UOT City Campus

Presented by Emran & Fida

Presented to Sir Adeel

Benefits, Nonfinancial Rewards, and Other Compensation Issues

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Benefits (Indirect Financial Compensation)

All financial rewards that are not paid directly to the employee

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Benefits in a Total Compensation Program External EnvironmentInternal Environment

Compensation

Indirect (Benefits)

Legally Required Benefits Social Security Unemployment Compensation Workers’ Compensation Family & Medical LeaveVoluntary Benefits Payment for Time Not Worked Health Care Life Insurance Retirement Plans Disability Protection Employee Stock Option Plans Supplemental Unemployment Benefits Employee Services Premium PayCustomized Benefit Plans

Financial NonfinancialThe Job Job EnvironmentDirect

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Mandated Benefits(Legally Required)

Social security Unemployment compensation Worker’s compensation Family and Medical Leave Act of

1993 (FMLA)

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Social Security

Created system of retirement benefits Federal payroll tax to fund

unemployment and retirement benefits

Amendments included disability insurance, survivors’ benefits, and Medicare

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Unemployment Compensation

Laid off individual receives compensation for up to 26 weeks

Administered by states Payroll tax paid solely by employers

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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

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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

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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

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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

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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

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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

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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

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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

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Factors Contributing to the High Cost of Health Care

Aging population Growing demand for medical care Increasingly expensive medical

technology Inefficient administrative processes

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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

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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

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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

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Major Medical Benefits

Plans provide for major medical benefits to cover extraordinary expenses that result from long-term or serious health problems

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Dental and Vision Care

Employers typically pay entire costs for both types of plans except for a deductible

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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

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Life Insurance

Group life insurance commonly provided benefit to protect employee’s family in event of death

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Retirement Plans

Defined benefits plans Defined contribution plan Cash balance plan

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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

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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

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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

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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

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Disability Protection

Provides monthly benefit to employees who, due to illness or injury, are unable to work for an extended period

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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

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Supplemental Unemployment Benefits (SUB)

Provide additional income for employees receiving unemployment insurance benefits

Usually financed by company Tend to benefit newer employees

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Employee Services

Relocation benefits Child care Educational assistance Food service/subsidized cafeterias Financial services Legal services Scholarships for Dependents

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Nontraditional benefits Organizations are competing for the top-

caliber 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

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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

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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

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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

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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

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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

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Nonfinancial Compensation in a Total Compensation Program External Environment

Internal 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

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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?

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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

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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

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Job Environment as a Nonfinancial Compensation Factor

Sound policies Capable managers Competent employees Congenial co-workers Appropriate status symbols Working conditions

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Workplace Flexibility (Work-Life Balance)

Flextime Compressed workweek Job sharing Telecommuting Part-time work More work, fewer hours

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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

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Illustration of Flextime

Flexible Time Core TimeFlexible

Time (Lunch)

Core Time Flexible Time

6 a.m. 9 a.m. 6 p.m.3 p.m.Noon

Bandwidth

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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

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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

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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.

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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

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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

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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.”

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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..

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Other Compensation Issues

Severance pay Comparable worth Pay secrecy Pay compression

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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

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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

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Pay Secrecy

Some organizations keep pay rates secret for various reasons

If firm’s compensation plan is illogical, secrecy may be appropriate

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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

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Any question