Employee Compensation and Benefits Mike Otis, Associate Director Human Resource Services Employee Benefits 3770 Beardshear Hall Human Resource Services

Agenda Typical HR Organization Compensation Goals Compensation Approaches Benefits Exercise Employer Challenges General Benefit Concepts Health Benefits Welfare Benefits Retirement Benefits Closing Thoughts Employee Benefits 3770 Beardshear Hall Human Resource Services

Typical HR Structure Employee Benefits 3770 Beardshear Hall Human Resource Services HR VP Employee Relations Equal Opportunity Diversity Workers Comp Leave of Absence PayrollBenefitsCompensation Employee Assistance Recruiting

Goals of Compensation Plans Employers are able to attract and retain employees who will contribute to the organization’s success Employees feel they are compensated/rewarded fairly/equitably for their efforts and contributions to an organization’s success Employee Benefits 3770 Beardshear Hall Human Resource Services

Employee Benefits 3770 Beardshear Hall Human Resource Services Supportive Corporate Culture Executive Sponsorship Rewards Bonus Salary Increases Promotions Equity Offerings Awards Recognition New job assignments Salary Pay Overtime (if in non-exempt classification) Benefits Health Plans Retirement Plans Vacation/ time off Paid Training Working Hours Employee Satisfaction Total Compensation

What Factors Determines Pay Employer considerations – Where employers compete for talent – local or national – What talents an employer competes for – the skill/knowledge level – How strongly the employer wants to compete Lead the market Meet the market Lag the market Employee Benefits 3770 Beardshear Hall Human Resource Services

What Factors Determine Pay? What job duties will be performed determines classification as either Exempt or Non-exempt (Governed by Fair Labor Standards Act (FLSA)) – Non-exempt employees. Eligible for overtime pay for hours worked in excess of 40 Employer must have record of time worked – Exempt employees Typically executive, professional, or administrative positions Must meet minimum weekly pay guideline Not entitled to overtime Must meet both salary test and duties test Employee Benefits 3770 Beardshear Hall Human Resource Services

Employee Benefits 3770 Beardshear Hall Human Resource Services Compensation Structure Job Classifications Rewards/Recognition Compensation Philosophy Benefits

Employee Benefits 3770 Beardshear Hall Human Resource Services Compensation Structure Example

Utopia Enterprises – Your Employer of Choice! We provide a “buffet” of benefit choices to meet your individual needs!! Employee Benefits 3770 Beardshear Hall Human Resource Services

Employee Benefits 3770 Beardshear Hall Human Resource Services Benefits Offered Source: 2005 Iowa Employer Benefits Study, David P. Lind and Associates Offered by Employers with 250 or more Employees Rank Health Insurance97.7%1 Life Insurance95.4%2 Retirement Plans94.4%3 Paid Holidays94.1%4 Pre-Tax deductions for Employee benefit contributions86.5%5 Long Term Disability Insurance84.1%6 Paid Vacation83.7%7 Educational Assistance/Tuition Reimbursement75.1%8 Sick Leave73.8%9 Employee Assistance Program (EAP)73.1%10 Fitness Center or Gym subsidy36.7%11 Long Term Care Insurance32.8%12 Flextime32.5%13 Casual Dress (every day, not just Fridays)32.2%14 Retiree Health Insurance (post age 65)25.6%15 Telecommuting18.9%16 Child Care Assistance (on or off site)7.4%17 Subsidized employee mealsNot on list18 Free Coffee/SodaNot on list19 Pet InsuranceNot on list20

Employer Challenges Structuring employee benefit packages that meet the needs of a diverse workforce – one size does not fit all Helping existing employees understanding the “value” of their benefits Administering benefit programs – costly and time- consuming. Not a profit-making venture! Continued rising health care costs Limited budgets – Benefits average 25% - 40% of Payroll in most organizations Government restrictions/legislation/public policy Employee Benefits 3770 Beardshear Hall Human Resource Services

General Concepts Publicly traded companies will tend to structure pay/benefits that incorporate more equity (stock options, savings match in company stock, bonus tied to company performance, etc) Non-publicly traded companies/organizations will spend more on non-cash incentives Governmental organizations will on average spend more on benefits in lieu of salary Employee Benefits 3770 Beardshear Hall Human Resource Services

Core vs. Non-Core Benefits Employee Benefits 3770 Beardshear Hall Human Resource Services Core Benefits (Traditional) Non-core Benefits (Voluntary – Elective) Health InsuranceDental Prescription DrugsVision Basic Life InsuranceSupplement Life, Dependent Life VacationLong-term care insurance HolidaysAuto-homeowners insurance Sick PayMortgage services/discounts DisabilityOn-site daycare Tuition reimbursement Yes, even Pet Insurance

Health Benefits General types of health coverage – Medical – Prescription Drugs – Dental – Vision Most health benefit employee contributions will be deducted from pay pre-tax Employee Benefits 3770 Beardshear Hall Human Resource Services

Wellness Programs Many employers are starting to see the value from incorporating wellness initiatives into their work places – disease management – health risk assessments – fitness programs – on-site clinics and pharmacies Prevention vs. Payment Improve productivity/reduce absenteeism/presenteeism Difficult to measure the Return on Investment (ROI) of wellness programs Employee Benefits 3770 Beardshear Hall Human Resource Services

Welfare Benefits Provide safety and monetary security beyond health Typical benefits – Basic life – Supplemental (optional) life – Accidental Death and Dismemberment (AD&D) – Dependent life insurance – Short-term disability (STD) – Long-term disability (LTD) Employee Benefits 3770 Beardshear Hall Human Resource Services

Vacation May be provided under separate program or combined under a PTO (paid time off) plan with sick days Employee Benefits 3770 Beardshear Hall Human Resource Services

Retirement Benefits Defined Benefit Plans (traditional Pension) – Based on a formula that determines a future benefit Defined Contribution Plans (think 401(k)) – future value depends on contributions from employee and/or employer 403(b)/ 457 Not-for-profit employers 401(k) For-profit employers Other Types - Deferred Compensation Plans IRS restrictions Employee Benefits 3770 Beardshear Hall Human Resource Services

Comments on Retirement Defined Benefit (Pension) plans are the exception rather than the rule Many employers now will automatically enroll employees in 401(k)/403(b) plans Understand the time-value of money – compounding “DIVERSIFY” investments – Many employees are too conservative or too risky Employee Benefits 3770 Beardshear Hall Human Resource Services

Employee Benefits 3770 Beardshear Hall Human Resource Services

Conflicting Priorities for Savings/Retirement Car payments/car insurance Mortgage/rent/student loans Utilities Food/beverages Clothing Entertainment Life expenses in general Employee Benefits 3770 Beardshear Hall Human Resource Services

Other Voluntary Benefits Offered as optional benefits – typically employee pays full cost Voluntary benefit programs typically offered at a discount price resulting from group purchasing power Employer may offer the option of payroll deduction Examples are auto/homeowners insurance, pet insurance, computer purchase discounts Employee Benefits 3770 Beardshear Hall Human Resource Services

Laws Affecting Employee Benefits and Compensation Fair Labor Standards Act (FLSA) Employee Income Retirement Security Act of 1974 (ERISA) Age Discrimination and Employment Act (ADEA) Family Medical Leave Act (FMLA) of 1996 Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 Health Insurance Portability and Accountability Act of 1996 (HIPAA) (and amendments) Pension Protection Act of 2006 many, many others Employee Benefits 3770 Beardshear Hall Human Resource Services

Closing Thoughts Employee Benefits 3770 Beardshear Hall Human Resource Services How employees are “compensated” takes many forms – salary, benefits, working conditions, challenging/stimulating work, co- workers, etc. The right “mix” for each person is different Pay policies will differ for every employer – some will focus on cash compensation and some will focus on Total Compensation The employer’s main goal is structuring compensation and benefit programs is to be able to attract and retain the right employees needed to help the employer be competitive

Closing Thoughts Employee benefits have huge budget impacts to employers Benefits are the “hidden paycheck” for employees Employees need to understand the “total compensation” an employer provides – not just the “salary.” Employers need to sell Total Compensation – not just salary Employees need to be “educated consumers” of benefit programs – especially health care and retirement programs Employees should take advantage of retirement plan offerings and save early (time value of $$) – and always save enough to at least take advantage of employer’s matching contribution Employee Benefits 3770 Beardshear Hall Human Resource Services