Chapter 12 Indirect Compensation: Employee Benefit Plans McGraw-Hill/Irwin © 2006 The McGraw-Hill...
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Transcript of Chapter 12 Indirect Compensation: Employee Benefit Plans McGraw-Hill/Irwin © 2006 The McGraw-Hill...
Chapter 12Chapter 12
Indirect Compensation: Employee Benefit Plans
McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All
rights reserved.
Questions This Chapter Will Help Managers AnswerQuestions This Chapter Will Help Managers Answer
What strategic considerations should guide the design of benefits programs?
What options are available to help a business control the rapid escalation of health care costs?
Should companies offer a uniform “package” of benefits, or should they move to a flexible plan that allows employees to choose the benefits that are most meaningful to them, up to a certain dollar amount?
Questions This Chapter Will Help Managers Answer Questions This Chapter Will Help Managers Answer (contd.)(contd.)
What cost-effective benefits options are available to small business? In view of the considerable sums of money that are spent each year on
employee benefits, what is the best way to communicate this information to employees?
Questions Relating to Benefits That Managers Questions Relating to Benefits That Managers Should AddressShould Address
Are the type and level of our benefits coverage consistent with our long-term strategic business plans?
Given the characteristics of our workforce, are we meeting the needs of our employees?
What legal requirements must we satisfy in the benefits we offer? Are our benefits competitive in cost, structure, and value to employees and
their dependents? Is our benefits package consistent with the key objectives of our total
compensation strategy, namely, adequacy, equity, cost control, and balance?
Benefits – Legal RequirementsBenefits – Legal Requirements
The doctrine of constructive receipt holds that an individual must pay taxes on benefits that have monetary value when the individual receives them.
Benefits – Legal RequirementsBenefits – Legal Requirements
The antidiscrimination rule holds that employers can obtain tax advantages only for those benefits that do not discriminate in favor of highly-compensated employees
Categories of BenefitsCategories of Benefits
Security and health
Payments for time not worked
Employee services
Security and Health BenefitsSecurity and Health Benefits
Life insurance Workers’ compensation Disability insurance Hospitalization, surgical, and
maternity coverage Health maintenance
organizations (HMOs) Other medical coverage
Sick leave Pension plans Social Security Unemployment insurance Supplemental unemployment
insurance Severance pay
Types of Insurance PlansTypes of Insurance Plans
1.Contributory – employees share in the cost of premiums
2.Noncontributory – employer pays the full cost of the premiums
Life Insurance Flexible Benefits ProgramsLife Insurance Flexible Benefits Programs
Typically such programs provide a core of basic life coverage (e.g., $25,000) and then permit employees to choose greater coverage (e.g., in increments of $10,000 to $25,000) as part of their optional package
Features of State Workers’ Compensation LawsFeatures of State Workers’ Compensation Laws
Coverage is provided regardless of who caused the injury or illness Payments are usually made through an insurance program financed by
employer-paid premiums A worker’s loss is usually not covered fully by the insurance program Workers’ compensation programs protect employees, dependents,
dependents, and survivors against income loss resulting from total disability, partial disability, or death; medical expenses; and rehabilitation expenses
Health-Care Costs and Company CompetitivenessHealth-Care Costs and Company Competitiveness
1. Their workforces are comprised largely of people in their 40s and 50s, who require more health care than younger workers do
2. Their health plans cover a much larger number of retired workers than do those of newer companies, like computer or airline concerns
3. They make products that must compete in world markets
Competitiveness issues arising from health-care costs are particularly acute at companies with the following three characteristics:
Health-Care Cost Containment Strategies of Health-Care Cost Containment Strategies of CompaniesCompanies
1. Band together with other companies to form a “purchasing coalition” to negotiate better rates with insurers
2. Deal with hospitals and insurers as with any other suppliers
3. Introduce a three-tier plan to encourage the use of generic drugs
4. Offer incentives to nudge working spouses off company health plans
5. Adopt a consumer-driven health plan (CDHP)
Why Health-Care Cost Gains Have Not LastedWhy Health-Care Cost Gains Have Not Lasted
Much of the progress came from eliminating unnecessary procedures and hospitalizations – a one time savings. At the same time,
An explosion of new medical technologies and drug treatments has jacked up prices again
The population has also aged, further spiking expenses Hospitals and doctors have refused to accept reduced reimbursement
rates. Lastly, Employees have rebelled against managed-care limits on doctors and
procedures
Types of Pension PlansTypes of Pension Plans
Defined-benefit plan: Under this plan, an employer promises to pay a retiree a stated pension, often expressed as a percentage of pre-retirement pay
Types of Pension Plans Types of Pension Plans (contd.)(contd.)
Defined-contribution plans: These plans fix a rate for employer contributions to the fund. Future benefits depend on how fast the fund grows.
Types of Pension Plans Types of Pension Plans (contd.)(contd.)
Cash balance plan: Under this plan, everyone gets the same, steady annual credit toward an eventual pension, adding to his or her pension account “cash balance.”
Table 12-4Table 12-4 Average 2004 Social Security Benefits - Average 2004 Social Security Benefits - MonthlyMonthly
Retired worker $922
Retired couple $1,523
Disabled worker $862
Disabled worker with a spouse and child $1,442
Widow or widower $888
Young widow or widower with two children $1,904
Figure 12-4Figure 12-4 Where Retirees Get Their IncomeWhere Retirees Get Their Income
Social Security38%
Retirement Plans18%
Savings/Asset Income18%
Earnings23%
Other3%
Payments for Time Not WorkedPayments for Time Not Worked
Vacations Holidays Reporting time
Personal excused absences Grievances and negotiations Sabbatical leaves
Examples of Employee Services Examples of Employee Services (selected)(selected)
Tuition aid Credit unions Food service Company car Career clothing Child care Elder care Gift matching
Stock-purchase plans Christmas bonuses Social activities Referral awards Merchandise purchasing Transportation and parking
Costing BenefitsCosting BenefitsMethodsMethods
Annual cost of benefits for all employees
Cost per employee per year
Percentage of payroll
Cents per hour
Figure 12-5Figure 12-5 Distribution of Flexible Work ArrangementsDistribution of Flexible Work Arrangements
Compressed workweek
29%
Flextime50%
Full-time telework16%
Other5%
Key Terms Discussed in This ChapterKey Terms Discussed in This Chapter
Doctrine of constructive receipt Antidiscrimination rule Contributory plans Noncontributory plans Yearly renewable term insurance Flexible benefits Workers’ compensation programs Long-term disability Disability management
Managed health Direct contracting Managed care Gatekeeper HMO Point-of-service plan Pension Defined-benefit plan Defined-contribution plan Cash-balance plan
Key TermsKey Terms (contd.)(contd.)
Grandfather clause Cost shifting Cafeteria benefits Flexible spending accounts