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Prentice Hall, Inc. © 2006 11-1 A Human Resource Management Approach STRATEGIC COMPENSATION Prepared by David Oakes Chapter 11 Discretionary Benefits
Prentice Hall, Inc. © 2006 11-2 Discretionary Costs In 2004 $11,107 per employee 40% of total payroll costs $15,000 total with legally-required benefits
Prentice Hall, Inc. © 2006 11-3 Benefit Types Protection programs Pay for time-not-worked Services
Prentice Hall, Inc. © 2006 11-4 Income Protection Disability insurance Life insurance Pension programs
Prentice Hall, Inc. © 2006 11-5 Health Protection Self - funded plans Health maintenance organizations (HMOs) Preferred provider organizations (PPOs) Dental insurance Vision insurance Prescription drug plan
Prentice Hall, Inc. © 2006 11-6 Short-Term Disability Less than 6 months duration Unable to perform job Benefit: 50% - 100% of pre-tax income
Prentice Hall, Inc. © 2006 11-7 Long-Term Disability 6 months to life Unable to perform any job qualified for Benefit 50% - 70% of pre-tax pay 6 - 12 month waiting period Other benefits used first
Prentice Hall, Inc. © 2006 11-8 Pension Plan Financing Options Noncontributory Contributory Employee-financed programs A combination of the three
Prentice Hall, Inc. © 2006 11-9 Pension Plan Tax Treatment Options Qualified Employers get tax deductions for contributions Employees taxed less at retirement Nonqualified Employers & employees receive few tax break
Prentice Hall, Inc. © 2006 11-10 Qualified Plans Eligibility Minimum age 21, & 1 year of service Nondiscrimination Limited preferential treatment Vesting Usually 3 - 6 years Payout restrictions Tax penalty if taken before age 59.5
Prentice Hall, Inc. © 2006 11-11 Defined Contribution Plans Profit sharing plans Employee stock ownership (ESOPs) 401(k)s Savings & thrift plans
Prentice Hall, Inc. © 2006 11-12401(k)s Named after IRS code section Employees invest pre-tax income Plan limits 2006 - $15,000 2007 - $15,500 2008 - $16,000 $500 yearly increases
Prentice Hall, Inc. © 2006 11-13ESOPs The basis for 401 (k) plans Contributions invested in company securities Distributions made in company stock Like stock bonus plans, except stock is purchased with borrowed funds
Prentice Hall, Inc. © 2006 11-14 Saving & Thrift Plans Employers match employees’ contributions Usually up to 50% of employees’ Tax penalties for early withdrawals Employees can select investment vehicle Stocks Bonds Money market funds
Prentice Hall, Inc. © 2006 11-15 Defined Benefit Plans Guarantees benefits amount Amount expressed as a monthly sum % of pre-retirement pay X years of service Employers’ contributions can vary, but benefit at retirement cannot Not widely used
Prentice Hall, Inc. © 2006 11-16 Health Care Programs Fee-for-service Managed care Point of service Consumer-driven health care
Prentice Hall, Inc. © 2006 11-17 Fee-For-Service Plans Indemnity plans Cover usual, customary, reasonable charges Hospital expenses Surgical expenses Physicians’ fees Deductibles & coinsurance Out-of-pocket maximums Individual or group coverage
Prentice Hall, Inc. © 2006 11-18HMOs Organize, deliver, & finance care Provides prepaid medical services May include co-payments Regulated by Health Maintenance Organization Act of 1973 Prepaid group practices Individual practice associations
Prentice Hall, Inc. © 2006 11-19PPOs Select group of health care providers Employees choose from a list Financial incentives to use list Physicians must Meet quality standards Abides by PPO cost-containment Accepts PPO fee structure Does not provide prepaid benefits
Prentice Hall, Inc. © 2006 11-20 Consumer-Driven Care Flexible-spending accounts Health reimbursement arrangements Health savings accounts
Prentice Hall, Inc. © 2006 11-21 Flexible-Spending Accounts Supplemental health coverage Employee funds account with pre-tax income Pays for qualified expenses Unused funds forfeited
Prentice Hall, Inc. © 2006 11-22 Health Reimbursement Arrangements Supplemental health coverage Employees funded Unused funds carried over
Prentice Hall, Inc. © 2006 11-23 Prescription Drug Plans Medical reimbursement plans Prescription card programs Mail order prescription drug program
Prentice Hall, Inc. © 2006 11-24 RELEVANT LEGISLATION ERISA COBRA FLSA HIPPA
Prentice Hall, Inc. © 2006 11-25ERISA Regulates fringe compensation Medical Disability Life insurance Pension Monitors Reporting Disclosure Funding Fiduciary & vesting responsibilities
Prentice Hall, Inc. © 2006 11-26COBRA Continues health care coverage to 36 months Can cost up to 102% of premium Employers penalized for noncompliance Exempt employers Those with less than 20 employees Churches Federal government
Prentice Hall, Inc. © 2006 11-27HIPPA Guarantees health coverage Addresses preexisting conditions Concerns access to health information Transfer Disclosure Use
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