BENEFITS OF COMPENSATION

1. Milkovich/Newman: Compensation, Ninth EditionMilkovich/Newman: Compensation, Ninth Edition
McGraw-Hill/IrwinMcGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 4Chapter 4
The BenefitsThe Benefits

2. 12-12-22
What Are Employee Benefits?What Are Employee Benefits?
That part of the total compensation
package, other than pay for time
worked, provided to employees in
whole or in part by employer
payments, e.g. life insurance,
pension, workers’ compensation,
vacation, holidays…

3. 12-12-33
Wage andWage and
PricePrice
ControlsControls
UnionsUnions
EmployerEmployer
ImpetusImpetus
GovernmentGovernment
ImpetusImpetus
CostCost
Effectiveness ofEffectiveness of
BenefitsBenefits
Why the Growth in Employee Benefits?Why the Growth in Employee Benefits?

4. 12-12-44
Value of Employee BenefitsValue of Employee Benefits
 Employees:Employees:
– Expect benefits as part of their total compensationExpect benefits as part of their total compensation
– Do not understand true value of benefitsDo not understand true value of benefits
– Often undervalue their benefitsOften undervalue their benefits
– Often take benefits for grantedOften take benefits for granted
– Often cannot list all benefits receivedOften cannot list all benefits received
– Have preferences regarding types of benefits theyHave preferences regarding types of benefits they
wantwant

5. 12-12-55
Exhibit 12.2: Ranking of EmployeeExhibit 12.2: Ranking of Employee
BenefitsBenefits

6. 12-12-66
Key Issues in Benefit Planning, Design,Key Issues in Benefit Planning, Design,
and Administrationand Administration
 Benefits Planning and Design IssuesBenefits Planning and Design Issues
– How to attract good employeesHow to attract good employees
– How to deal with undesirable turnover
– Integrating benefits with other compensationIntegrating benefits with other compensation
componentscomponents
– Strategies for ensuring external competitivenessStrategies for ensuring external competitiveness
– Ensuring that benefits are adequateEnsuring that benefits are adequate
– Whether employee benefits are cost justifiedWhether employee benefits are cost justified

7. 12-12-77
Benefit Administration IssuesBenefit Administration Issues
 Who should be protected or benefited?Who should be protected or benefited?
– Series of questions need to be addressedSeries of questions need to be addressed
 How much choice should employees haveHow much choice should employees have
among an array of benefits?among an array of benefits?
– Concerns choice (flexibility) in plan coverageConcerns choice (flexibility) in plan coverage
– Standard benefit packageStandard benefit package
– Cafeteria-style,” or flexible, benefit plansCafeteria-style,” or flexible, benefit plans

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Benefit Administration Issues (cont.)Benefit Administration Issues (cont.)
 How should benefits be financed?How should benefits be financed?
– NoncontributoryNoncontributory
– ContributoryContributory
– Employee financedEmployee financed
 Are your benefits legally defensible?Are your benefits legally defensible?

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Exhibit 12.3: Contingent Worker BenefitsExhibit 12.3: Contingent Worker Benefits
Compared to Full-Time WorkersCompared to Full-Time Workers

10. 12-12-1010
Exhibit 12.4: Possible Options in aExhibit 12.4: Possible Options in a
Flexible Benefit PackageFlexible Benefit Package

11. 12-12-1111
Exhibit 12.5: Advantages of FlexibleExhibit 12.5: Advantages of Flexible
BenefitsBenefits
 Employees choose packages that best satisfy theirEmployees choose packages that best satisfy their
unique needs.unique needs.
 Flexible benefits help firms meet the changingFlexible benefits help firms meet the changing
needs of a changing workforce.needs of a changing workforce.
 Increased involvement of employees and familiesIncreased involvement of employees and families
improves understanding of benefits.improves understanding of benefits.
 Flexible plans make introduction of new benefitsFlexible plans make introduction of new benefits
less costly.less costly.
 Cost containment: Organization sets dollarCost containment: Organization sets dollar
maximum; employee chooses within the constraint.maximum; employee chooses within the constraint.

12. 12-12-1212
Exhibit 12.5: Disadvantages of FlexibleExhibit 12.5: Disadvantages of Flexible
BenefitsBenefits
 Employees make bad choices and find themselvesEmployees make bad choices and find themselves
not covered for predictable emergencies.not covered for predictable emergencies.
 Administrative burdens and expenses increase.Administrative burdens and expenses increase.
 Adverse selection: Employees pick only benefitsAdverse selection: Employees pick only benefits
they will use; the subsequent high benefitthey will use; the subsequent high benefit
utilization increases its cost.utilization increases its cost.
 Subject to non-discrimination requirements inSubject to non-discrimination requirements in
Section 125 of the Internal Revenue Code.Section 125 of the Internal Revenue Code.

13. 12-12-1313
Financing Benefits Plans: AlternativesFinancing Benefits Plans: Alternatives
 Non-contributoryNon-contributory
– Employer pays total costsEmployer pays total costs
 ContributoryContributory
– Costs shared between employer and employeeCosts shared between employer and employee
 Employee financedEmployee financed
– Employee pays total costs for some benefitsEmployee pays total costs for some benefits
– By law the organization must bear the cost for someBy law the organization must bear the cost for some
benefitsbenefits

14. 12-12-1414
Exhibit 12.6: Factors Influencing Choice ofExhibit 12.6: Factors Influencing Choice of
Benefit PackageBenefit Package

15. 12-12-1515
11
Communicating about the benefits
program
Communicating about the benefits
program
22 Claims processingClaims processing
33 Cost containmentCost containment
Three Administrative Issues
Administering the Benefits ProgramAdministering the Benefits Program

16. 12-12-1616
Methods of communicationMethods of communication
– Employee handbookEmployee handbook
– Personalized benefit statementsPersonalized benefit statements
– Meetings with employeesMeetings with employees
– Multi-media presentationsMulti-media presentations
– IntranetIntranet
– Streamlined call center operationStreamlined call center operation
Communicating Employee BenefitsCommunicating Employee Benefits