12
Getty Images
Providing
Benefits and
Services
© 2008 Cengage Learning
All rights reserved.
PowerPoint Presentation by Charlie Cook
The University of West Alabama
The Strategic Importance of
Benefits and Services
• Employee Benefits and Services
 Are in-kind (noncash) payments to employees for
their membership or participation in the organization.
 Are available on a noncontingent basis—employees
receive the same benefits and services regardless of
job performance.
• Key Strategic Challenge
 Offering benefits and services that maximize the
return on the employer’s investments.
1
LEARNING GOAL
© 2008 Cengage Learning. All rights reserved.
12–2
The Strategic Importance of
Benefits and Services (cont’d)
Controlling Costs of
Benefit and Services
Recruiting and
Retaining Talent
Strategic
Challenges
Achieving Business
Objectives
© 2008 Cengage Learning. All rights reserved.
12–3
EXHIBIT 12.1 Common Objectives of Benefits and Services Plans
© 2008 Cengage Learning. All rights reserved.
12–4
Controlling Benefit and Services Costs
• In 1929—Total benefits payments
averaged 5% of total pay.
• In 2007—Benefits were 30% of total pay
(about $17,000 per employee).
• Wages and salaries are 40 times greater
than 60 years ago; benefits and services
are 500 times greater
© 2008 Cengage Learning. All rights reserved.
12–5
Recruiting and Retaining Talent
• Innovative benefits and services packages are
important for attracting and retaining employees.
 Flexible benefits plan

Provides all employees with a base benefits and services
package and then allows employees to choose some
additional benefits and services from a wide array of options.
 Targeted benefits plan

Provides different types and levels of benefits and services
depending on an employee’s location and position in the
organization.
© 2008 Cengage Learning. All rights reserved.
12–6
EXHIBIT 12.2 Achieving Business Objectives Using Benefits and Services
Business Objective
Benefits Response
1. To reduce total costs of doing
business by 10% yearly.
1. Contain the rise in health care costs to 2% yearly
and increase employee contributions by 2% yearly.
2. To develop a working environment
that is founded on integrity, open
communication, and individual
growth.
2. Develop an employee career counseling system that
provides employees with an opportunity to assess
skills and develop competencies. Establish a tuition
reimbursement program.
3. To establish the division as a
recognized leader in support of its
community.
3. Establish a corporate-giving matching fund.
4. To complete the downsizing of the
company by the end of the third
quarter.
4. Develop various termination subsidies such as
severance pay, outplacement assistance, and early
retirement benefits.
5. To cut accident rates 10% by yearend.
5. Establish an employee assistance program by yearend. Set up a free literacy training program to ensure
that all employees can read job safety signs.
© 2008 Cengage Learning. All rights reserved.
12–7
EXHIBIT 12.3
Employee Benefits and Services
within an Integrated HRM System
© 2008 Cengage Learning. All rights reserved.
12–8
Employee Benefits and Services Within
an Integrated HRM System
• Mandatory (Public) Protection Programs
 Are required by the federal and state governments

Social Security, unemployment, workers’ compensation
• Voluntary Protection Programs
 Are offered by employers and are not required by law

Health care, life insurance, disability, retirement
2
LEARNING GOAL
© 2008 Cengage Learning. All rights reserved.
12–9
EXHIBIT 12.4 Mandatory and Voluntary Protection Programs
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12–10
EXHIBIT 12.5 Employer Costs for Benefits and Services (Cost per Hour Worked
and as Percentage of Total Compensation, Private Industry)
© 2008 Cengage Learning. All rights reserved.
12–11
The External Environment
Economic
Conditions
Union
Bargaining
Growth in Benefits
and Services
Laws and
Regulations
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12–12
The Organizational Environment
Size of Firm
Corporate Culture
Design of Employee
Benefits and Services
Business Strategy
and Objectives
© 2008 Cengage Learning. All rights reserved.
12–13
EXHIBIT 12.6 Access to Benefits and Service by Firm Size
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12–14
© 2008 Cengage Learning. All rights reserved.
12–15
Mandatory Protection Programs
• Social Security Insurance
• Unemployment
Compensation Benefits
• Workers’ Compensation
and Disability Insurance
• Family and Medical Leave
4
LEARNING GOAL
© 2008 Cengage Learning. All rights reserved.
12–16
Social Security Insurance
• Enacted in 1935 as a forced savings plan
intended to provide older Americans with a
reliable source of income in retirement.
• Medicare provisions were added in 1966.
• Federal Insurance Contributions Act (FICA)
 6.2% of the first $100,400 income for retirement and
disability
 1.45% of total income for hospital insurance
(Medicare)
 Equal payroll tax contributions (7.65%) from the
employer and the employee
© 2008 Cengage Learning. All rights reserved.
12–17
Unemployment Compensation
• Is an insurance program that provides
unemployment compensation as income for
employees who lose their jobs.
 Jointly administered by federal and state
governments.
 Tax rates for employers are based on location and
employer history of layoff and dismissals.
 Level of benefits ranges 50-70% of base salary.
© 2008 Cengage Learning. All rights reserved.
12–18
Workers’ Compensation and
Disability Insurance
• Covers costs and lost income due to injuries or
illnesses that result from on-the-job events
 Administered by states
 Fully financed by employers
• Managing workers’ compensation costs:
 Use health care cost-containment strategies (audit
bills, develop preferred providers, etc.)
 Implement job safety programs
 Combine with disability management
© 2008 Cengage Learning. All rights reserved.
12–19
Family and Medical Leave
• Family and Medical Leave Act (FMLA)
 Covers employers with 50 or more workers
 Required to grant up to 12 weeks of unpaid leave
annually
For birth/adoption of a child
 To care for immediate family member with serious health
condition
 For employee with serious health condition

 Employee keeps preexisting health coverage and
must be allowed to return to same or equivalent job.
© 2008 Cengage Learning. All rights reserved.
12–20
Voluntary Protection Programs
• Benefits provided by employers that are not
required by law include:
 Retirement income plans
 Capital accumulation plans
 Savings and thrift plans
 Supplemental unemployment
 Guaranteed pay
5
LEARNING GOAL
© 2008 Cengage Learning. All rights reserved.
12–21
Legal Considerations
• Qualified Plan
 Covers a broad class of employees
 Receives favorable tax treatment from IRS
• Nonqualified plan
 Covers only select groups of employees (e.g., senior
management)
 Doesn’t adhere to the strict tax regulations, doesn’t
receive favorable tax treatment.
© 2008 Cengage Learning. All rights reserved.
12–22
Types of Pension Plans
• Defined Benefit Plans
 Benefits are fixed but vary with age and length of
service
 Require funding to match benefit payouts.
 Provide predictable income after retirement
 Penalize employee mobility
 Are regulated by ERISA
 Are being replaced by
defined contribution plans
© 2008 Cengage Learning. All rights reserved.
12–23
Types of Pension Plans (cont’d)
• Defined Contribution Plans
 Contribution is fixed, payout is variable.
 Each employee has separate account.
 Employer may agree to match a percentage of
employee contributions.
 Employer may contribute (contributory plan) or not
(noncontributory plan).
• 401(k)s and 403(b)s
 Employer and employee contribute to the fund.
 Employee makes investment decisions.
© 2008 Cengage Learning. All rights reserved.
12–24
EXHIBIT 12.7
Types of Retirement Plans Offered
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12–25
EXHIBIT 12.8
401(k) Participation Rates (1984–2006)
© 2008 Cengage Learning. All rights reserved.
12–26
Pension Plans (cont’d)
• Employee Stock Option and Profit Sharing Plans
 Ties value of plan to firm’s financial performance;
violates sound financial principles for spreading risk
by investing in a more diversified portfolio.
• Cash Balance Plan
 Pays a lump sum upon
employees’ retirement or
departure.
 Has become more popular
as employee mobility has
increased.
© 2008 Cengage Learning. All rights reserved.
12–27
Legal Considerations
• Employee Retirement Income Security Act of
1974 (ERISA )
 Protects benefits for workers covered by private
pension plans; prohibits unfunded plans
 Specifies provisions for vesting (time when
employer’s contribution belongs to employee)
 Portability: transfer of retirement funds to IRAs
• Pension Benefit Guaranty Corporation (PBGC)
 Administers an insurance program guaranteeing
payment of retirement benefits if a plan is terminated.
© 2008 Cengage Learning. All rights reserved.
12–28
EXHIBIT 12.9
Largest PBGC Claims by Firms in Default since 1975
Largest 5 Claims
Year
1. United Airlines
2005
$7,093,803,951
122,541
2. Bethlehem Steel
2003
$3,654,380,116
97,015
3. US Airways
2003
$2,861,901,511
58,823
4. LTV Steel
2002
$1,959,679,993
80,961
5. National Steel
2003
$1,161,019,567
35,404
© 2008 Cengage Learning. All rights reserved.
Claim
Vested
Participants
12–29
Other Laws Related to Retirement Plans
• Economic Recovery Tax Act of 1981
 Allows tax deductible contributions to employer-
sponsored plan or individual retirement account (IRA).
 Encouraged employee stock ownership.
• Economic Growth and Tax Relief Reconciliation
Act of 2001
 Raised employer-sponsored retirement plan
contribution limits and shortened vesting periods.
• Pension Protection Act of 2006
 Made it easier for people to participate in defined
contribution plans like IRAs and 401(k)s.
© 2008 Cengage Learning. All rights reserved.
12–30
Health Care Benefits and Services
• Medical Care Costs
 Most employees underestimate the medical benefit’s
cost to the employer and view medical care as an
entitlement.
 Employers pay an average of $11,500 for a health
insurance plan that covers a family of four.
 Out of every benefits and services dollar spent, a
quarter goes to health care.
6
LEARNING GOAL
© 2008 Cengage Learning. All rights reserved.
12–31
Types of Health Insurance Plans
Conventional
Insurance Plans
Consumer-Driven
Plans
Health Savings Accounts
(HSAs)
Point of Service
Plans (POSs)
© 2008 Cengage Learning. All rights reserved.
Health Maintenance
Organizations
(HMOs)
Preferred Provider
Organizations
(PPOs)
12–32
EXHIBIT 12.10 Percentage of Enrolled Workers by Type of Health Care Plan
© 2008 Cengage Learning. All rights reserved.
12–33
Wellness Programs
• Wellness Programs
 Proactive programs to prevent health problems
• May include:
 On-site exercise programs
 Stress-management training
 Assistance to stop smoking
 Weight-loss programs
© 2008 Cengage Learning. All rights reserved.
12–34
EXHIBIT 12.11 Wellness Benefits and Services
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12–35
Employee Assistance Programs (EAPs)
• Assist employees with chronic personal
problems that hinder job performance and
attendance
• Employees referred to confidential counseling
services
• Includes help with alcohol and drug
dependencies, domestic problems,
mental disorders, financial problems
© 2008 Cengage Learning. All rights reserved.
12–36
Paid Leave
• Off-the-Job Paid Leave
 Holidays and Vacations
Vacation pay or payment in lieu of vacation
 Deferral of vacation (banking) or loss of vacation days
 Mandated vacations in other countries

 Other Paid Leaves

Volunteering, adoption, paternity and maternity leave, a day
off for an employee’s birthday, and sabbaticals
• On-the-Job Paid Leave
 Rest periods, lunch periods, washup times, and
clothes-changing and getting-ready times
 Use of onsite physical fitness facilities
7
LEARNING GOAL
© 2008 Cengage Learning. All rights reserved.
12–37
Vacationing around the World
© 2008 Cengage Learning. All rights reserved.
12–38
EXHIBIT 12.12 Popular Off-the-Job Paid Leaves
© 2008 Cengage Learning. All rights reserved.
12–39
Managing Absenteeism
• In the U.S., daily absenteeism rate is 2-3% of
total payroll.
 As the number of paid days off increases, the number
of days of actual absence increases proportionally.
 Granting personal days (personal time off) may
prevent unscheduled absenteeism.
 Programs that reward attendance may be more
effective than disciplinary approaches that punish
absenteeism.
© 2008 Cengage Learning. All rights reserved.
12–40
Work-Life Benefits and Services
• Scheduling Alternatives
 Empower employees to decide how, when, and
where to get their jobs done.
Flextime
 Compressed workweeks
 Telecommuting
 Job sharing

8
LEARNING GOAL
© 2008 Cengage Learning. All rights reserved.
12–41
EXHIBIT 12.13 Prevalence of Work/Life Benefits and Services
© 2008 Cengage Learning. All rights reserved.
12–42
Work-Life Benefits and Services
• Child Care Benefits and
Services
 Scholarships for children of









employees
Subsidized tutoring
Care for sick children
Subsidized college educations
On-site or subsidized child
care
Child care referrals
Extended leaves
Benefits for employees with
special needs children
Workplace schools
Employer-sponsored summer
camps
© 2008 Cengage Learning. All rights reserved.
• Elder Care Services
 Elder care referral services
 Extended leaves beyond the
mandated FMLA requirement.
 Emergency elder care services
 Subsidies to help cover the
cost of elder care
 Long-term care insurance.
12–43
Work-Life Benefits (cont’d)
• Domestic Partner Benefits and Services
 Employers provide domestic partner benefits and
services to attract and retain talent, comply with the
company’s nondiscrimination policy, and comply with
local laws.
 Federal laws do not require employers to provide
domestic partner benefits and services.
8
LEARNING GOAL
© 2008 Cengage Learning. All rights reserved.
12–44
EXHIBIT 12.14 Other Popular Benefits and Services
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12–45
Administering Issues
Determining the
Benefits and
Services Package
Determining the
Level of Flexibility
Communication
Administrative
Issues
10
LEARNING GOAL
© 2008 Cengage Learning. All rights reserved.
12–46
Current Issues
• Health Care Benefits and Services
 Medical cost control tactics:
Shift health care costs to employees
 Hospital utilization programs
 Coordination of benefits
 Data analysis
 Prescription drug management
 Case management
 Auditing employee usage

• Benefits and Services for Retirees
 Employers are having increasing difficulty maintaining
retiree health care and retirement benefits.
11
LEARNING GOAL
© 2008 Cengage Learning. All rights reserved.
12–47
EXHIBIT 12.15 Recent Changes to Health Care Benefits and Services
by Employers Offering Them
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12–48
TERMS TO REMEMBER
• Contributory plan
• Economic Recovery Tax Act
of 1981
• Employee Assistance
Programs (EAPs)
• Employee benefits and
services
• Employee Retirement Income
Security Act of 1974 (ERISA)
• Family and Medical Leave Act
(FMLA)
• Flexible benefits plans
• Health savings accounts
(HSAs)
© 2008 Cengage Learning. All rights reserved.
• Mandatory protection
programs
• Noncontributory plan
• Nonqualified plan
• Pension Benefit Guaranty
Corporation (PBGC)
• Portable benefits
• Primary care physicians
(PCPs)
• Qualified plan
• Social Security Act of 1935
• Targeted benefits plan
• Voluntary protection
programs
12–49