3 Questions 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?
4 Questions This Chapter Will Help Managers Answer (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?
5 Questions Relating to Benefits That Managers Should 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?
6 Benefits – 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.
7 Benefits – 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
8 Categories of Benefits Security and healthPayments for time not workedEmployee services
9 Security and Health Benefits Life insuranceWorkers’ compensationDisability insuranceHospitalization, surgical, and maternity coverageHealth maintenance organizations (HMOs)Other medical coverageSick leavePension plansSocial SecurityUnemployment insuranceSupplemental unemployment insuranceSeverance pay
10 Types of Insurance Plans Contributory – employees share in the cost of premiumsNoncontributory – employer pays the full cost of the premiums
11 Life 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
12 Features of State Workers’ Compensation Laws Coverage is provided regardless of who caused the injury or illnessPayments are usually made through an insurance program financed by employer-paid premiumsA worker’s loss is usually not covered fully by the insurance programWorkers’ compensation programs protect employees, dependents, dependents, and survivors against income loss resulting from total disability, partial disability, or death; medical expenses; and rehabilitation expenses
13 Health-Care Costs and Company Competitiveness Competitiveness issues arising from health-care costs are particularly acute at companies with the following three characteristics:Their workforces are comprised largely of people in their 40s and 50s, who require more health care than younger workers doTheir health plans cover a much larger number of retired workers than do those of newer companies, like computer or airline concernsThey make products that must compete in world markets
14 Health-Care Cost Containment Strategies of Companies Band together with other companies to form a “purchasing coalition” to negotiate better rates with insurersDeal with hospitals and insurers as with any other suppliersIntroduce a three-tier plan to encourage the use of generic drugsOffer incentives to nudge working spouses off company health plansAdopt a consumer-driven health plan (CDHP)
15 Why 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 againThe population has also aged, further spiking expensesHospitals and doctors have refused to accept reduced reimbursement rates. Lastly,Employees have rebelled against managed-care limits on doctors and procedures
16 Types of Pension PlansDefined-benefit plan: Under this plan, an employer promises to pay a retiree a stated pension, often expressed as a percentage of pre-retirement pay
17 Types of Pension Plans (contd.) Defined-contribution plans: These plans fix a rate for employer contributions to the fund. Future benefits depend on how fast the fund grows.
18 Types of Pension Plans (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.”
19 Table 12-4 Average 2004 Social Security Benefits - Monthly Retired worker$922Retired couple$1,523Disabled worker$862Disabled worker with a spouse and child$1,442Widow or widower$888Young widow or widower with two children$1,904