3. Benefits in a Total Compensation Program
External Environment
Internal Environment
Compensation
Financial
Direct
Nonfinancial
Indirect (Benefits)
The Job
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
UOT City Campus
Job Environment
5. Social Security
Created system of retirement benefits
Federal payroll tax to fund
unemployment and retirement
benefits
Amendments included disability
insurance, survivors’ benefits, and
Medicare
UOT City Campus
6. Unemployment Compensation
Laid off individual receives
compensation for up to 26 weeks
Administered by states
Payroll tax paid solely by employers
UOT City Campus
7. 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
UOT City Campus
8. 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
UOT City Campus
9. 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
UOT City Campus
10. 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
UOT City Campus
11. 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
UOT City Campus
12. 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
UOT City Campus
13. 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
UOT City Campus
14. 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
UOT City Campus
15. Factors Contributing to the High Cost of
Health Care
Aging population
Growing demand for medical care
Increasingly expensive medical
technology
Inefficient administrative processes
UOT City Campus
16. 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 managedcare 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
UOT City Campus
17. 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
UOT City Campus
18. 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
UOT City Campus
19. Major Medical Benefits
Plans provide for major medical
benefits to cover extraordinary
expenses that result from long-term or
serious health problems
UOT City Campus
20. Dental and Vision Care
Employers typically pay entire
costs for both types of plans
except for a deductible
UOT City Campus
21. 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
UOT City Campus
22. Life Insurance
Group life insurance commonly
provided benefit to protect
employee’s family in event of
death
UOT City Campus
23. Retirement Plans
Defined benefits plans
Defined contribution plan
Cash balance plan
UOT City Campus
24. 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
UOT City Campus
25. 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
UOT City Campus
26. 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
UOT City Campus
27. 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
UOT City Campus
29. 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
UOT City Campus
30. Supplemental Unemployment Benefits
(SUB)
Provide additional income for
employees receiving unemployment
insurance benefits
Usually financed by company
Tend to benefit newer employees
UOT City Campus
32. Nontraditional benefits
Organizations are competing for the topcaliber employees
For attracting and retaining these desired
employees
E.g.: Lake Zurich-based new age
transportation, distribution and warehousing
handed out pedometers and promised to
pay a dollar for every mile employee walked,
plus more for losing weight, one won $1200
UOT City Campus
33. 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
UOT City Campus
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
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UOT City Campus
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
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
UOT City Campus
36. 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
UOT City Campus
37. Nonfinancial Compensation
Historically, compensation departments in
organizations have not dealt with
nonfinancial factors
This is changing
Components of N.F.C are job itself and
job environment
Provide work life balance in a more
desirable life for employees
UOT City Campus
38. Nonfinancial Compensation in a Total Compensation Program External
Environment
Internal Environment
Financial
Direct
Indirect (Benefits)
Nonfinancial
The Job
Job Environment
Skill Variety Task Sound Policies
Identify Task
Competent Employees
Significance
Congenial Coworkers
Autonomy
Suitable Status Symbols
Feedback
Working Conditions
Workplace Flexibility
Flextime
Compressed Workweek
Job Sharing
Customized Benefit Plans
Telecommuting
More Work, Fewer Hours
Part-time Work
UOT City Campus
39. 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?
UOT City Campus
40. 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
UOT City Campus
41. 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
UOT City Campus
42. Job Environment as a Nonfinancial
Compensation Factor
Sound policies
Capable managers
Competent employees
Congenial co-workers
Appropriate status symbols
Working conditions
UOT City Campus
44. 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
UOT City Campus
45. Illustration of Flextime
Flexible Time
6 a.m.
Core Time
9 a.m.
Flexible
Time
(Lunch)
Noon
Bandwidth
UOT City Campus
Core Time
Flexible Time
3 p.m.
6 p.m.
46. 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
UOT City Campus
47. 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
UOT City Campus
48. Examples of Executive Job Sharing
It occurs below executive ranks, but not
always
Example of Schutzman and Manix shared
many jobs during 16 years
Share a job of vice president of public
affairs and communication at N.Y-based
Verizon Communication Inco.
UOT City Campus
49. 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
UOT City Campus
50. 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
UOT City Campus
51. 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.”
UOT City Campus
52. An Exemplary Work-life Balance
Program
Software giant SAS Institute Inco., has a
culture that gives it a powerful competitive
edge.
The environment and benefits are
outstanding for the employees
Gym, soccer field, café’, free juice and soda
for employees, unlimited sick leave, free
health insurance, free laundering etc..
UOT City Campus
53. Other Compensation Issues
Severance pay
Comparable worth
Pay secrecy
Pay compression
UOT City Campus
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
UOT City Campus
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
UOT City Campus
56. Pay Secrecy
Some organizations keep pay rates
secret for various reasons
If firm’s compensation plan is
illogical, secrecy may be
appropriate
UOT City Campus
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
UOT City Campus