Chapter 13 Benefits and Services

In brief: This chapter discusses the different benefits and services that companies

might offer to employees. These are offered to entice employees, retain employees, and to help make them more productive during their service.
interesting issues: More and more companies are moving to flexible benefits packages. Students might well be prodded to understand the dynamics driving this, as well as the costs and benefits to the employer.

Lecture Outline
I. II. The Benefits Picture Today
Figure 1 !1 on "age #$% gives a breakdown of employee compensation.

Pay For Time

&. +. ..

ot !or"ed

'nemployment (nsurance Table 1 !1 on pages #$)!#$* gives procedures control unemployment costs. ,acations and -olidays Sick /eave 1. "arental /eave and the Family Medical /eave &ct of 1**

0. 1.

Severance "ay Supplemental 'nemployment +enefits

III.

Insurance Benefits
&. 2orkers3 .ompensation 1. +. .. 0. .ontrolling 2orker3s .ompensation .osts

The -igh!"erformance 4rgani5ation6 2orkers3 .ompensation "age #)% of text. See discussion boxes solutions at end of this chapter. /ife (nsurance -ospitali5ation, Medical, and 0isability (nsurance Figure 1 !# on page #)) compares options of traditional, -M4, and ""4. 1. 9. . -ealth Maintenance 4rgani5ations 7-M48 "referred "rovider 4rgani5ations 7""48 :educing -ealth +enefit .osts

11%

Chapter 13: Benefits and Services

#. ;. %. $. ).

Managing -ealth .are .osts6 &(0S Mental -ealth +enefits The "regnancy 0iscrimination &ct 7"0&8 .4+:& :e<uirements /ong!Term .are

I#.

$etirement Benefits
&. Social Security 1. 9. . #. +. :etirement +enefits Survivor=s or 0eath +enefits 0isability "ayments Medicare

"ension "lans 1. 9. . #. ;. 0efined +enefits 0efined .ontributions 0eferred "rofit!Sharing ,esting The >uestion of "ortability

..

"ensions and the /aw 1. 9. 1mployee :etirement (ncome Security &ct 71:(S&8 "ension +enefits ?uarantee .orporation 7"+?.8

0.

+enefits Trends 1. 9. ?olden 4fferings 1arly :etirement 2indows

#.

%mployee Service Benefits

&. "ersonal Services +enefits

11$

Human Resource Management

1. 9. . #. +. .redit 'nions .ounseling Services 1mployee &ssistance "rograms 71&"s8 4ther "ersonal Services

@ob!:elated Services +enefits 1. 9. . #. ;. %. $. Subsidi5ed .hild .are 1lder .are Subsidi5ed 1mployee Transportation Food Services 1ducational Subsidies Family!Friendly +enefits :esearch (nsight

..

1xecutive "er<uisites

#I.

Fle&i'le Benefits Pro(rams

&. +. .. 0. 1. F. 1mployee "reference for ,arious +enefits The .afeteria &pproach Figure 1 !; on page ;A1 has advantages and disadvantages of flexible benefits (nformation Technology and -:6 .omputers and +enefits &dministration "age ;A9 of the text. See discussion boxes solutions at end of this chapter. :esearch (nsight -ow 0o Bour +enefits Stack 'pC Small +usiness &pplications6 +enefits and 1mployee /easing "age ;A of the text. See discussion boxes solutions at end of this chapter.

Figure 1 !$ on pages ;A#!;A; shows benefits offerings of six maDor companies.

)iscussion Bo&es
The *i(h+Performance Or(ani,ation- !or"ers. Compensation
11)

Chapter 13: Benefits and Services

7page #)%8 This box describes the program at 2eirton Steel .orporation to control workers3 compensation costs. The efforts range from reporting, to management review, to treatment and rehabilitation for those who are inDured.

Information Technolo(y and *$- Computers and Benefits /dministration

7page ; 98 Eo matter what aspect of benefits you look at, computer applications are playing an important role in the administration. 1xamples of technology include6 telephone!based interactive voice response systems, ".!based systems that allow employees to manipulate benefits choices, and internet systems to provide information.

Small Business /pplications- Benefits and %mployee Leasin( 7pages ;A !;A%8

/easing employees is an attractive way to reduce costs while actually being able to provide workers with more benefits. This box explains how and why that can be true. -owever there are a number of issues that need to be considered before taking that step. These are also listed for discussion in this box.

0ey Terms
'enefits (ndirect financial payments given to employees. They may include health and life insurance, vacation, pension, education plans, and discounts on company products, for instance. 7page #$%8 +enefits for time not worked such as unemployment insurance, vacation and holiday pay and sick pay. 7page #$$8 "rovides weekly benefits if a person is unable to work through some fault other than his or her own. 7page #$$8 "rovides pay to an employee when he or she is out of work because of illness. 7page #)18 & one!time payment some employers provide when terminating an employee. 7page #) 8 "rovide for a guaranteed annual income in certain industries where employers must shut down to change machinery or due to reduced work. These benefits are paid by the company and supplement unemployment benefits. 7page #) 8

supplemental pay 'enefits unemployment insurance sic" leave severance pay supplemental unemployment 'enefits

11*

Human Resource Management

1or"er2s compensation (roup life insurance "rovides income and medical benefits to work!related accident victims or their dependents regardless of fault. 7page #);8 "rovides lower rates for the employer or employee and includes all employees, including new employees, regardless of health or physical condition. 7page #)$8 & prepaid health care system that generally provides routine round!the!clock medical services as well as preventative medicine in a clinic!type arrangement for employees, who pay a nominal fee in addition to the fixed annual fee the employer pays. 7page #))8 ?roups of health care providers that contract with employers insurance companies, or third!party payers to provide medical care services at a reduced fee. 7page #))8 &mendment to title ,(( of the .ivil :ights &ct that prohibits sex discrimination based on Fpregnancy, childbirth, or related medical conditions.F (t re<uires employers to provide benefits ! including sick leave and disability benefits and health and medical insurance ! the same as for any employee not able to work because of disability. 7page #*A8 "rovides three types of benefits6 retirement income at age %9 and thereafterG survivor=s or death benefits payable to the employee=s dependents regardless of age at time of deathG and disability benefits payable to disabled employees and their dependents. These benefits are payable only if the employee is insured under the Social Security &ct. 7page #*18 "lans that provide a fixed sum when employees reach a predetermined retirement age or when they can no longer work due to disability. 7page #*18 & plan that contains a formula for determining retirement benefits. 7page #*18 & plan in which the employer=s contribution to employee=s retirement or savings funds is specified. 7page #*98 & plan in which a certain amount of profits is credited to each employee=s account, payable at retirement, termination, or death. 7page #*98 "rovision that money placed in a pension fund cannot be forfeited for any reason. 7page #*98 Signed into law by "resident Ford in 1*$# to re<uire that pension rights be vested, and protected by a government agency. 7page #* 8

health maintenance or(ani,ation 3*4O5

preferred provider or(ani,ation 3PPO5 Pre(nancy )iscrimination /ct

Social Security

pension plans

defined 'enefit pension plan defined contri'ution plan deferred profit+sharin( plan vestin( %mployee $etirement Income Security /ct 3%$IS/5

19A

Chapter 13: Benefits and Services

Pension Benefits 6uarantee Corporation 3PB6C5 (olden offerin(s

1stablished under 1:(S& to ensure that pensions meet vesting obligationsG also insures pensions should a plan terminate without sufficient funds to meet its vested obligations. 7page #* 8 4ffers to current employees aimed at encouraging them to retire early, perhaps even with the same pensions they would expect if they retired at, say, age %;. 7page #*#8 & type of golden offering by which employees are encouraged to retire early, the incentive being liberal pension benefits plus perhaps a cash payment. 7page #*#8 & formal employer program for providing employees with counseling andHor treatment programs for problems such as alcoholism, gambling, or stress. 7page #*;8 (ndividuali5ed plans allowed by employers to accommodate employee preferences for benefits. 7page ;AA8

early retirement 1indo1 employee assistance pro(ram 3%/P5 fle&i'le 'enefits pro(ram

)iscussion 7uestions1. 8ou are applyin( for a 9o' as a mana(er and are at the point of ne(otiatin( salary and 'enefits. !hat :uestions 1ould you as" your prospective employer concernin( 'enefits; )escri'e the 'enefits pac"a(e you 1ould try to ne(otiate for yourself. Bou should ask about all aspects of the benefits package sufficiently that you will come away knowing exactly what benefits you will and will not have. These can be phrased in many ways, but should cover all areas important to the potential employee. -opefully students will be far!sighted enough to understand the importance of benefits that might not appear to be critical at this stage of their lives. For example, if students are young and single, they should reali5e the importance of a good family medical plan as well as a well! funded retirement plan. <. %&plain ho1 you 1ould (o a'out minimi,in( your or(ani,ation2s unemployment insurance ta&. Make sure that all your managers understand the unemployment insurance code, train managers and supervisors on discipline and discharge, conduct exit interviews, verify employment claims, file the protest against a former employee=s claim on a timely basis, know your local unemployment insurance official, and audit the annual benefit charges statement. 7pages #$$!#)A8 3. %&plain ho1 %$IS/ protects employees. pension ri(hts. 'nder 1:(S&, pension rights must be vested under one of three formulas. &lso, 1:(S& established the "ension +enefits ?uarantee .orporation to help ensure that pensions meet vesting obligationsG the "+?. also insures pension should a plan terminate without sufficient funds to meet its vested obligations, 7page #* 8. =. In this chapter 1e presented findin(s concernin( the preferences 'y a(e> marital status> and se& for various 'enefits. !hat are these findin(s and ho1 1ould you

191

Human Resource Management

ma"e use of them if you 1ere a human resource mana(er; The findings are listed at the bottom of page ;AA and onto the top of page ;A1. -uman resource managers should use this kind of information to give them a general guideline as to the types of benefits that their work force might prefer. This would be done by analy5ing their work force to determine the age, marital status, and sex make!up and then looking to see what the maDority of them might prefer. & better approach would be to actually survey the employees to find out their preferences, rather than relying on a sample that might not really represent their employees. 4f course, the best option is to offer a cafeteria plan. 7pages ;AA!;A18 ?. !hat is @porta'ility@; !hy do you thin" it is 3or isn2t5 important to a recent colle(e (raduate; "ortability is the ability of an employee to take his or her retirement income when they leave an organi5ation and roll it over into a new employer=s savings plan or (:&. Today=s college graduate may not think about it, but it is important to consider the <uestion of portability. Most college graduates can expect to change employers several times during their career. -aving portable retirement plans can help ensure that they end up with a reasonable retirement income. (f the plans are not portable, it will take exceptional planning on the employee=s part to ensure ade<uate retirement income. 7page #* 8

Individual and 6roup /ctivities1. !or"in( individually or in (roups> compile a list of the per"s availa'le to the follo1in( individuals- the head of your local airport> the president of your colle(e or university> the president of a lar(e company in your area. )o they have certain per"s in common; !hat do you thin" accounts for any differences; There may or may not be any perks in common. The differences are likely to be due to the very nature of the industry in which the organi5ation is engaged, the likely preferences or desires of people who take those positions, and the ability of the organi5ation to provide and fund those types of benefits. 7page ;AA8 <. !or"in( individually or in (roups> contact insurance companies that offer 1or"ers2 compensation insurance and compile a list of their su((estions for reducin( 1or"ers2 compensation costs. !hat seem to 'e their main recommendations; These recommendations may vary by area and by company, but they are likely to have many parallels to the suggestions provided in the text. 1specially consider the suggestions in the example of 2eirton Steel as outlined in The High Performance Organization section on page #)%. 7pages #);!#)%8 3. 8ou are the *$ consultant to a small 'usiness 1ith a'out =A employees. /t the present time the firm offers only ? days vacation> ? paid holidays> and le(ally mandated 'enefits such as unemployment insurance payments. )evelop a list of other 'enefits you 'elieve they should offer> alon( 1ith your reasons for su((estin( them. The specific ones to recommend would depend partly on the profile of the employees of the firm. (n the absence of that information, the least costly addition of benefits would be to add some sick leave 7or personal days8 and consider additional vacation andHor holidays. The next benefit that they might look to would be to add the availability of some kind of health plan that could include a contributory cost to the

199

Chapter 13: Benefits and Services

employee. This would be less expensive to the company and add real value to the employees because of group discounts.

Cases and %&ercises

%&periential %&ercise- Benefits Pac"a(es 7page ;A)8
This exercise asks students to find out about the benefits packages in small businesses that they have worked in, or in which a friend or family member works. They are then given a scenario and asked to develop, in groups, a benefits plan appropriate for this small business.

Case Incident- BBenefits; !ho

eeds Benefits;C 7page ;A)8

1. It 1ould 'e an e&a((eration> of course to imply that the company offers no 'enefits at all. !hat sort of 'enefits must a company li"e this a'solutely provide in order to successfully recruit and retain hi(h+:uality employees; !hy; 1mployees re<uire health benefits. (ndividual health insurance is very costly, and the risks associated with a catastrophic health event are very high. Most employees want some way to prepare for their future. (f a company does not offer a pension plan, employees may expect to receive annual compensation that is sufficiently high as to allow them to develop their own individual program. 9. !hat are the advanta(es and disadvanta(es of to Fastenol of offerin( a pension plan; )o you thin" they should implement one; !hy or 1hy not; The advantage to Fastenol is that employees have come to expect that a company will help them prepare for the future. &dvantages of a pension plan are6 18 ability to retain employees, 98 ability to retain employees and 8 possible reduction in salary levels. The disadvantages are 18 additional administrative costs, 98 additional employee expense and 8 on!going costs 7hard to disengage from a plan8. Fastenol may choose instead to offer a less costly program like a ;A1 I or an 1.S.4.". . Some critics ar(ue that the la'or mar"et is too ti(ht for Fastenol to continue to (ro1 as fast as it has in the past. Critics therefore su((est the company has a dilemmaminimi,in( 'enefit.s is a (ood idea 'ecause it "eeps cost do1nD ho1ever it may soon 'e less of a (ood idea if it ma"es it more difficult to hire (ood employees. !hat do you thin" the company should do; !hy; The success of a company is dependent in the <uality and performance of its employees. Fastenol needs well motivated employees. (n a tight labor market, it is common for good employees to receive offers from other companies. Fastenol may discover that in minimi5ing benefits it will se increased employee turnover.

Case /pplication- Family #alues or /'use of Benefits; 7page ;A*8

Sarah .onrad was provided a six!week paid pregnancy leave from her firm. She also accepted the company3s offer for an additional unpaid six!week leave with continued health and medical benefits. She was offered the opportunity to return to work in a full time or part

19

Human Resource Management

time position. The company was sufficiently small as to not be re<uired by law to provide these benefits. The provided them because they wanted to be a family oriented business. Sarah repeatedly told her firm she would be returning after her leave, then at the end of her leave, announced her resignation. 1. )id Sarah Conrad a'use the 'enefits policy of her employer; The class may not reach agreement. Those who feel that .onrad abused the policy will note that the company not only lost the time when she was on leave, but it may take them several months to recruit a replacement. -ad Sarah announced her intention to leave earlier, then they would have had opportunity to begin searching for a new employee. Some students may go so far as to suggest that the firm was damaged by .onrad3s action. 4ther students may note that .onrad did not step outside the bounds of the policy. Some may feel that she may have feared that had she announced she was leaving the firm may have cancelled her benefits. 4thers may feel that .onrad simply changed her mindG the experience of being a stay at home mom for 19 weeks reinforced the decision to <uit work. 70uring the discussion, you may try to get the class to separate .onrad3s actions, which many students will find inappropriate, from the general issue of providing this benefit to an employee8. 9. If you 1ere Eim> 4i"e and )ale> 1ould you chan(e your 'enefits policy; Some may suggest that the company drop the benefits program altogether, noting they are not legally re<uired to provide it. They may argue that the policy exposes the company to risk 7especially the risk that their premiums will increase8. 4thers may suggest that a clause be inserted saying if the employee does not return to work they will be billed for all health premiums.

19#