Chapter 13 Benefits and Services.

Chapter 13 Benefits and Services

Chapter 13 Outline The benefits picture today Pay for time not worked
Unemployment insurance Vacations and holidays Sick leave Parental leave and the Family and Medical Leave Act Severance pay Supplemental unemployment benefits

Chapter 13 Outline Insurance benefits Workers’ compensation
How benefits are determined Controlling workers’ compensation costs High-performance insight Hospitalization, health,and disability insurance Reducing health benefits costs Mental health benefits The Pregnancy Discrimination Act COBRA Requirements Long-term care

Chapter 13 Outline Insurance benefits (continued) Retirement benefits
Life insurance Benefits for part-time workers Retirement benefits Social Security Pension plans 401(k) plans Other types of defined contribution plans Pension planning

Chapter 13 Outline Retirement benefits (continued)
Pensions and the law Pension trends Early-retirement windows Portability Cash balance pension plans Patio’s better benefits program

Chapter 13 Outline Employee services Personal services
Credit unions Counseling services Employee Assistance Programs (EAP’s) Other personal services Job-related services Subsidized child care Elder care Other job-related benefits

Chapter 13 Outline Flexible benefits programs
Job-related services (continued) The new workplace Effect on performance Research insight Executive perquisites Flexible benefits programs The cafeteria approach Flexible programs: Pros and cons

Chapter 13 Outline Flexible benefits programs (continued) Summary
Computers and benefits administration Benefits and employee leasing Summary

Strategic Overview Pay for performance and financial incentives,
The pros and cons of various employee benefit plans Four main types of plans: Supplemental pay benefits Insurance benefits Retirement benefits Employee services Page 363 The previous chapter, Pay for Performance and Financial Incentives, explained how to use financial incentives to motivate employees. The main purpose of this chapter is to improve your ability to weigh the pros and cons of various employee benefit plans. We discuss four main types of plans: supplemental pay benefits (such as sick leave and vacation pay); insurance benefits (such as workers’ compensation); retirement benefits (such as pensions); and employee services (such as child care facilities). We’ll see that employees’ preferences for various benefit plans differ, and that it’s therefore useful to individualize benefits packages. This chapter completes our discussion of employee compensation and benefits. The next chapter, Labor Relations and Collective Bargaining, starts a new part of this book, and focuses on another important HRtask, labor and management relations.

After Studying This Chapter You Should Be Able To:
Name and define each of the main pay for time not worked benefits Describe each of the main insurance benefits Discuss the main retirement benefits Outline the main employees services benefits Explain the main flexible benefit programs Page 363

The Benefits Picture Today
What are your benefits? They are indirect financial and non-financial payments due to employment Benefits are a major expense for most employers Are 41% as a percentage of payroll Page 363 “What are your benefits?” is the first question many applicants ask. Benefits— indirect financial and non-financial payments employees receive for continuing their employment with the company—are an important part of just about every employee’s compensation. They include things like health and life insurance, pensions, time off with pay, and child care facilities. Benefits as a percentage of payroll are about 41% today. That translates to around $15,000 in total annual benefits per employee, or close to $7 per payroll hour. Payments for time not worked represent the biggest chunk of benefits payments, followed by legally required payments for unemployment compensation, retirement plan payments, insurance payments, and severance pay.

Benefits Breakdown Shown below are percentages of 33 million employee’s benefits Page 364 Most full-time employees in the United States receive benefits.4 In one survey of about 33 million full-time employees, roughly 89% received paid holidays, 96% got paid vacations, and 77% received employer-provided medical coverage. Similarly, 80% of employees benefit from some type of employer-supported retirement plan, and about 87% receive life insurance benefits.

Benefits Classifications
Pay for time not worked Insurance benefits Retirement benefits Services Page 364

Pay For Time Not Worked Also called supplemental pay benefits is usually the most costly benefit provided What are some examples of pay for time not worked? A real 1000 pound gorilla Page 364 Pay for time not worked—also called supplemental pay benefits—is the 1,000-pound gorilla of most benefits plans. It is generally an employer’s most costly benefit because of the large amount of time off that many employees receive. According to a new U.S. Chamber of Commerce annual survey, paid time off was the most costly company benefit in 1999, at 30% of total benefits; medical benefits (26%) were the second most expensive benefit.6 Common time-off-with pay periods include holidays, vacations, jury duty, funeral leave, military duty, personal days, sick leave, sabbatical leave, maternity leave, and unemployment insurance payments for laid-off or terminated employees. Instructor’s note: Includes all of the following: Holidays, vacations, jury duty, funeral leave, military duty, personal days, sick leave, sabbatical leave, maternity leave, and unemployment insurance payments for laid-off or terminated employees

Unemployment Insurance
All states have unemployment insurance or compensation acts Provide for benefits if a person is unable to work Checklist to follow to reduce unemployment payouts Page 364-5 All states have unemployment insurance or compensation acts. These provide for benefits if a person is unable to work through no fault of his or her own. The benefits derive from a tax on employers that can range from 0.1% to 5% of taxable payroll in most states. An employer’s unemployment tax rate reflects its rate of personnel terminations. States have their own unemployment laws, but they all follow federal guidelines. Firms aren’t required to pay everyone they dismiss unemployment benefits— only those released through no fault of their own. Thus, strictly speaking, a worker fired for chronic lateness can’t legitimately claim benefits.

Typical Vacations and Holidays
One week after 6 months to 1 year of service Two weeks after 1 to 5 years of service Three weeks after 5 to 10 years of service Four weeks after 15 to 25 years of service Five weeks after 25 years of service Average 10 days per year Page 366 Shown are how many holiday days off employee’s of various countries receive each year. US 5-13 Japan 25 Holidays Mexico 10 Denmark 33

Sick Leave Sick leave Paid time off (PTO) reduces the use of sick leave for non-illness Page 368 Sick leave provides pay to employees when they’re out of work due to illness. Most sick leave policies grant full pay for a specified number of sick days—usually up to about 12 per year. The sick days usually accumulate at the rate of, say, one day per month of service. Sick leave pay causes difficulty for many employers. The problem is that while many employees use their sick days only when they are legitimately sick, others use sick leave as extensions to vacations, whether they are sick or not. In one survey, for instance, personal illnesses accounted for only about 45% of unscheduled sick leave absences. Family issues (27%), personal needs (13%), a mentality of “entitlement” (9%), and stress (6%) were other reasons cited.

Parental and The Family and Medical Leave Act
Parental leave is an important benefit Half of workforce is female Many men and women are single parents President Clinton signed FMLA 1993 Leave form Page 369 Parental leave is an important benefit. About half of workers today are women, and about 80% will become pregnant during their work lives.15 Furthermore, many women and men are heads of single-parent households. Partly as a response, former president Clinton signed the Family and Medical Leave Act of 1993 (FMLA). Among its provisions, the law stipulates that: 1. Private employers of 50 or more employees must provide eligible employees up to 12 weeks of unpaid leave for their own serious illness, the birth or adoption of a child, or the care of a seriously ill child, spouse, or parent. 2. Employers may require employees to take any unused paid sick leave or annual leave as part of the 12-week leave provided in the law. 3. Employees taking leave are entitled to receive health benefits while they are on unpaid leave, under the same terms and conditions as when they were on the job. 4. Employers must guarantee employees the right to return to their previous or equivalent position with no loss of benefits at the end of the leave; however, thelaw provides a limited exception from this provision to certain highly paid employees.

Severance Pay A humanitarian gesture
Employers require 2 weeks notice so only fair to provide 2 weeks severance Cuts down on litigation Plant closure requires 60 days notice Usually 1 week severance pay for each year worked Page 370 Many employers provide severance pay—a one-time payment when terminating an employee. Severance pay makes sense on several grounds. It is a humanitarian gesture, and good public relations. In addition, most managers expect employees to give them at least one or two weeks’ notice if they plan to quit; it therefore seems appropriate to provide at least one or two weeks’ severance pay if an employee is being dismissed. Avoiding litigation from disgruntled former employees is another reason for severance pay. And the Worker Adjustment and Retraining Notification (“plant closing”) Act requires covered employers to give employees 60 days’ written notice (but not severance pay) of plant closures or mass layoffs. About half the employees receiving severance pay get lump-sum amounts; the other half receive salary continuation for a time. The average maximum severance is 39 weeks for executives and about 30 weeks for other downsized employees.24 Severance pay at the rate of one week of severance pay for each year of service is the policy at about half the firms responding to one survey

Supplemental Unemployment Benefits
Supplemental unemployment benefits -provide for a “guaranteed annual income” in certain industries Page 370 Supplemental Unemployment Benefits In some industries, such as automaking, shutdowns to reduce inventories or change machinery are common, and laid-off or furloughed employees must depend on unemployment insurance. Some companies pay supplemental unemployment benefits. As the name implies, these supplement the employee’s unemployment compensation, and help the person maintain his or her standard of living for the time he or she is out of work. They provide benefits over and above state employment compensation for three contingencies: layoffs, reduced workweeks, and relocations.

Insurance Benefits Insurance benefits fall into 3 categories
Workers’ compensation Hospitalization, health, and disability Life insurance Page 373

Workers’ Comp Workers’ compensation laws provide income and medical benefits Benefits can be monetary or medical Reducing claims and saving premiums Screen out accident-prone workers Reduce accident-causing conditions Get injured employees back on the job Use case management Page 374 Workers’ compensation laws26 aim to provide sure, prompt income and medical benefits to work-related accident victims or their dependents, regardless of fault. Every state has its own workers’ compensation law and administrative commission, and some run their own insurance programs. However, most require employers to carry workers’ compensation insurance with private state-approved How Benefits Are Determined Workers’ compensation benefits can be monetary or medical. In the event of a worker’s death or disablement, the person’s dependents are paid a cash benefit based on prior earnings—usually one-half to two-thirds the worker’s average weekly wage, per week of employment. For workers’ compensation to cover an injury or work-related illness, one must only prove that it arose while the employee was on the job. Controlling Workers’ Compensation Costs Minimizing the number of workers’ compensation claims (and therefore accidents and lost hours) is an important goal for all employers. While the employer’s insurance company usually pays the claims, the costs of the premiums depend on the number and dollar amount of claims. In practice, there are several ways to reduce such claims. You can screen out accident-prone workers. You can reduce accident-causing conditions in your facilities. And you can reduce the accidents and health problems that trigger these claims—for instance, by instituting effective safety and health programs and complying with government safety standards. Case management is an increasingly popular option. It is “the treatment of injured workers on a case-by-case basis by an assigned manager, usually a registered nurse, who coordinates with the physician and health plan to determine which care settings are the most effective for quality care and cost.”

High Performance Insight
Weirton steel established a workers’ compensation program to review, contain, and reduce the costs of workers’ compensation 140 Workers Comp Cases Page 374 Weirton’s workers’ compensation program, with its aggressive, proactive approach toward case reduction, has reduced the number of cases and produced substantial cost savings. In the mid-1990’s, workers’ comp cases dropped from 140 monthly to 77; payouts dropped from $153,000 monthly to $101,000. The firm expanded its efforts with a “zero-accidents” program in 2001. 77

Hospitalization, Health, and Disability Insurance
Nearly all large companies provide major medical insurance Plans must comply with ADA laws Optional eye-care and dental coverage Accidental death and dismemberment coverage is another option HMO’s and PPO’s Page 375 Health and hospitalization insurance looms large in many people’s choice of employer, because such insurance is so expensive. Most employers—about 80% of medium and large firms and 69% of small firms—therefore offer their employees some type of hospitalization, medical, and disability insurance; along with life insurance, these benefits form the cornerstone of most benefits programs. Hospitalization, health, and disability insurance helps protect against hospitalization costs and the loss of income arising from off-the-job accidents or illness. Many employers also sponsor insurance plans that cover health-related expenses like eye care and dental services. In most employer-sponsored dental plans, employees pay a specific amount of deductible dental expenses (typically $25 or $50 each year) before the plan kicks in with benefits. Accidental death and dismemberment coverage provides a lump-sum benefit in addition to life insurance benefits when death is accidental. It also provides benefits in case of accidental loss of limbs or sight. Health maintenance organization (HMO) A prepaid health care system that generally provides routine round-the-clock medical services as well as preventive medicine in a clinic-type arrangement for employees, who pay a nominal fee in addition to the fixed annual fee the employer pays. Preferred provider Organizations (PPOs) Groups of health care providers that contract with employers, insurance companies, or third-party payers to provide medical care services at a reduced fee.

Reducing Health Benefits Costs
PPO Many employers are: Moving away from 100% medical cost payments Increase annual deductibles Require medical contributions Use gatekeepers Copay $5 Page 375 Reducing Health Benefits Costs Caught between rising health benefits costs and the belt tightening occurring in firms today, many managers find controlling and reducing health care costs high on their to-do lists. As a result, many employers have been changing their medical plans to do the following: 1. Move away from 100% medical cost payments. Over 70% of plans include a deductible. 2. Increase annual deductibles. Almost 40% of firms use a deductible of $150 or more. 3. Require medical contributions. Most employers require employee contributions to their medical premiums. 4. Use gatekeepers. Using general practitioners as gatekeepers to channel patients to the appropriate specialists and/or hospitals was “very effective” in reducing costs, according to 69% of employers in one survey. HMO Primary care physician

Reducing Health Benefits Costs
Encourage preventative care Page 376 5. Encourage preventive health care. This is a popular option. One survey found that 56% of the firms were sponsoring drug and alcohol abuse programs; 31% stop smoking sessions; 45% physical fitness classes; and 18% had exercise facilities on the premises. Seventy percent were training employees in first aid and CPR. Fifty-four percent offered tips about how to use company health benefits wisely. Others offered preventive care programs including mammograms, prostate exams, and well-baby care. Thirty-nine percent of respondents in another survey used financial incentives to encourage good health (such as higher premiums for smokers). Unfortunately, it’s not clear whether wellness programs reduce health care costs or boost performance; in one survey, only about 1 in 10 employers even tried to put a dollar figure on savings. 6. Form health care coalitions.51 In Memphis, Tennessee, 11 self-insured employers including FedEx and Holiday Inn formed a coalition to study health care costs, identify more efficient health care providers, and use their purchasing power to obtain discounts on health and hospital care prices. 7. Manage the cost of AIDS. Several insurance companies have concluded that the best way to manage the cost of AIDS is to treat the AIDS sufferer in his or her home, and to allow that cost to be paid under the medical benefits plan (as is often not allowed now). There is also a growing emphasis on individual case management (ICM). The insurance company assigns a special ICM nurse to the patient and designs an individualized treatment plan. The plan considers the patient’s ability to care for him- or herself, the availability of others to help in the person’s treatment, and the patient’s age and condition. Form healthcare coalitions Manage the cost of AIDS

Other Health Benefits Mental health insurance
Pregnancy discrimination act COBRA requirements Page 376 Mental Health Benefits Employers spend just over 8% of their health plan dollars on mental health treatment.54 These costs are rising because of widespread drug and alcohol problems, an increase in the number of states that require employers to offer a minimum package of mental health benefits, and the fact that other health care claims are higher for employees with high mental health claims. The Pregnancy Discrimination Act This act requires employers to treat women affected by pregnancy, childbirth, or related medical conditions the same as any employees not able to work, with respect to all benefits, including sick leave and disability benefits, and health and medical insurance. COBRA Requirements The ominously titled COBRA—Comprehensive Omnibus Budget Reconciliation Act—requires most private employers to continue to make health benefits available to terminated or retired employees and their families for a period of time, generally 18 months. The former employee must pay for the coverage, as well as a small fee for administrative costs. Long-Term Care Today, the oldest baby boomers are in their 50s, and long-term care insurance—care to support people in their old age—is emerging as the key new employee benefit. Long-term care insurance

Insurance Benefits In addition to hospitalization and medical benefits, most employers provide group life insurance Must address policy issues of: Benefits-paid schedule Supplemental benefits Financing Page 377 Life Insurance In addition to hospitalization and medical benefits, most employers provide group life insurance plans. As with health insurance, employees can obtain lower rates in a group plan. And group plans usually accept all employees —including new non-probationary ones—regardless of health or physical condition.

Retirement Benefits Employers are revising and improving their retirement benefits Boomers stampede into retirement with most turning 65 in 2011 Social security, pension plans and saving plans are primary means Page 378 As the 77 million or so baby boomers born between 1946 and 1964 stampede into retirement, employers are revising and improving their retirement benefits. The first contingent of baby boomers turns 65 in the year 2011, and many reportedly won’t wait that long to retire; 38% of boomers aged 45 to 52 want to retire by age 55. Employers are therefore being more aggressive about enhancing their retirement plans. The major retirement benefits are the federal Social Security program and employer pension/retirement plans, like the 401(k).

Social Security Provides 3 types of benefits:
People over 62 Survivor benefits Disability payments Full payments available at age 65 (soon to be 67) Page 378 Social Security Most people assume that Social Security provides income only when they are over 62, but it actually provides three types of benefits. The familiar retirement benefits provide an income if you retire at age 62 or thereafter and are insured under the Social Security Act. Second are survivor’s or death benefits. These provide monthly payments to your dependents regardless of your age at death, again assuming you are insured under the Social Security Act. Finally, there are disability payments. These provide monthly payments to employees who become totally disabled (and their dependents) if they work and meet certain requirements. The Social Security system also administers the Medicare program, which provides a wide range of health services to people 65 or over. In 2001, the employer and employee each paid 7.65% of the employee’s gross salary, up to $80,400. “Full retirement age” according to Social Security is 65—the usual age for retirement. However, full retirement age is rising: It will soon be 67 for those born in 1960 or later.

Pension Plans About ½ of full time workers have some pension plan
Plans classified as: Contributory vs. noncontributory Qualified vs. nonqualified Defined contribution vs. defined benefit Page 378 Pension Plans Pensions provide income to individuals in their retirement, and just over half of full-time workers participate in some type of pension plan at work. We can classify pension plans in three basic ways: contributory versus noncontributory plans; qualified versus nonqualified plans; and defined contribution versus defined benefit plans. The employee contributes to the contributory pension plan, while the employer makes all contributions to the noncontributory pension plan.

Pension Plans Definitions
Defined benefit pension plan - contains a formula for determining retirement benefits Defined contribution pension plan - a plan in which the employer’s contribution to employee’s retirement or savings funds is specified Page 378 With defined benefit plans, the employee knows ahead of time the pension benefits he or she will receive. Defined contribution plans specify what contribution the employee and employer will make to the employee’s retirement or savings fund.

401k Deduct specified pre-tax dollars from pay
Employer may match some or all Employer arranges account management Most managed online Taxes paid when funds are withdrawn Page 379 401(k) Plans Plans based on section 401(k) of the Internal Revenue Code, called 401(k) plans, are popular defined contribution plans. Here an employee authorizes the employer to deduct a certain amount of money from his or her paycheck before taxes and to invest it in the 401(k) plan. This results in a pretax reduction in pay, so the employee pays no tax on those set-aside dollars until after he or she retires (or removes the money from the 401(k) plan). The employee decides how much the employer will deduct and deposit in the 401(k) plan; the person can deduct up to the legal maximum (the IRS sets an annual dollar limit—$10,500 in 2001). Savings and thrift plan - plan where employees contribute some of their earnings to a fund; the employer may match this contribution in whole or in part.

Other Defined Contribution Plans
Definition Deferred profit-sharing plan - a plan in which a certain amount of profits is credited to each employee’s account, payable at retirement, termination, or death Employee stock ownership plan (ESOP) - a qualified, tax-deductible stock bonus plan in which employers contribute stock to a trust for eventual use by employees Page 380 In deferred profit-sharing plans, employers typically contribute a portion of their profits to the pension fund, regardless of the level of employee contribution. An employee stock ownership plan (ESOP) is a qualified, tax-deductible stock bonus plan in which employers contribute stock to a trust for eventual use by employees. Overall, about 91% of employers in one recent survey offer 401(k) salary reduction plans; 67% also offer defined benefit pension plans alongside their 401(k)s, and 18% offer other deferred profit-sharing savings plans.

Pension Planning When developing plans must consider:
Membership requirements Benefit formula Plan funding Vesting ERISA – guarantees non-forfeitable rights Established the Pension Benefits Guarantee Corporation - PBGC Page 380 Pension Planning Pension planning is complicated, partly because of the many federal laws governing pensions. The Employee Retirement Income Security Act (ERISA) of 1974 restricts what companies can, cannot, and must do in regard to pension plans and the following must be considered. Membership requirements. For example, what is the minimum age or minimum service at which employees become eligible for a pension? Benefit formula. This usually ties the (defined) pension to the employee’s final earnings, or an average of his or her last three or four years’ earnings. Plan funding. How will you fund the plan? Will it be contributory or noncontributory? Vesting. Vested funds are the money employer and employee have placed in the latter’s pension fund that cannot be forfeited for any reason. The employees’ contributions are always theirs, of course. However, until the passage of ERISA, many pension plans didn’t vest the employer’s contribution till the employee retired. So you could have worked for a company for 30 years and been left with no pension if the company went out of business 1 year before you were to retire. Pension Benefits Guarantee Corporation (PBGC) Established under ERISA to ensure that pensions meet vesting obligations; also insures pensions should a plan terminate without sufficient funds to meet its vested obligations.

Pension Trends 401k IRA Early retirement windows
Portability – pension may be rolled over Cash balance pension plans – earn interest Page 381 Early-Retirement Windows Some plans take the form of early-retirement window arrangements in which specific employees (often age 50-plus) are eligible to participate. The “window” means that for a limited time, the company opens up the opportunity for employees to retire earlier than usual. The financial incentive is generally a combination of improved or liberalized pension benefits plus a cash payment. Portability Today’s needs for flexible staffing and the realities of ongoing corporate restructurings are also prompting employers to make their pension plans more portable. Cash Balance Pension Plans These are defined benefit plans for federal tax purposes, but they work differently. In a typical defined benefit plan, the employer multiplies the employee’s average pay over the last few years of his or her employment by a predetermined multiple, and the result represents the person’s annual retirement income.

Employee Services Personal services include: Credit unions
Counseling services Employee assistance programs (EAP) Other services: Vacation facilities, cultural subsidies, and lunch and learn programs Page 383 Credit Unions Credit unions are usually separate businesses established with the employer’s assistance to help employees with borrowing and saving needs. Counseling Services Many firms provide a wide range of counseling services. These include financial counseling (for example, how to overcome existing indebtedness); family counseling (for marital problems and so on); career counseling; outplacement counseling (for helping terminated or disenchanted employees find new jobs); preretirement counseling; and legal counseling through legal insurance plans. Employee Assistance Programs (EAPS) Employee assistance programs provide counseling and/or treatment for problems such as substance abuse, gambling, or stress. Fifty to 75 percent of all employers with 3,000 or more employees offer EAPs, and there are several models in use.94 For example, with the in-house

How To Launch EAPs Specify goals and philosophy
Develop a policy statement Ensure professional staffing Maintain confidential record-keeping systems Train supervisors Be aware of legal issues EAP Page 384 Key steps for launching a successful EAP program include: Specify goals and philosophy. Include the short- and long-term goals you expect the employee and firm to achieve. Develop a policy statement. Here, define the program’s purpose, employee eligibility, the roles and responsibility of various personnel in the organization, and procedures for using the plan. Ensure professional staffing. Consider the professional and state licensing requirements. Maintain confidential record-keeping systems. Everyone involved with the EAP, including secretaries and support staff, must understand the importance of confidentiality. Also ensure files are locked, access is limited and monitored, and identifying information is minimized. Train supervisors. Supervisors should understand the program’s policies, procedures, and services, as well as the company’s policies regarding confidentiality. Train them to recognize the symptoms of problems like substance abuse, and to encourage employees to use the EAP. Be aware of legal issues. For example, in most states counselors must disclose suspicions of child abuse to an appropriate state agency. Get legal advice on establishing the EAP, carefully screen the credentials of the EAP staff, and obtain professional liability insurance for the EAP.

Job Services Subsidized child care with either an in-house facility or cost defrayed Elder care Other benefits Transportation Food services Education subsidies Page 385 Job-Related Services Job-related services like child care make it easier for employees to perform their jobs. Subsidized Child Care Today, over 50% of all U.S. women with children under six years old are in the workplace, and a Commerce Department survey reported there were almost 10 million children younger than age five requiring child care. Child care is thus an increasingly desirable benefit. Elder Care With an aging population, elder care has become more of an issue for many employees. Elder care benefits are important for much the same reasons as are child care benefits: The responsibility for caring for an aging relative can affect the employee’s performance at work. Other Job-Related Benefits Some employers provide subsidized employee transportation. Educational subsidies such as tuition refunds have long been popular benefits for employees seeking to continue or complete their educations. Educational subsidies such as tuition refunds have long been popular benefits for employees seeking to continue or complete their educations.

Elder Care Programs can be simple: A lunchtime program
Information seminars AARP’s Care Management Guide Page 385 How do employees adjust their schedules when they must care for an elderly family member? One study found that 64% took sick days or vacation time, 33% decreased work hours, 22% took leaves of absence, 20% changed their job status from full to part time, 16% quit their jobs, and 13% retired early. The problem will grow more acute as the segment of the population over age 65 grows from about 35 million today to 82 million in 2050.

Family friendly benefits
Ninety percent of employees said these programs were very important Family friendly firms are on “best to work for” lists Are these types of programs are useful? Do they improve productivity? Page 386 Family-friendly benefits On-site child care, fitness and medical facilities, flexible work scheduling, telecommuting, occasional sabbaticals, loan programs for home computers, stock options, concierge services, even insurance for the family pet are all part of the compensation package in the new workplace. Effect on Performance - There is not a lot of evidence. Many firms that implement these plans do so as part of broader commitment-building programs. These typically also include, for instance, emphasizing employee development, promotion from within, and open communications. Benefits like these don’t come cheap. For example, the CEO of one firm that provides concierge services to employees estimates that for a large company, concierge services cost $100,000 per year. Aetna found it saved $400,000 by making employees at its Blue Bell, Pennsylvania, office buy their own coffee and tea. saved $165,000 by eliminating free sodas. Effect on Performance But do these family-friendly programs improve productivity? There is not a lot of evidence. Many firms that implement these plans do so as part of broader commitment-building programs. These typically also include, for instance, emphasizing employee development, promotion from within, and open communications. Implemented in this manner, studies suggest work/life benefits may in fact contribute to employees’ willingness to “go the extra mile” for their employers.

Research Insight Society for Human Resource Management found that 58% offer flextime, 31% compressed workweeks, and 24% allow child to be brought to work in an emergency Page 386

Executive Perquisites
Perks range from use of the executive washroom to use of the corporate jet Some conventional perk$ include: Management loans Salary guarantees Financial counseling Great relocation benefits Use of anything a corporation owns Private driver $23k/yr Page 388 Perks can range from substantial to almost insignificant. In addition to a $200,000 annual salary, for instance, the president of the United States has free use of the White House and Camp David (not to mention a fleet of limousines, Air Force One, and various helicopters). On the other hand, perks may entail little more than the right to use the executive washroom. Many popular perks fall between these extremes. These include management loans (which typically enable senior officers to exercise their stock options); salary guarantees (also known as golden parachutes), to protect executives if their firms become targets of acquisitions or mergers; financial counseling (to handle top executives’ investment programs); and relocation benefits, often including subsidized mortgages, purchase of the executive’s current house, and payment for the actual move. Company jet $22k/yr

Flexible Benefits Programs
Cafeteria approach Total cost is limited Certain benefits must be present Can be structured as a flexible spending account or core plus option plan Page 388 The Cafeteria Approach Because employees do have different preference for benefits, more employers today let employees individualize their benefits plans. The “cafeteria” approach is the main way to do this. (The terms flexible benefits plan and cafeteria benefits plan are generally used synonymously.) A cafeteria plan is one in which the employer gives each employee a benefits fund budget, and lets the person spend it on the benefits he or she prefers, subject to two constraints. First, the employer must carefully limit total cost for each benefits package. Second, each benefits plan must include certain required items—for example, Social Security, workers’ compensation, and unemployment insurance. New IRS regulations should make cafeteria plans more attractive, by making them more flexible.

Pros and Cons to Flexible Benefits
Often desired by employees Cheaper Employees can make bad choices Administrative costs can be high Computerization helps Page 390 Flexible Programs: Pros and Cons Flexible benefits programs have pros and cons.142 Flexibility is of course the main advantage: Employees can choose the package that suits them best, and the firm can adapt to workers’ changing needs. Flexible programs also make it cheaper to introduce new benefits, since the employer doesn’t have to lock them in for all employees. However, employees may make bad choices and find themselves not covered for emergencies, and the administrative costs of such plans can be burdensome. Computers and Benefits Administration Whether it is flexible benefits or some other plan, computers play an important role in benefits administration. PC-based systems let employees interactively update and manipulate their benefits packages, as do various Web sites like Inter- and intranet systems enable employees to get medical information about hospitals and doctors and to do interactive financial planning and investment modeling.

Computers and Benefits Administration
Employees interactively update their accounts Find medical information Find answer to routine questions Big and small companies use online systems Page 390

Employee Leasing Employee leasing firms handle all arrangements
Group insurance rates are lowered Downside includes liability issues and loyalty Page 390 Employee leasing firms arrange for all the employer’s employees to be transferred to the leasing firm’s payroll including benefits. Group insurance rates are lowered. The downside includes liability issues and loyalty as employees no longer work directly for the company.

Chapter 13 Summary Incentives are paid to employees whose work is above standard Benefits, on the other hand, are given to all employees who work for a company Four types of benefits: pay supplements, insurance, retirement, and services Page 391

Chapter 13 Summary Supplemental pay benefits provide pay for time not worked including unemployment insurance, vacation and holiday pay, severance pay, and supplemental unemployment Insurance benefits include workers’ compensation, group hospitalization, accident and disability, and group life Page 391

Chapter 13 Summary Retirement benefits include social security and pension plans Most employers provide benefits like employee services including food services, recreational opportunities, legal advice, credit unions, and counseling Page 392

Chapter 13 Summary Employees prefer individualizing the organization’s benefits plans Flexible benefits plans, also called the cafeteria approach, allow the employee to put together their own plan, subject to cost limits and the inclusion of non-optional items

Chapter 13 Benefits and Services.

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