This document discusses employee benefit plans and strategies for their design and administration. It covers classifying benefits into security/health, time off, and services. Specific benefits are listed in each category. The document also discusses gaining control over healthcare costs, cafeteria/flexible benefit plans, communicating benefits to employees, and calculating the value of benefits programs.

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2. Chapter
Indirect Compensation: 9
Employee Benefit Plans
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

3. Strategic Considerations in the Design of
Benefits Programs
 The organization’s stage of development
 Projected rate of employment, growth, or downsizing
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
 Geographic redeployment
 Acquisitions
 Expected changes in profitability
 Each of these conditions suggests a change in the optimum “mix” of
benefits to be consistent with long-term business plans

4. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
Classifying Benefits
 Three broad categories exist for classifying benefits
 Security and health
 Payments for time not worked
 Employee services

5. Security & Health Benefits
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 Life Insurance
 Workers’ compensation
 Disability Insurance
 Hospitalization, surgical, and maternity coverage
 Health maintenance organizations (HMOs)
 Other medical coverage (dental, mental health, substance abuse)
 Sick leave
 Pension plans
 Social Security
 Unemployment insurance & supplemental unemployment insurance
 Severance pay

6. Payments for Time Not Worked
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 Vacations
 Holidays
 Reporting Time
 Personal excused absences
 Grievances and negotiations
 Sabbatical leaves

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Employee Services
 Employee Services – a broad range of benefits that employees
qualify for purely by virtue of their membership in the organization,
and not because of merit
 Some examples include tuition aid, credit unions, auto insurance,
company car, food service, stock-purchase plans, parking, fitness and
wellness programs

8. Gaining Control Over the Cost of
Health Care
 Band together with other companies to form a ‘purchasing
coalition’ to negotiate better rates with insurers
 Deal with hospitals and insurers as with any other suppliers
 Induce employees to choose reduced medical coverage voluntarily
through flexible-benefits plans
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 Negotiate directly with doctors
 Require pre-admission certification

9. Cafeteria, or Flexible, Benefits
 Cafeteria Benefits – instead of all workers at a company getting the
same benefits, each worker can pick and choose among alternative
options “cafeteria style”
 Workers are offered a package of benefits that include ‘basic’ and
‘optional’ items
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10. Basic and Flexible ‘Credits’ in the
Cafeteria Benefits Plan
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 Basic
 modest medical coverage
 life insurance equal to a year’s salary
 vacation time based on length of service
 some retirement pay
 Flexible ‘credits’ toward additional benefits
 Full medical coverage
 Dental and eye care
 More vacation time
 Additional disability income
 Higher company payments to the retirement fund

11. Employer Advantages in
Offering Cafeteria Benefits
 Under conventional plans, employers risk alienating employees if
they cut benefits, regardless of increases in the costs of coverage
 Flexible plans allow employers to pass some of the increases on to
workers more easily
 Instead of providing employees a set package of benefits, the employer
and employee agree on a set amount of the employee’s salary to be
used toward benefits
 If the employee wants more, he/she pays
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

12. Communicating Benefits to Employees
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 Make employees aware of them
 Help employees understand the benefits information they receive in
order to take full advantage of the plans
 Make employees confident that they can trust the information they
receive
 Convince present and future employees of the worth or value of the
benefits package

13. Communicating the Value
of Benefits Programs to Employees
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
 Alternative metrics:
 Annual cost of benefits for all employees
 Cost per employee per year
 Percentage of payroll
 Cents per hour