HRM gaining a competitive advantage chapter 013 3rd ed

13
Chapter

Employee Benefits
Objectives

Irwin/McGraw-Hill

• Discuss the growth in benefits costs and the
underlying reasons for that growth.
• Explain the major provisions of employee
benefits programs.
• Explain how employee benefits in the U.S
compare with those in other countries.
• Explain the importance of effectively
communicating the nature and value of benefits
to employees.
• Describe the regulatory constraints that affect
the way employee benefits are designed and
administered.
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Employee Benefits: Unique
Aspects

13-2




LegalCompliance
Compliance
Legal
Tendto
tobecome
becomeinstitutionalized
institutionalized
Tend




Complexity
Complexity




Irwin/McGraw-Hill

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Growth of Employee Benefits:
Percentage of Wages and Salaries

13-3

Percentage

41.3 41.3

40%

37.9
35.5 36.7
30.0

30%
21.5

20%

17.0

10%
3.0
1929
Irwin/McGraw-Hill

55

65

75

86

88

90

93

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Reasons for benefits Growth

13-4







New
New Deal
Deal legislation
legislation
Wage
Wage and
and price
price controls
controls -WW
-WW IIII
Favorable
Favorable tax
tax treatment

treatment
Cost
Cost advantages
advantages of
of group
group purchases
purchases
Negotiation
Negotiation objective
objective of
of unions
unions

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Benefits Programs

13-5

• Social insurance
• Private group insurance
• Retirement
• Pay for time not worked

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Social Insurance
(legally required)

13-6

SocialSecurity
Security
Social
About8%
8%employer
employerand
andemployee
employeetax
taxon
onwages
wages
About
AdditionalMedicaid
Medicaidtax
taxof
of1.45%
1.45%
Additional
Alsoincludes
includesdependent
dependentcoverage
coverageand
andLong-term

Long-termDisability
Disability
Also
UnemploymentCompensation
Compensation
Unemployment
Taxon
onemployers
employersbased
basedon
onuse
use
Tax
Eligibility:work
work11year
year--not
noton
onstrike,
strike,quit
quitor
orfired
firedfor
forcause
cause
Eligibility:
WorkersCompensation
Compensation
Workers
Disability,medicalcare,
care,death

deathbenefit
benefit&
&rehabilitation
rehabilitation
Disability,medical
2/3of
ofearnings
earningsare
aretax
taxfree
free
2/3
Basedon
onrisk
riskand
andexperience
experiencerating
rating
Based

Irwin/McGraw-Hill

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Private Group Insurance

13-7







Life
Life
Health -- most
most offer
offer
Health
COBRA -- provides
provides continuation
continuation of
of health
health
 COBRA
insurance up
up to
to 36
36 months
months
insurance
Disability -- short
short and
and long
long term
term
Disability

Irwin/McGraw-Hill

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Retirement

13-8





Defined Benefit
Benefit v.
v. Defined
Defined
Defined
Contribution
Contribution
ERISA (1974)
(1974)
ERISA
funding
 funding
vesting
 vesting
communication
 communication
portability
 portability

Irwin/McGraw-Hill

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Value of Savings at Age 65 for Different
Portfolios

13-9

Value of Savings at 65
(Millions of Dollars)
1.00

$837,434

0.75

It pays to save early and take some risk
Investment portfolio (60% stocks, 30% bonds, 10% cash)

0.50

Investment portfolio of 100% cash(money market )

$357,003
0.25

$214,957

$128,253

21-29
Irwin/McGraw-Hill

31-39

21-29

31-39
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Payment For Time Not Worked

13-10








Vacations -- not
not mandated
mandated
Vacations
usually 10
10 days

days per
per year
year in
in U.S.
U.S.
 usually
30 days
days mandatory
mandatory in
in Europe
Europe
 30
Holidays
Holidays
Family and
and Medical
Medical Leave
Leave Act
Act of
of
Family
1993
1993
Sick leave
leave
Sick

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13-11

Normal Annual Hours Worked in Manufacturing
Relative to the U.S.

Annual Hours

Does this account for
competitive differences between
Pacific Rim countries and Europe?

168

150

- 150
-141
Japan

Irwin/McGraw-Hill

U.S

Source: World Report 1994

France

-245

Germany

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Family-Friendly Policies

13-12



Family and Medical Leave



Pregnancy Discrimination Act of 1978



Child Care

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Managing Benefits

13-13








Surveys and
and Benchmarks
Benchmarks
Surveys
Cost controls
controls
Cost
Managed Care
Care
-- Managed
Coinsurance
-- Coinsurance
Use of
of HMOs
HMOs and
and PPOs
PPOs
-- Use
Employee wellness
wellness programs
programs
-- Employee
Workforce Demographics

Demographics
Workforce
Communicating with
with employees
employees
Communicating
Flexible Benefit
Benefit (Cafeteria)
(Cafeteria) Plans
Plans
Flexible

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13-14

Employee Wellness Programs
Effort to raise overall health levels of all employees

Two types of programs:
•Passive
•emphasis on building awareness
•people identify own problems & take action
•physical fitness facility program
•Active
•emphasis on reinforcement & support
•example: outreach and follow-up model

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Flexible Benefits (Cafeteria)
Plans

13-15

Advantages
Advantages





more appreciation
appreciation of
of benefits
benefits offered
offered
more
better match
match between
between benefits
benefits and
and
better
employee preference

preference
employee
cost reduction
reduction to
to employee
employee
cost

Disadvantages
Disadvantages


increased design
design and
and start-up
start-up costst-up
costst-up
increased
costs
costs

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General Regulatory Issues

13-16

• Nondiscriminatory rules and qualified plans

• Sex, age, and disability
• Monitoring future benefits obligations

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