Part 4: Compensating Human
Resources
Chapter 12: Managing Employee Benefits
Prepared by Linda Eligh, University of Western Ontario
Copyright © 2008 by Nelson, a division of Thomson Canada Limited.
12–1
Learning Objectives
After you have read this chapter, you should be able to:
1.
Define a benefit and identify four strategic benefit considerations.
2.
Distinguish between mandated and voluntary benefits.
3.
Discuss the shift of retirement plans from defined-benefit to
defined-contribution plans.
4.
Explain the importance of managing the costs of health benefits
and identify some methods of doing so.
5.
Describe the growth of financial, family-oriented, and time-off
benefits and their importance to many employees.
6.
Summarize benefits communication and flexible benefits as
considerations in benefits administration.
Copyright © 2008 by Nelson, a division of Thomson Canada Limited.
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Long-Term Issues for CEOs
Copyright © 2008 by Nelson, a division of Thomson Canada Limited.
Fig. 12-1
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Strategic Perspective on Benefits
• Benefit
 An indirect reward given to an employee or group of
employees for organizational membership.
• Strategic Perspectives on Benefits
 Benefits absorb social costs for health care and
retirement.
 Benefits influence employee decisions about
employers (e.g., recruitment and retirement).
 Benefits are increasingly seen as entitlements.
 Benefit costs average over 40% of total payroll costs.
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Strategic Benefits Considerations
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Fig. 12-2
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Benefit Design
• Decisions Affecting Benefit Design:
 How much total compensation should be provided?
 What part of total compensation should benefits
comprise?
 What expense levels are acceptable for each benefit?
 Which employees should get which benefits?
 What are we getting in return for the benefit?
 How will offering benefits affect turnover, recruiting,
and retention of employees?
 How flexible should the benefits package be?
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Common Measurements of
Benefits Effectiveness Fig. 12-3
 Benefits as a percentage of payroll (pattern over a
multi-year period)
 Benefits expenditures per full-time equivalent (FTE)
employee
 Benefits costs by employee group (full-time vs. part-time,
union vs. non-union, office, management, professional,
technical, etc.)
 Benefits administration costs (including staff time
multiplied by the staff pay and benefits costs per hour)
 Health-care benefits costs per participating employee
Copyright © 2008 by Nelson, a division of Thomson Canada Limited.
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Types of Benefits
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Fig. 12-4
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Government Security Benefits
• Canada/Quebec Pension Plan (CPP/QPP)
 Canada’s major pension plans, providing regular
payments to people in retirement who have
contributed to either or both of these plans.

Disability payments

Survivor benefits

Children’s benefit
• Old Age Security (OAS)
 Provides a monthly retirement benefit based on age
and the amount of time lived in Canada.
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Government Security Benefits (cont’d)
• Employment Insurance (EI)
 Provides temporary financial assistance for
unemployed Canadians while they look for work or
upgrade their skills. Eligibility is based on work
record.
 Basic Benefits
 Compassionate Care Benefits
–
–
–
–
Maternity Benefits
Parental Benefits
Sickness Benefits
Supplemental Unemployment Benefits (SUB)
Copyright © 2008 by Nelson, a division of Thomson Canada Limited.
12–10
Government Security Benefits (cont’d)
• Worker’s Compensation
 A mandatory, no-fault, work injury insurance system
that provides benefits to persons injured on the job.
 Managed by provincial Workers’ Compensation
Boards (WCBs) and funded by employers.
 Employer premiums based on industry rates and
safety prevention measures taken.
• Provincial Medicare
 Canada’s publicly funded health-care system.
 Provides essential and affordable health care
services for all Canadians, regardless of income.
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Canada’s Aging Population
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Fig. 12-7
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Retirement Benefits
• Retirements Benefits and Age Discrimination
 Forcing retirement because of age is a human rights
issue covered by human rights legislation and in
Quebec by labour standards legislation.
 Elimination of mandatory retirement in Canada
presents challenges to employers on what if any
benefits post 65 workers should receive.
 The age of retirement continues to decline in Canada

Early Retirement – providing workers voluntary opportunities
to leave their jobs.

Retiree Benefits – benefits provided to employees after
retirement. Increasing costs and underfunded liabilities are
undermining benefits for retirees.
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Employer Sponsored Pension Plans
• Pension Plans
 Retirement program established and funded by the
employer and employees.
• Traditional Benefit Plans
 Defined-benefit plans

Employees are promised a pension amount based on age
and length of service.
 Defined-contribution plans
Employer makes an annual payment to an employee’s
pension account.
 Benefit payout is determined by the financial performance of
the previous contributions and can vary.

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Pension Plans (cont’d)
• Group RRSPs
 A collection of individual RRSPs administered by the
employer on behalf of employees of a company
 Flexible – employees have choice of who to invest
funds and how much to contribute
 Deductions at source help employees realize an
immediate tax deduction
 Some employers match contributions
• Deferred Profit-Sharing Plans (DPSP)
 Employees receive a share in the profits of the
company that is paid out as a pension at retirement
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Pension Plans
Non-Contributory
Plans
Contributory
Plans
Pension
Terms and
Concepts
Vesting
Locked-In
Portability
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Health Care Benefits
• Employers provide a variety of health-care and
medical benefits, usually through insurance
coverage
 Extended health care for employees and dependants
 Prescription drugs
 Vision care
 Dental insurance
 90% of Canadians have some form of drug plan
 Most employees pay a deductible or premium
 Since mid-1990s employer health-care benefits costs
have increased significantly faster than inflation
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Increases In Health Benefits Costs
Wellness programs
not embraced
More new
drugs along with
more consumer
education
Double digit
inflation of drug
plans
Aging Population
Shifting costs from
public to private
sector
Change in the mix
of services
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Increased use of
services
New technology
and services
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Controlling Health-Care Benefits Costs
• Changing Co-Payments, Employee
Contributions and Limiting Coverage
 Co-payments

strategy requiring employees to pay a portion of the cost of
the benefit premiums
 Splitting premiums with employees, implementing
deductibles
 Introducing limits on amount of benefits to be
received (e.g. Maximum of $1000 major dental/year)
 Limit coverage to employee, excluding family
members
 Reducing amount of reimbursement on certain
benefits
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Controlling Health-Care Costs
• Health Promotion Strategies
 Targeting health promotion strategies towards medical conditions
of employees likely to result in need for treatment.
• Managed Care
 Approaches that monitor and reduce medical costs through
restrictions and market system alternatives.
• Preferred Provider Organization (PPO)
 A health-care provider that contracts with an employer group to
provide health-care services to employees at a competitive rate.
• Health Maintenance Organization (HMO)
 A plan that provides services for a fixed period on a pre-paid
basis.
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Managed Health Care and a
Two-Tiered Health System Fig. 12-8
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Controlling Health-Care Costs (cont’d)
• Health Spending Account (HSA)
 Also known as defined-contribution health plans.
 Employers contribute a set amount to employees to cover their
own health-related expenses.
 Works like a bank account.
• Advantages
 Improved employee morale. Employees have more control in
making decisions that affect their own health.
 More employee involvement results in better understanding of
benefits costs.
 Facilitates recruitment and retention of high-calibre employees.
 Promotes overall positive view of the employer.
 Lowers turnover.
Copyright © 2008 by Nelson, a division of Thomson Canada Limited.
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Financial Benefits
Financial Services:
Credit Unions,
Purchase Discounts
Financial Services:
Financial Services:
Savings or Stock
Investment Plans
Financial planning or
counselling
Financial
Benefits
Relocation
Assistance
Insurance Benefits
Educational
Assistance
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Family-Oriented Benefits
Child-Care Assistance
Eldercare Assistance
Family-Care
Benefits
Measuring Effectiveness
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12–24
Time-Off Benefits
• Holiday Pay
 Eligibility
• Vacation Pay
 Eligibility and scheduling
• Leaves of Absence







Medical and Sick Leave
Well Pay
Military Leave
Election Leave
Jury-duty Leave
Funeral Leave
Bereavement Leave
Copyright © 2008 by Nelson, a division of Thomson Canada Limited.
• Paid Time-Off (PTO)
Plans
 Combine all sick leave,
vacation time, and holidays
into a total number of hours
or days that employees can
take off with pay.
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Statutory Holidays in Canada
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Fig. 12-9
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Miscellaneous Benefits
• Social and Recreational Benefits
 Sports, picnics, parties, sponsoring of teams and interest groups
• Severance Pay
 A security benefit voluntarily offered to employees who lose their
jobs. Payments are determined by the employee’s level within
the organization and years of employment. Outplacement
services and continued health insurance may be offered in lieu
of or in addition to cash severance payments.
• Unique benefits offered
 Pet insurance, transportation subsidies, self-defence training etc.
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Benefits Administration
• Benefits Communication
 Benefits Statements

Annual “personal statement of benefits” that translates the
benefits into dollars to show their worth.
 The Internet and Benefits Communication

Web-based HR information systems allows employees to
change their benefit choices, track their benefit balances,
and seek benefit information on-line.
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Typical Division of HR Responsibilities:
Benefits Administration Fig. 12-10
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Flexible Benefits
• Flexible Benefit Plan
 A plan (flex or cafeteria plan) that allows employees
to select the benefits they prefer from groups of
benefits established by the employer.
• Problems with Flexible Plans
 Inappropriate benefits package choices
 Adverse selection and use of specific benefits by
higher-risk employees
 Complexity leads to higher administrative time and
involvement to track choices
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