letting them decide how the work is to be

divided

• Full-time job for both executives

• Requires work and constant

communication