chapter thirteen benefits. copyright © houghton mifflin company. all rights reserved. 13–2...

Chapter Thirteen

Benefits

Copyright © Houghton Mifflin Company. All rights reserved. 13–2

Chapter Outline

• The Role of Benefits in Reward Systems

• Types of Benefits

• Issues in Indirect Compensation


The Role of Benefits in Reward Systems


Issues of the Cost of Benefits

• The Cost of benefits is increasing far more rapidly than the cost of wages


Figure 13.1: Employment Cost Index

Source: Bureau or Labor Statistics, Employment Cost Index. (Available at: action=EC ectbrief)


Table 13.1 Benefits in Relation to Total Compensation

Source: “Employer Costs for Employee Compensation,” Bureau of Labor Statistics, June 2004. (Available at: http://stats.bls.gov/news.release/archives/ecec_09152004.pdf)


Mandatory Protection Programs

• Social Security

• Unemployment Compensation

• Workers’ Compensation


Issues with Social Security

• 2/3rds of workers in the US pay more toward SS/Medicare than they pay in income tax

• Not funded on an actuarial basis


Issues with Social Security (cont’d)

• Designed for a previous era before the issues of:– Longevity– Number of retirees– Retirement age– Ratio of workers to retirees


Unemployment Compensation

• Temporary income for out-of-work employees

• Recipients must be looking for work

• Income is at the rate of 50 to 80% of normal pay

• Managed by each state in accordance with Federal guidelines


Workers’ Compensation

• No fault disability insurance for workers injured or killed on the job

• Employers pay premiums based on worker injury experience

• Established in accordance with state laws so provisions vary

• Since involves medical treatment, can be expensive for employers


Other Types of Benefits

• Compensation for Time Not Worked

– Holidays– Vacation– Sick Leave– Personal Days– Other Leaves


Optional Benefit Programs

• Health Insurance

• Life and Disability Insurance

• Retirement/Pension Plans– Defined Contribution– Defined Benefit– Capital Accumulation– Cash Balance


Optional Benefit Programs (cont’d)

• Other Benefits– Wellness Programs– Educational Assistance– Child Care Assistance


Health Care Issues


Figure 13.3 Percent Change in Health Spending Compared to Other Indicators

Source: The Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits 2004 Annual Survey (Menlo Park, CA: Henry J. Kaiser Family Foundation, 2004).


Methods of Coping with High Health Care Costs

– Health Plan Redesign• Deductible• Coinsurance• Coordinating Benefits

– Health Funding Alternatives• Preferred Provider Organization (PPO)• Health Maintenance Organization (HMO)

– Legal Requirements for Health Care– Health Benefits for Retirees– Health Benefits for Nonfamily Members


Types of Pension Plans

• Defined Contribution– Benefits are a function of contributions plus

gains or losses

• Defined Benefit– Benefits based on a formula that includes

length of service and average earnings


Types of Benefit Plans (cont’d)

• Capital Accumulation Plans– 401(k) or thrift plans– Tax-deferred contributions

• Cash-Balance Plans– Combines the benefit formula of a define

contribution with the investment security of a defined benefit plan.


Regulations Governing Retirement Plans

• ERISA—employment Retirement Income Security Act of 1974

• Single-Sex Pension Benefits

• GATT Treaty (1994)


Health Benefits for Nonfamily Members

• More than 145 (29%) of Fortune 500 companies now offer domestic-partner benefits, more than quadruple the number that offered them in 1997.


Issues in Indirect Compensation

• Cost Containment

• Flexible Benefit Option– Flexible Benefit Package (Cafeteria-Style

Benefit Plan)

• Communicating About Benefits

• Work Family Issues


Table 13.4 Most Popular Family Workplace Initiatives

Source: Adapted from Society for Human Resource Management, “2001 Benefits Survey,” April 2000. (Available at: http://www.shrm.org/surverys/results/default.asp?page=01benefits.asp)


Review

• Strategic Importance of Variable Pay• Linking Pay to Performance• Individual Incentives• Group Incentives• Barriers to Pay-for-Performance Success• Summary: Making Variable Pay Successful• Executive Compensation• The Role of Benefits in Reward Systems• Types of Benefits• Issues in Indirect Compensation

chapter thirteen benefits. copyright © houghton mifflin company. all rights reserved. 13–2...

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