This document discusses employee benefits and compensation. It begins by defining a benefit and identifying strategic reasons why employers provide benefits. It then outlines various types of benefits including mandated benefits like workers' compensation and unemployment insurance. Voluntary benefits like pensions, health insurance, and time off are also examined. The document provides an overview of administering and managing benefits programs.

1. Human Resource
Management
TENTH EDITON
© 2003 Southwestern College Publishing. All rights reserved.
PowerPoint Presentation
by Charlie Cook
Managing Employee Benefits
Chapter 14
SECTION 4
Compensating
Human
Resources
Robert L. Mathis  John H. Jackson

2. © 2002 Southwestern College Publishing. All rights reserved. 14–2
Learning Objectives
After you have read this chapter, you should be
able to:
– Define a benefit and identify two strategic reason
why employers provide benefits.
– Distinguish between mandated and voluntary
benefits and list three examples of each.
– Describe two security benefits.
– List and define at least six pension-related terms.
– Explain the importance of health-care cost
management and identify some methods of
achieving it.

3. © 2002 Southwestern College Publishing. All rights reserved. 14–3
Learning Objectives (cont’d)
– Discuss the growth of family-oriented and time-off
benefits and their importance to many employees.
– Summarize benefits communication and flexible
benefits as considerations in benefits
administration.

4. © 2002 Southwestern College Publishing. All rights reserved. 14–4
Benefits
 Benefit
– An indirect compensation given to an employee or
group of employees as a part of organizational
membership.
 Strategic Perspectives on Benefits
– Benefits absorb social costs for health care and
retirement.
– Benefits influence employee decisions about
employers (e.g., recruitment and retirement).
– Benefits are increasingly seen as entitlements.
– Benefit costs are about 40% of total payroll costs.

5. © 2002 Southwestern College Publishing. All rights reserved. 14–5
How the Benefit Dollar Is Spent
Figure 14–1
Source: Based on information in Employee Benefits, 2000
edition (Washington, D.C.: U.S. Chamber of Commerce, 2000).

6. © 2002 Southwestern College Publishing. All rights reserved. 14–6
Benefit Needs Analysis
 Benefit Needs Analysis
– A comprehensive look at all aspects of benefits.
• How much total compensation?
• What part of total compensation should benefits
comprise?
• What expense levels are acceptable for each benefit?
• Which employees should get which benefits?
• What are we getting in return for the benefit?
• How will offering benefits affect turnover, recruiting,
and retention of employees?
• How flexible should the benefits package be?

7. © 2002 Southwestern College Publishing. All rights reserved. 14–7
Types of Benefits
Figure 14–2

8. © 2002 Southwestern College Publishing. All rights reserved. 14–8
Security Benefits
 Worker’s Compensation
– Benefits provided to persons injured on the job.
 Unemployment Compensation
– A Federal/state payroll tax that funds state
unemployment systems.
– Involuntary unemployment and actively seeking
work is required for persons to claim benefit.
 Supplemental Unemployment Benefits (SUB)
– A union-negotiated benefit provision that pays a
supplemental amount to laid-off employees who are
drawing unemployment compensation.

9. © 2002 Southwestern College Publishing. All rights reserved. 14–9
Security Benefits (cont’d)
 Severance Pay
– A security benefit voluntarily offered by employer to
employees who lose their jobs.
– Payments are determined by the employee’s level
within the organization and years of employment.
– Other benefits (e.g., outplacement and continued
health insurance) may be offered in lieu of cash
severance payments.

10. © 2002 Southwestern College Publishing. All rights reserved. 14–10
Services During Severance
Figure 14–3
Source: Linda Jones, “Severance Policies in Place
at Most Organizations,” Human Resource
Executive, May 1, 2001, 28. Used with permission.

11. © 2002 Southwestern College Publishing. All rights reserved. 14–11
Median Age at Retirement by Gender
Figure 14–4
Source: U.S. Bureau of Labor Statistics. *Projected.

12. © 2002 Southwestern College Publishing. All rights reserved. 14–12
Retirement Security Benefits
 Retirements and Age Discrimination
– Age Discrimination in Employment Act (ADEA)
prohibits mandatory retirement age provisions.
 Social Security Act of 1935
– Established a system providing old age, survivor’s,
disability, and retirement benefits.
– Federal payroll tax on both the employer and the
employee.
– Benefit payments are based on employee’s lifetime
earnings.

13. © 2002 Southwestern College Publishing. All rights reserved. 14–13
Pension Plans
 Pension Plans
– Retirement benefits established and funded by
employers and employees.
 Traditional Benefit Plans
– Defined-benefit plans
• Employees are promised a definite pension amount
based on age and length of service.
– Defined-contribution plans
• Employer makes an annual payment to an employee’s
account.
• Benefit payout is determined by the financial
performance of the employee’s retirement.

14. © 2002 Southwestern College Publishing. All rights reserved. 14–14
Pension Plans
 Cash Balance Plans
– A hybrid plan that defines retirement benefits in
terms of a hypothetical account balance.
 Employee Retirement Income Security Act
(ERISA)
– Regulates pension funds to assure their soundness.
– Requires firms to offer retirement plans to all
employees if offered to any employees.
– Accrued benefits must be paid to departing
employees.
– Requires minimum funding for IRS approval and
purchase of plan termination insurance.

15. © 2002 Southwestern College Publishing. All rights reserved. 14–15
Pension Terms and Concepts
 Contributory Plan
– Both employer and employee pay money into the
retirement fund.
 Non-contributory Plan
– All pension benefits funding is paid by the employer.
 Vesting
– The right of employees to receive benefits from their
pension plans.
 Portability
– A pension plan feature that allows employees to
move their benefits from one employer to another.

16. © 2002 Southwestern College Publishing. All rights reserved. 14–16
Individual Retirement
Keogh
Plans
Individual
Retirement
Accounts (IRAs)
401(k) and
403 (b) Plans
Individual
Retirement
Options

17. © 2002 Southwestern College Publishing. All rights reserved. 14–17
401(k) for Small Business
Figure 14–5
Source: Based on data in Virginia Munger Kahn, “Pension
Plans for Everyone,” Business Week Small Biz, July 16, 2001,
22.

18. © 2002 Southwestern College Publishing. All rights reserved. 14–18
Controlling Health-Care Benefits Costs
 Co-Payment
– Employees are required to pay a portion of the cost
of both insurance premiums and medical care.
 Defined Contribution Plans for Health Benefits
– Employer provides a set amount that the employee
may spend on health-care coverage benefits.

19. © 2002 Southwestern College Publishing. All rights reserved. 14–19
Controlling Health-Care Costs (cont’d)
 Managed Care
– Approaches that monitor and reduce medical costs
using restrictions and market system alternatives.
 Preferred Provider Organization
– A health-care provider that contract with an
employer group to provide health-care services to
employees at a competitive rate.
 Health Maintenance Organization (HMO)
– A managed care plan that provides services for a
fixed period on a prepaid basis.

20. © 2002 Southwestern College Publishing. All rights reserved. 14–20
Increases in Health-Care Benefits Costs
to Employers
Figure 14–6
Source: U.S. Bureau of Labor Statistics, U.S. Department of Labor, 2002.

21. © 2002 Southwestern College Publishing. All rights reserved. 14–21
Health-Care Legislation
 COBRA Provisions
– Former employees, their spouses, and eligible
dependents are covered for 18 to 36 months
– Up to 102% of group premium costs paid by the
former employee.
 HIPPA Provisions
– Allows employees to switch their health insurance
plan from one company to another, regardless of
pre-existing health conditions.
– Health plans must continue to cover sick
employees.

22. © 2002 Southwestern College Publishing. All rights reserved. 14–22
U.S. Population Lacking Health Insurance
Figure 14–7
Source: U.S. Census Bureau, 2002.

23. © 2002 Southwestern College Publishing. All rights reserved. 14–23
Other Benefits
Benefits
Relocation
Expenses
Life, Disability,
Legal Insurances
Educational
Assistance
Social and
Recreational
Family-Oriented
Benefits
Family-Care
Benefits
Credit Unions
Purchase Discounts
Stock Investment

24. © 2002 Southwestern College Publishing. All rights reserved. 14–24
Family Medical Leave Act (FMLA)
 Coverage
– Employers with 50 or more employees
 Requirements
– Employers must allow eligible employees to take up
to a total of 12 weeks of unpaid leave to attend to a
family or serious medical condition.
– Employees have the right to continued health
benefits and the right to return to their job.

25. © 2002 Southwestern College Publishing. All rights reserved. 14–25
Most Common Paid Holidays in the U.S.
Figure 14–8

26. © 2002 Southwestern College Publishing. All rights reserved. 14–26
Companies Offering Different Types of Paid Time Off
Figure 14–9
Source: “Employee Benefits Survey Technical Note,” Compensation and Working
Conditions (Washington, DC: U.S. Bureau of Labor Statistics), Fall 2000.

27. © 2002 Southwestern College Publishing. All rights reserved. 14–27
Time-Off Benefits
 Holiday Pay
– Eligibility
 Vacation Pay
 Leaves of Absence
– Family Leave
– Medical and Sick Leave
– Paid Time-Off (PTO) Plans
– Military Leave
– Election Leave
– Jury-duty Leave
– Funeral Leave

28. © 2002 Southwestern College Publishing. All rights reserved. 14–28
Benefits Administration
 Benefits Communication
– Benefits Statements
• Annual “personal statement of benefits” that translates
the benefits into dollars to show their worth.
– HRIS and Benefits Communication
• HRIS information allows employees to obtain benefits
information on-line.

29. © 2002 Southwestern College Publishing. All rights reserved. 14–29
Typical Division of HR Responsibilities:
Benefits Administration
Figure 14–10

30. © 2002 Southwestern College Publishing. All rights reserved. 14–30
Flexible Benefits
 Flexible Benefit Plan
– A plan (flex or cafeteria) that allows employees to
select the benefits they prefer from groups of
benefits established by the employer.
 Flexible Spending Accounts
– An account that allows employees to contribute
pre-tax dollars to buy additional benefits (e.g., life
insurance).
 Problems with Flexible Plans
– Inappropriate benefits package choices
– Adverse selection and use of specific benefits by
higher-risk employees

31. © 2002 Southwestern College Publishing. All rights reserved. 14–31
Pension and Retirement Functions on the Internet
Figure 14–11