Published on February 23, 2009
Human Resource Management Session 8BENEFITS, NONFINANCIAL COMPENSATION, AND OTHER COMPENSATION ISSUES : Human Resource Management Session 8BENEFITS, NONFINANCIAL COMPENSATION, AND OTHER COMPENSATION ISSUES HRM in Action: Nontraditional Benefits : 2 HRM in Action: Nontraditional Benefits Organizations are continually competing for top caliber employees Benefits may not serve as strong motivators of performance They are obviously important in attracting and retaining these desired individuals Benefits (Indirect Financial Compensation) : 3 Benefits (Indirect Financial Compensation) All financial rewards that are not paid directly to the employee Benefits in a Total Compensation Program External EnvironmentInternal Environment : 4 Benefits in a Total Compensation Program External EnvironmentInternal Environment Compensation Indirect (Benefits) Legally Required Benefits Social Security Unemployment Compensation Workers’ Compensation Family & Medical Leave Voluntary Benefits Payment for Time Not Worked Health Care Life Insurance Retirement Plans Disability Protection Employee Stock Option Plans Supplemental Unemployment Benefits Employee Services Premium Pay Customized Benefit Plans Financial Nonfinancial The Job Job Environment Direct Mandated Benefits(Legally Required) : 5 Mandated Benefits(Legally Required) Social security Unemployment compensation Worker’s compensation Family and Medical Leave Act of 1993 (FMLA) Social Security : -6 Social Security Created system of retirement benefits Federal payroll tax to fund unemployment and retirement benefits Amendments included disability insurance, survivors’ benefits, and Medicare Unemployment Compensation : © 2008 by Prentice Hall 10-7 Unemployment Compensation Laid off individual receives compensation for up to 26 weeks Administered by states Payroll tax paid solely by employers Worker’s Compensation : 8 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 Family and Medical Leave Act of 1993 (FMLA) : 9 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 Discretionary Benefits (Voluntary) : 10 Discretionary Benefits (Voluntary) Payment for time not worked Health care Life Insurance Retirement plans Disability protection Employee Stock Option Plans (ESOP) Supplemental Unemployment Benefits (SUB) Employee services Premium pay Payment for Time Not Worked - Paid Vacations : 11 Payment for Time Not Worked - Paid Vacations Provide workers with opportunity to rest, become rejuvenated, and more productive Encourage employees to remain with the firm Increases with seniority American workers are giving back 415 million vacation days a year 35% of U.S. workers feel stressed about work even while on vacation Payment for Time Not Worked - Sick Pay and Paid Time Off : 12 Payment for Time Not Worked - Sick Pay and Paid Time Off Many firms allocate each employee a 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 Payment for Time Not Worked - Sabbaticals : 13 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 Payment for Time Not Worked - Other Forms : 14 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, and travel time Health Care : 15 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 Factors Contributing to the High Cost of Health Care : 16 Factors Contributing to the High Cost of Health Care Aging population Growing demand for medical care Increasingly expensive medical technology Inefficient administrative processes Canadian Province of Ontario Surpassed Michigan in Car Production : 17 Canadian Province of Ontario Surpassed Michigan in Car Production Manufactured by General Motors, Ford and Daimler-Chrysler Companies are shifting production out of U.S. because of enormous health-care costs In Canada, which has a government-funded and -run health-care system, cost to employer per worker is just $800 Forms of Managed-care Health Organizations : 18 Forms of Managed-care Health Organizations Health maintenance organizations (HMOs) cover all services for a fixed fee but control is exercised over which doctors and health facilities a member may use. Preferred provider organizations (PPO) are managed-care health organizations in which incentives are provided to members to use services within the system; out-of-network providers may be utilized at greater cost. Point-of-service (POS) requires a primary care physician and referrals to see specialists, as with HMOs, but permits out-of-network health care access Exclusive provider organizations (EPOs) offers a smaller PPO provider network and usually provides little, if any, benefits when an out-of-network provider is used Consumer-Driven Health Care Plans : © 2008 by Prentice Hall 10-19 Consumer-Driven Health Care Plans Defined-contribution health-care plan - Employee gets set amount of money to purchase health-care coverage Health savings account (HSA) - Tax-sheltered account similar to IRA, but earmarked for medical expenses with high-deductible health plans that have deductibles of at least $1,050 for individuals and $2,100 for families Flexible spending account (FSA) - Established by employers that allow employees to deposit certain portion of salary into account (before paying income taxes) to be used for eligible expenses On-Site Health Care : 20 On-Site Health Care Trend of providing on-site medical care growing because it permits employers to better manage and reduce growth of health care costs Assists in treating minor illnesses and injuries and provides follow-up care Major Medical Benefits : 21 Major Medical Benefits Plans provide for major medical benefits to cover extraordinary expenses that result from long-term or serious health problems Dental and Vision Care : 22 Dental and Vision Care Employers typically pay entire costs for both types of plans except for a deductible Long-Term Care (LTC) Insurance : 23 Long-Term Care (LTC) Insurance Increasing costs of 24-hour home health care for elderly relatives have given rise to LTC programs LTC insurance picks up most or all of expenses for skilled and custodial care for people in own homes, adult day-care centers, assisted-living facilities, and nursing homes Life Insurance : 24 Life Insurance Group life insurance commonly provided benefit to protect employee’s family in event of death Retirement Plans : 25 Retirement Plans Defined benefits plans Defined contribution plan Cash balance plan - Defined Benefit Plans : 26 Defined Benefit Plans Formal retirement plan that provides the participant with a fixed benefit upon retirement Typically based on the participant’s final years’ average salary and years of service Use has declined in recent years although older workers tend to prefer them Defined Contribution Plans : 27 Defined Contribution Plans Requires specific contributions by an employer to a retirement or savings fund established for the employee Has been a shift from defined benefits to defined contribution pension plans Amount of retirement income from a defined contribution plan will depend upon the investment success of the pension fund 401(k) Plan : 28 401(k) Plan Defined contribution plan in which employees may defer income up to a maximum amount allowed Some employers match employee contributions 50 cents for each dollar deferred Has required about 42 million employees to become investment managers, shifting the burden of retirement planning from employers to employees Cash Balance Plans : 29 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 a set amount Disability Protection : 30 Disability Protection Provides monthly benefit to employees who, due to illness or injury, are unable to work for an extended period Employee Stock Option Plan (ESOPs) : 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 Supplemental Unemployment Benefits (SUB) : 32 Supplemental Unemployment Benefits (SUB) Provide additional income for employees receiving unemployment insurance benefits Usually financed by company Tend to benefit newer employees Employee Services : 33 Employee Services Relocation Child care Educational assistance Food service/subsidized cafeterias Financial services Legal services Scholarships for Dependents Customized Benefit Plans (Cafeteria Compensation) : 34 Customized Benefit Plans (Cafeteria Compensation) Employees make yearly elections to largely determine benefit package by choosing between taxable cash and numerous benefits Twenty years ago or so firms offered a uniform package that generally reflected a typical employee Today, the workforce has become considerably more heterogeneous Compensation Vehicles Utilized in a Customized Benefit Plans Compensation Approach : 35 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 Premium Pay : 36 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 Health-Care Legislation : 37 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) Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) : 38 Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) Enacted to give employees opportunity to temporarily continue their 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 Health Insurance Portability and Accountability Act of 1996 (HIPAA) : 39 Health Insurance Portability and Accountability Act of 1996 (HIPAA) Protection for approximately 25 million Americans who move from one job to another, are self-employed, or have preexisting medical conditions Make health insurance portable and continuous Eliminate ability of insurance companies to reject coverage for individuals because of a pre-existing condition Employee Retirement Income Security Act of 1974 (ERISA) : 40 Employee Retirement Income Security Act of 1974 (ERISA) Strengthens existing and future retirement programs Intended to ensure that when employees retire, they receive deserved pensions Does not force employers to create an employee retirement plans Older Workers Benefit Protection Act of 1990 (OWBPA) : 41 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 Pension Protection Act of 2006 (PPA) : 42 Pension Protection Act of 2006 (PPA) Strengthen the funding rules for defined benefit pension plans Ensure that employers make greater contributions to their pension funds Makes it easier for employers to automatically enroll workers in their 401(k) Communicating Information about Benefits Package : 43 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 their best employees Nonfinancial Compensation : 44 Nonfinancial Compensation Historically, compensation departments in organizations have not dealt with nonfinancial factors This is changing Nonfinancial Compensation in a Total Compensation Program External EnvironmentInternal Environment : 45 Nonfinancial Compensation in a Total Compensation Program External EnvironmentInternal Environment Direct Indirect (Benefits) The Job Skill Variety Task Identify Task Significance Autonomy Feedback Job Environment Sound Policies Competent Employees Congenial Coworkers Suitable Status Symbols Working Conditions Workplace Flexibility Flextime Compressed Workweek Job Sharing Customized Benefit Plans Telecommuting More Work, Fewer Hours Part-time Work Financial Nonfinancial The Job Itself as a Nonfinancial Compensation Factor : 46 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? Job Characteristics Theory : 47 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 Job Characteristics Theory (Cont.) : 48 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 Job Environment as a Nonfinancial Compensation Factor : 49 Job Environment as a Nonfinancial Compensation Factor Sound policies Capable managers Competent employees Congenial coworkers Appropriate status symbols Working conditions Workplace Flexibility (Work-Life Balance) : 50 Workplace Flexibility (Work-Life Balance) Flextime Compressed workweek Job sharing Telecommuting Part-time work More work, fewer hours Flextime : 51 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 Illustration of Flextime : 52 Illustration of Flextime Flexible Time Core Time Flexible Time (Lunch) Core Time Flexible Time 6 a.m. 9 a.m. 6 p.m. 3 p.m. Noon Bandwidth Compressed Work Week : 53 Compressed Work Week 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 Job Sharing : 54 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 Telecommuting : 55 Telecommuting Work arrangement whereby employees, called teleworkers or telecommuters, are able to remain at home, or otherwise away from office, and perform work using computers and other electronic devices that connect them with office Part-time Work : 56 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 More Work, Fewer Hours : 57 More Work, Fewer Hours Variation of part-time work where employees receive full-time pay and get more done in fewer hours Corporate athlete paradigm - One training habit of world-class athletes is that they have short periods of very demanding work, but then “when they rest, they really rest.” Other Compensation Issues : 58 Other Compensation Issues Severance pay Comparable worth Pay secrecy Pay compression Severance Pay : 59 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 Comparable Worth : 60 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 Pay Secrecy : 61 Pay Secrecy Some organizations keep pay rates secret for various reasons If firm’s compensation plan is illogical, secrecy may be appropriate Pay Compression : 62 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
Focus of attention for interventions 10. Shared interests . Conflict handling 8. structural & personnel strategies Mutuality of interests 6.
HRM Session 8: Reward Systems—An Alternative View. Case: SAS Institute. Company Background. History: Founded in 1976 by Dr. Jim Goodnight (PhD in statistics)
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