Human Resource Management 10 th Edition Chapter 10 BENEFITS, NONFINANCIAL COMPENSATION, AND OTHER COMPENSATION ISSUES

HRM in Action: Nontraditional Benefits • Organizations are continually competing for top caliber employees • Benefits may not serve as strong motivators of performance • They are obviously important in attracting and retaining these desired individuals © 2008 by Prentice Hall

Compensation Benefits in a Total Compensation Program External EnvironmentInternal Environment Financial Nonfinancial The JobJob Environment Direct Indirect (Benefits) Legally Required Benefits Social Security Unemployment Compensation Workers’ Compensation Family & Medical Leave Voluntary Benefits Payment for Time Not Worked Health Care Life Insurance Retirement Plans Disability Protection Employee Stock Option Plans Supplemental Unemployment Benefits Employee Services Premium Pay Customized Benefit Plans © 2008 by Prentice Hall

Social Security • Created system of retirement benefits • Federal payroll tax to fund unemployment and retirement benefits • Amendments included disability insurance, survivors’ benefits, and Medicare © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

Factors Contributing to the High Cost of Health Care • Aging population • Growing demand for medical care • Increasingly expensive medical technology • Inefficient administrative processes © 2008 by Prentice Hall

Canadian Province of Ontario Surpassed Michigan in Car Production • Manufactured by General Motors, Ford and Daimler-Chrysler • Companies are shifting production out of U.S. because of enormous health-care costs • In Canada, which has a government-funded and -run health-care system, cost to employer per worker is just $800 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

Supplemental Unemployment Benefits (SUB) • Provide additional income for employees receiving unemployment insurance benefits • Usually financed by company • Tend to benefit newer employees © 2008 by Prentice Hall

Employee Services • Relocation • Child care • Educational assistance • Food service/subsidized cafeterias • Financial services • Legal services • Scholarships for Dependents © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 Compensation Vehicles Utilized in a Customized Benefit Plans Compensation Approach • 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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

Health-Care Legislation • Consolidated Omnibus Budget Reconciliation Act (COBRA) • Health Insurance Portability and Accountability Act (HIPAA) • Employee Retirement Income Security Act (ERISA) • Older Workers Benefit Protection Act (OWBPA) • Pension Protection Act (PPA) © 2008 by Prentice Hall

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) • Enacted to give employees opportunity to temporarily continue their coverage they would otherwise lose because of termination, layoff, or other change in employment status • Applies to employers with 20 or more employees • May keep coverage for up to 18 months after employment ceases © 2008 by Prentice Hall

Health Insurance Portability and Accountability Act of 1996 (HIPAA) • Protection for approximately 25 million Americans who move from one job to another, are self-employed, or have preexisting medical conditions • Make health insurance portable and continuous • Eliminate ability of insurance companies to reject coverage for individuals because of a pre-existing condition © 2008 by Prentice Hall

Employee Retirement Income Security Act of 1974 (ERISA) • Strengthens existing and future retirement programs • Intended to ensure that when employees retire, they receive deserved pensions • Does not force employers to create an employee retirement plans © 2008 by Prentice Hall

Older Workers Benefit Protection Act of 1990 (OWBPA) • Amendment to Age Discrimination in Employment Act • Prohibits discrimination in administration of benefits on basis of age • Permits early retirement incentive plans as long as they are voluntary • Establishes wrongful termination waiver requirements © 2008 by Prentice Hall

Pension Protection Act of 2006 (PPA) • Strengthen the funding rules for defined benefit pension plans • Ensure that employers make greater contributions to their pension funds • Makes it easier for employers to automatically enroll workers in their 401(k) © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

Nonfinancial Compensation in a Total Compensation ProgramExternal EnvironmentInternal Environment Financial Nonfinancial 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 PlansTelecommuting More Work, Fewer HoursPart-time Work © 2008 by Prentice Hall

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 forincreased responsibility? • Is there opportunity for growth and advancement? • Do I enjoy doing the job itself? © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

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 © 2008 by Prentice Hall

Job Environment as a Nonfinancial Compensation Factor • Sound policies • Capable managers • Competent employees • Congenial coworkers • Appropriate status symbols • Working conditions © 2008 by Prentice Hall

Human Resource Management 10 th Edition Chapter 10 BENEFITS, NONFINANCIAL COMPENSATION, AND OTHER COMPENSATION ISSUES