Human Resource
Management
SECTION 4
Compensating
Human
Resources
TENTH EDITON
Robert L. Mathis  John H. Jackson
Chapter 14
Managing Employee Benefits
© 2003 Southwestern College Publishing. All rights reserved.
PowerPoint Presentation
by Charlie Cook
Learning Objectives
After you have read this chapter, you should be
able to:
– Define a benefit and identify two strategic reason
why employers provide benefits.
– Distinguish between mandated and voluntary
benefits and list three examples of each.
– Describe two security benefits.
– List and define at least six pension-related terms.
– Explain the importance of health-care cost
management and identify some methods of
achieving it.
© 2002 Southwestern College Publishing. All rights reserved.
14–2
Learning Objectives (cont’d)
– Discuss the growth of family-oriented and time-off
benefits and their importance to many employees.
– Summarize benefits communication and flexible
benefits as considerations in benefits
administration.
© 2002 Southwestern College Publishing. All rights reserved.
14–3
Benefits

Benefit
– An indirect compensation given to an employee or
group of employees as a part of 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 are about 40% of total payroll costs.
© 2002 Southwestern College Publishing. All rights reserved.
14–4
How the Benefit Dollar Is Spent
Source: Based on information in Employee Benefits, 2000
edition (Washington, D.C.: U.S. Chamber of Commerce, 2000).
© 2002 Southwestern College Publishing. All rights reserved.
Figure 14–1
14–5
Benefit Needs Analysis

Benefit Needs Analysis
– A comprehensive look at all aspects of benefits.
• How much total compensation?
• 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?
© 2002 Southwestern College Publishing. All rights reserved.
14–6
Types of Benefits
Figure 14–2
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14–7
Security Benefits

Worker’s Compensation
– Benefits provided to persons injured on the job.

Unemployment Compensation
– A Federal/state payroll tax that funds state
unemployment systems.
– Involuntary unemployment and actively seeking
work is required for persons to claim benefit.

Supplemental Unemployment Benefits (SUB)
– A union-negotiated benefit provision that pays a
supplemental amount to laid-off employees who are
drawing unemployment compensation.
© 2002 Southwestern College Publishing. All rights reserved.
14–8
Security Benefits (cont’d)

Severance Pay
– A security benefit voluntarily offered by employer to
employees who lose their jobs.
– Payments are determined by the employee’s level
within the organization and years of employment.
– Other benefits (e.g., outplacement and continued
health insurance) may be offered in lieu of cash
severance payments.
© 2002 Southwestern College Publishing. All rights reserved.
14–9
Services During Severance
Source: Linda Jones, “Severance Policies in Place
at Most Organizations,” Human Resource
Executive, May 1, 2001, 28. Used with permission.
© 2002 Southwestern College Publishing. All rights reserved.
Figure 14–3
14–10
Median Age at Retirement by Gender
Source: U.S. Bureau of Labor Statistics. *Projected.
© 2002 Southwestern College Publishing. All rights reserved.
Figure 14–4
14–11
Retirement Security Benefits

Retirements and Age Discrimination
– Age Discrimination in Employment Act (ADEA)
prohibits mandatory retirement age provisions.

Social Security Act of 1935
– Established a system providing old age, survivor’s,
disability, and retirement benefits.
– Federal payroll tax on both the employer and the
employee.
– Benefit payments are based on employee’s lifetime
earnings.
© 2002 Southwestern College Publishing. All rights reserved.
14–12
Pension Plans

Pension Plans
– Retirement benefits established and funded by
employers and employees.

Traditional Benefit Plans
– Defined-benefit plans
• Employees are promised a definite pension amount
based on age and length of service.
– Defined-contribution plans
• Employer makes an annual payment to an employee’s
account.
• Benefit payout is determined by the financial
performance of the employee’s retirement.
© 2002 Southwestern College Publishing. All rights reserved.
14–13
Pension Plans

Cash Balance Plans
– A hybrid plan that defines retirement benefits in
terms of a hypothetical account balance.

Employee Retirement Income Security Act
(ERISA)
– Regulates pension funds to assure their soundness.
– Requires firms to offer retirement plans to all
employees if offered to any employees.
– Accrued benefits must be paid to departing
employees.
– Requires minimum funding for IRS approval and
purchase of plan termination insurance.
© 2002 Southwestern College Publishing. All rights reserved.
14–14
Pension Terms and Concepts

Contributory Plan
– Both employer and employee pay money into the
retirement fund.

Non-contributory Plan
– All pension benefits funding is paid by the employer.

Vesting
– The right of employees to receive benefits from their
pension plans.

Portability
– A pension plan feature that allows employees to
move their benefits from one employer to another.
© 2002 Southwestern College Publishing. All rights reserved.
14–15
Individual Retirement
Individual
Retirement
Accounts (IRAs)
401(k) and
403 (b) Plans
Individual
Retirement
Options
Keogh
Plans
© 2002 Southwestern College Publishing. All rights reserved.
14–16
401(k) for Small Business
Source: Based on data in Virginia Munger Kahn, “Pension
Plans for Everyone,” Business Week Small Biz, July 16, 2001,
22.
© 2002 Southwestern College Publishing. All rights reserved.
Figure 14–5
14–17
Controlling Health-Care Benefits Costs

Co-Payment
– Employees are required to pay a portion of the cost
of both insurance premiums and medical care.

Defined Contribution Plans for Health Benefits
– Employer provides a set amount that the employee
may spend on health-care coverage benefits.
© 2002 Southwestern College Publishing. All rights reserved.
14–18
Controlling Health-Care Costs (cont’d)

Managed Care
– Approaches that monitor and reduce medical costs
using restrictions and market system alternatives.

Preferred Provider Organization
– A health-care provider that contract with an
employer group to provide health-care services to
employees at a competitive rate.

Health Maintenance Organization (HMO)
– A managed care plan that provides services for a
fixed period on a prepaid basis.
© 2002 Southwestern College Publishing. All rights reserved.
14–19
Increases in Health-Care Benefits Costs
to Employers
Source: U.S. Bureau of Labor Statistics, U.S. Department of Labor, 2002.
© 2002 Southwestern College Publishing. All rights reserved.
Figure 14–6
14–20
Health-Care Legislation

COBRA Provisions
– Former employees, their spouses, and eligible
dependents are covered for 18 to 36 months
– Up to 102% of group premium costs paid by the
former employee.

HIPPA Provisions
– Allows employees to switch their health insurance
plan from one company to another, regardless of
pre-existing health conditions.
– Health plans must continue to cover sick
employees.
© 2002 Southwestern College Publishing. All rights reserved.
14–21
U.S. Population Lacking Health Insurance
Source: U.S. Census Bureau, 2002.
© 2002 Southwestern College Publishing. All rights reserved.
Figure 14–7
14–22
Other Benefits
Credit Unions
Purchase Discounts
Stock Investment
Family-Care
Benefits
Family-Oriented
Benefits
Relocation
Expenses
Benefits
Social and
Recreational
© 2002 Southwestern College Publishing. All rights reserved.
Life, Disability,
Legal Insurances
Educational
Assistance
14–23
Family Medical Leave Act (FMLA)

Coverage
– Employers with 50 or more employees

Requirements
– Employers must allow eligible employees to take up
to a total of 12 weeks of unpaid leave to attend to a
family or serious medical condition.
– Employees have the right to continued health
benefits and the right to return to their job.
© 2002 Southwestern College Publishing. All rights reserved.
14–24
Most Common Paid Holidays in the U.S.
Figure 14–8
© 2002 Southwestern College Publishing. All rights reserved.
14–25
Companies Offering Different Types of Paid Time Off
Source: “Employee Benefits Survey Technical Note,” Compensation and Working
Conditions (Washington, DC: U.S. Bureau of Labor Statistics), Fall 2000.
© 2002 Southwestern College Publishing. All rights reserved.
Figure 14–9
14–26
Time-Off Benefits

Holiday Pay
– Eligibility

Vacation Pay
© 2002 Southwestern College Publishing. All rights reserved.

Leaves of Absence
–
–
–
–
–
–
–
Family Leave
Medical and Sick Leave
Paid Time-Off (PTO) Plans
Military Leave
Election Leave
Jury-duty Leave
Funeral Leave
14–27
Benefits Administration

Benefits Communication
– Benefits Statements
• Annual “personal statement of benefits” that translates
the benefits into dollars to show their worth.
– HRIS and Benefits Communication
• HRIS information allows employees to obtain benefits
information on-line.
© 2002 Southwestern College Publishing. All rights reserved.
14–28
Typical Division of HR Responsibilities:
Benefits Administration
Figure 14–10
© 2002 Southwestern College Publishing. All rights reserved.
14–29
Flexible Benefits

Flexible Benefit Plan
– A plan (flex or cafeteria) that allows employees to
select the benefits they prefer from groups of
benefits established by the employer.

Flexible Spending Accounts
– An account that allows employees to contribute
pre-tax dollars to buy additional benefits (e.g., life
insurance).

Problems with Flexible Plans
– Inappropriate benefits package choices
– Adverse selection and use of specific benefits by
higher-risk employees
© 2002 Southwestern College Publishing. All rights reserved.
14–30
Pension and Retirement Functions on the Internet
Figure 14–11
© 2002 Southwestern College Publishing. All rights reserved.
14–31