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Chapter 2

Chapter 2 . Employee Benefit Planning and Management. Employer Objective. Should be approved by board of directors Will vary by many factors Size Location Industry Collective bargaining Philosophy of employer May be for employee benefits only or part of overall compensation objective

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Chapter 2

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  1. Chapter 2 Employee Benefit Planning and Management

  2. Employer Objective • Should be approved by board of directors • Will vary by many factors • Size • Location • Industry • Collective bargaining • Philosophy of employer • May be for employee benefits only or part of overall compensation objective • May be general or specific • Usually establish guidelines rather than specific performance goals • May need revision as times change • For some firms, the primary objective may be to channel as large a portion of the benefits as possible to executives or owners

  3. Types of Benefits to Be Provided • Employer must decide who receives benefits • Active full-time employees • Dependents • Other groups such as part-time employees, retirees, disabled employees, etc. • Employees’ “needs” must be determined • Traditional approaches • Employer’s perception of needs • Matching competition • Collective bargaining • Using tax-advantaged benefits which often favor highly paid employees

  4. Many newer approaches use a marketing approach • For allocating funds to new benefits • For allocating funds to improve current benefits • Should be used with caution or morale may suffer

  5. Personal interviews • Very effective for small numbers of employees • Minimal expense • May be desirable to have interviews conducted by someone outside the firm

  6. Simplified questionnaires • Two parts • Determining benefit preferences • Determining demographic data • Probably requires use of computer • Should be brief and not annoying • Sophisticated research methods can be used to measure intensity of preferences • Life-cycle benefits • Needs differ for different categories of employees • Employee needs change over time • Costs may increase for employers, but some costs are minimal or can be passed on to employees

  7. Figure 2.1

  8. Figure 2.2

  9. Table 2.1

  10. Work/life benefits • Employees have lives outside the office • Have grown in recent years • Examples • Flexible work schedules • Dependent care • Family leave • Personal services

  11. Table 2.2

  12. The use of different plans • Administratively more complex than one plan • Often a result of collective bargaining • Problems • Expensive • Difficulty in plan communication • Can cause resentment • Recent trend: cafeteria plans (covered in Chapter 19)

  13. Cost Containment • Traditionally aimed at transferring costs • Recent practices often focus on controlling overall costs • Examples • Probationary periods • Benefit limitations • Contributory financing • Alternative funding (in Chapter 16) • Competitive bidding • Wellness programs and employee-assistance plans (in Chapter 18)

  14. Benefit Communication • Traditionally of little concern • Now often required by law • Employers realize that this can lead to better appreciation of benefits by employees • Objective of an effective communication program • Awareness • Appreciation • Encouragement of wise use of benefits • Compliance with legal requirements

  15. Effective communication • Minimizes inaccurate or incomplete information for employees • Can be either one time or ongoing, depending on situation • More difficult if employees have different benefits or if employer has multiple locations • Important factors • It should be clear and understandable • It should emphasize benefit importance • It should explain why changes are being made • It should use graphics and examples

  16. Methods • Audiovisual • Effective for new employees • Effective for communicating changes • Becoming more sophisticated • Face-to-face meetings • Often combined with audiovisual presentations • Large meetings fine to present information • Small meetings best if opinions and questions are being solicited • Employers should view meetings positively or effectiveness will be lost • Meeting should be held during normal working hours

  17. Printed materials • Some are required by ERISA • Benefit handbooks • Summarize benefits for all employees • Newer trend is to focus also on need for benefits • Personalized benefit statements • Focus on benefits for individual employers • Benefits often expressed in dollars or percent of salary

  18. Figure 2.3

  19. Figure 2.4

  20. Interactive voice-response systems • Can vary from simple to complex • Advantages • 24-hour access • Quick response • Anonymity • Allow human resources personnel to better use time • Disadvantages • Lack of human interaction • Expensive • Possibility of mistakes • Difficult to input data

  21. Computers • Can be intranet or Internet • Uses • General information about company’s plans • Specific benefit information • Making benefit selections • Employee education • Dissemination of legally required information

  22. Benefit Outsourcing • An increasing trend • Reasons for use • Lack of employer expertise • Better service to employees • Better for employer to focus on firm’s core activities • Systems, staff, or both can be outsourced • Outsourcing can be full or partial • Many types of vendors are available for outsourcing • It is important to properly select vendors since changing vendors can be complex and expensive • Outsourcing contracts should have guarantees for such factors as timeliness, accuracy, productivity improvements, and employee complaints

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