The document summarizes key topics related to indirect financial compensation (benefits) and nonfinancial compensation from Chapter 10 of a human resource management textbook. It defines benefits, legally required benefits like Social Security and workers' compensation, discretionary benefits including health insurance and retirement plans, and nonfinancial compensation factors like flexible work schedules and job content. Major health care legislation impacting benefits is also summarized, such as COBRA, HIPAA, and the Affordable Care Act.

1. Human Resource Management
13th Edition
Chapter 10
Indirect Financial Compensation
(Benefits) and Nonfinancial
Compensation
10-1Copyright © [2014] Pearson Education

2. Learning Objectives
• Describe some unique employee benefits, define
indirect financial compensation (benefits), and
explain what is included in a total reward package.
• Describe legally required benefits.
• Define discretionary benefits and explain the various
types of discretionary benefits.
• Explain the different kinds of health care legislation
and describe the relationship between smoke-free
workplaces and the Patient Protection and
Affordable Care Act.
• Explain premium pay.
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3. Learning Objectives (Cont.)
• Explain voluntary benefits.
• Describe customized benefit plans.
• Describe the importance of communicating
information about the benefits package.
• Describe the job itself and the job environment
as components of nonfinancial compensation.
• Describe workplace flexibility (work-life balance)
factors and global customized benefits.
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4. HRM in Action: Unique Employee
Benefits
• More and more companies are
providing unique benefits
• Companies were trying out use of
unique benefits
• Used employee benefits to clearly
differentiate them from their
competitors
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5. Indirect Financial Compensation
(Benefits)
All financial rewards that are not paid
directly to the employee
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6. Discretionary Versus Voluntary
Benefits
• Discretionary benefits: Benefits made as
a result of unilateral management
decisions in nonunion firms and from
labor–management negotiations in
unionized firms
• Voluntary benefits: Usually entirely paid
by employee, but employer typically pays
administrative cost
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7. Indirect Financial Compensation (Benefits)
in a Total Compensation Program
External Environment
Internal Environment
10-7
Compensation
Indirect (Benefits)
Legally Required Benefits
Social Security
Unemployment Compensation
Workers’ Compensation
Discretionary Benefits
Payment for Time Not Worked
Health Care
Life Insurance
Retirement Plans
Disability Protection
Employee Stock Option Plans
Employee Services
Premium Pay
Voluntary Benefits
Financial Nonfinancial
The Job Job EnvironmentDirect
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8. Total Rewards
• All ways in which people are rewarded
when they come to work
• Pay, benefits, and other non-financial
rewards
• Put together to make coherent and
integrated whole
• Directed toward maximum attainment of
corporate goals
• All items that add value to an employee
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9. Mandated Benefits
(Legally Required)
• Social Security
• Unemployment compensation
• Workers’ compensation
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10. Social Security
• System of retirement benefits
• Federal payroll tax to fund
unemployment and retirement
benefits
• Amendments include disability
insurance, survivors’ benefits, and
Medicare
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11. Unemployment Compensation
• Laid off individual receives
compensation for up to 26 weeks
• Administered by states
• Payroll tax paid solely by employers
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12. Workers’ Compensation
• Expenses resulting from job-related
accidents or illnesses
• Administered by states
• Program paid for by employers
• Premium expense directly tied to past
experience
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13. Discretionary Benefits
• Payment for time not worked
• Health care
• Life insurance
• Retirement plans
• Disability protection
• Employee stock option plans (ESOP)
• Employee services
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14. Payment for Time Not Worked:
Paid Vacations
• Provide workers with opportunity to rest,
become rejuvenated, and thus more
productive
• Encourage employees to remain with firm
• Typically increases with seniority
• Americans do not take full advantage of
their vacation benefits
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15. Payment for Time Not Worked: Sick
Pay and Paid Time Off
• Many firms allocate each employee a
certain number of days of sick leave per
year
• Some managers are very critical of sick
leave programs
• Paid time off (PTO): Certain number of
days off provided each year that
employees can use for any purpose
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16. Results-only Work Environment
• Allows employees to work wherever
and whenever they wish as long as
they complete projects on time
• There is no schedule and no limit for
earned vacation and leave time
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17. Payment for Time Not Worked:
Sabbaticals
• Temporary leaves of absence from
organization, usually at reduced pay
• Used in academic community for years
• Recently entered the private sector
• Help reduce turnover and prevents
burnout
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18. Payment for Time Not Worked:
Other Forms
• Perform civic duties
• Handle personal affairs
• Jury duty
• National Guard or military reserve
• Voting time
• Bereavement time
• Rest periods, coffee breaks, lunch
periods, cleanup time, and travel time
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19. Factors Contributing to the High
Cost of Health Care
• Aging population
• Growing demand for medical care
• Increasingly expensive medical
technology
• Inefficient administrative processes
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20. Forms of Managed-Care Health
Organizations
• Health maintenance organizations (HMOs)
cover all services for fixed fee, but exercise
control over which doctors and health
facilities member may use.
• Preferred provider organizations (PPOs)
are managed-care health organizations
where incentives are provided to members to
use services within system; out-of-network
providers may be used at greater cost.
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21. Forms of Managed-Care Health
Organizations (cont.)
• Point-of-service (POS) requires a primary
care physician and referrals to see
specialists, as with HMOs, but permits out-of-
network health care access.
• Exclusive provider organizations (EPOs)
offer smaller PPO provider network and
usually provide few, if any, benefits when out-
of-network provider is used.
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22. Consumer-Driven Health
Care Plans
• Each employee given set amount of money
annually with which to purchase health care
coverage
• Involves high-deductible insurance coverage
combined with a tax-advantaged account like
a health saving account (HRA), health
reimbursement accounts (HRA), and
flexible saving account (FSA)
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23. Health Savings Account (HSA)
• Tax-free health spending and savings
account
• Available to individuals and families who
have qualified high-deductible health
insurance policies as determined by IRS
• Can put a maximum of $6,250 a year in a
pretax account
• Not use HSA for over-the-counter drugs
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24. Health Reimbursement Accounts
• Allow employer to set aside funds to
reimburse medical expenses paid by
participating employees
• No limit on employer’s contributions
• Can be rolled over from year to year
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25. Flexible Spending Account (FSA)
• Health benefit plan established by
employers
• Allows employees to deposit certain
portion of pre-tax salary into account to be
used for eligible expenses (Maximum -
$2,500)
• Forfeit any amount left unspent in account
at year end
• Not used for over-the-counter medications
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26. On-Site Health Care
• Way of curbing health care costs while
providing an employee benefit
• Permits employers to better manage
and at times reduce growth of health
care costs
• Assists in treating minor illnesses and
injuries and provides follow-up care
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27. Major Medical Benefits
Provided to cover extraordinary
expenses that result from long-term or
serious health problems
Use of deductibles is a common
feature
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28. Dental and Vision Care
•Dental and vision care are popular
benefits
•Employers typically pay the entire
costs for both types of plans except
for a deductible
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29. Health Care Legislation
• Employee Retirement Income Security Act (ERISA)
• Consolidated Omnibus Budget Reconciliation Act
(COBRA)
• Older Workers Benefit Protection Act (OWBPA)
• Health Insurance Portability and Accountability Act
(HIPAA)
• Family and Medical Leave Act
• Pension Protection Act (PPA)
• Patient Protection and Affordable Care Act (PPACA)
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30. Employee Retirement Income
Security Act of 1974 (ERISA)
• Strengthens existing and future retirement
programs
• Intended to ensure when employees retire
they receive deserved pensions
• Does not force employers to create
employee retirement plans
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31. Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA)
• Gives employees opportunity to temporarily
continue coverage they would otherwise
lose because of termination, layoff, or other
change in employment status
• Applies to employers with 20 or more
employees
• May keep coverage for up to 18 months
after employment ceases
• Individual must pay for insurance
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32. Older Workers Benefit Protection
Act of 1990 (OWBPA)
• Amendment to Age Discrimination in
Employment Act
• Prohibits discrimination in administration
of benefits on basis of age
• Permits early retirement incentive plans
as long as they are voluntary
• Establishes wrongful termination waiver
requirements
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33. Health Insurance Portability and
Accountability Act of 1996 (HIPAA)
• Protection for Americans who change
jobs, are self-employed, or have
preexisting medical conditions
• Makes health insurance portable and
continuous
• Eliminates ability of insurance
companies to reject coverage
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34. Family and Medical Leave Act of
1993 (FMLA)
• Private employers with 50 or more
employees and all governmental
employers
• Up to 12 workweeks of unpaid leave per
year for absences due to:
– Employee’s own serious health condition
– Need to care for newborn or newly-adopted
child, seriously ill child, parent, or spouse
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35. Pension Protection Act of 2006
(PPA)
• Strengthens funding rules for defined benefit
pension plans
• Ensures that employers make greater
contributions to their pension funds
• Must be fully funded in by 2013
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36. Patient Protection and Affordable
Care Act of 2010 (PPACA)
• Often called “Health Care Reform Bill.”
• Everyone required to have insurance by 2014
• Children can stay on parents’ policy to age 26
• Insurance companies cannot cancel a policy if
the insured gets sick
• Cannot be denied insurance simply because of a
preexisting condition
• No maximum limit on insurance coverage
• No waiting time for coverage if person has pre-
existing condition
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37. Trends & Innovations: Smoke-free
Workplaces and the Patient Protection and
Affordable Care Act
• Act provides that companies with health
plans that spend much more than
average will have to pay an additional
federal tax
• Smokers increase health care costs
• Companies must cut benefits or cut
trend of rising medical costs to avoid
levy
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38. Life Insurance
•Group life insurance is a commonly
provided benefit to protect employee’s
family in event of death
•Some plans call for the employee to
pay part of the premium
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39. Retirement Plans
• Defined benefits plans
• Defined contribution plan
• Cash balance plan
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40. Defined Benefit Plans
• Provide participant with fixed benefit
upon retirement
• Typically based on participant’s final
years’ average salary and years of
service
• Use has declined in recent years
• Older workers tend to prefer them
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41. Defined Contribution Plans
• Require specific contributions by
employer for employee
• Shift from defined benefits to defined
contribution pension plans
• Retirement income depends upon
investment success of pension fund
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42. 401(k) Plan
• Defined contribution plan in which
employees may defer income up to
maximum allowed amount
• Some employers match employee
contributions 50 cents for each dollar
deferred
• Recent recession was not been kind to
401(k) accounts
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43. Cash Balance Plans
• Elements of both defined benefit and
defined contribution plans
• Help employers who are looking for
ways to maximize retirement
contributions
• Employer normally bears responsibility
for and risks of managing assets
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44. Disability Protection
•Workers’ compensation protects employees
from job-related accidents and illnesses
•Some firms provide additional protection
that is more comprehensive
•Long-term disability provides a monthly
benefit to employees who due to illness or
injury are unable to work for an extended
period
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45. Employee Stock Option Plan
(ESOP)
• Firm contributes stock shares to a trust
• Trust allocates stock to participating
employee accounts according to
employee earnings
• Some employees want ability to sell their
shares prior to retirement, which ESOPs
do not allow
• Enron experience very negative
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46. Employee Services
• Child care
• Educational assistance
• Food service/subsidized cafeterias
• Scholarships for dependents
• Relocation benefits
• Domestic partner benefits
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47. Child Care
• 80% of employees miss work due to
unexpected child-care coverage issues
• Every $1 invested in backup child care
yields $3 to $4 in returned productivity
and benefit
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48. Educational Assistance
• Improves employee retention
• Many different ways to reimburse
workers
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49. Food Services/Subsidized
Cafeterias
• Companies believe they get high
payback in terms of employee relations.
• Hope to gain:
–Increased productivity
–Less wasted time
–Enhanced employee morale
–Healthier workforce
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50. Scholarships for Dependents
• Some companies provide scholarships
for dependents
• Boosts employee recruitment and
retention
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51. Relocation Benefits
• Company-paid shipments of household
goods and temporary living expenses
• Cover all or a portion of the real estate
costs associated with buying a new
home and selling the old home
• Relocation packages vary
• Moving may impact quality of life
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52. Domestic Partner Benefits
• Unmarried domestic partners are
more often being included as
qualified for coverage under
employee benefit plans
• Growing trend to offer benefits to
same-sex domestic partners of
employees
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53. Premium Pay
• Compensation paid to employees for
working long periods of time or working
under dangerous or undesirable
conditions
• Hazard pay: Pay for work under
extremely dangerous conditions
• Shift differentials: Pay for inconvenience
of working less desirable hours
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54. Voluntary Benefits
• 100% paid by employee, but employer
typically pays administrative cost
• Employees benefit because their
premiums typically reflect group
discounting
• Takes pressure off firms to add
employer-paid benefits
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55. Customized Benefit Plans
• Employees make yearly elections to
determine benefit package
• Choose between taxable cash and
benefits.
• 20 years ago, firms offered uniform
package that reflected typical employee
• Today’s workforce more heterogeneous
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56. Communicating Information
About the Benefits Package
• Workers need to fully understand benefits
• Organizations often do not have to
improve benefits to keep best employees
• Employee Retirement Income Security
Act
• Patient Protection and Affordable Care
Act
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57. Nonfinancial Compensation in a Total Compensation Program
External Environment
Internal Environment
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Direct Indirect (Benefits) The Job
Meaningful
Appreciated
Satisfying
Learning
Enjoyable
Challenging
Job Environment
Sound Policies
Capable Managers
Competent Employees
Congenial Co-workers
Appropriate Status
Symbols
Working Conditions
Workplace Flexibility
Flextime
Compressed Workweek
Job Sharing
Telecommuting
Part-time Work
Financial Nonfinancial
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58. The Job Itself as a Nonfinancial
Compensation Factor
• Job itself can be very powerful motivational
factor
• Some jobs can be so stimulating the
employee is anxious to get to work each
day
• Given prospect of getting a generous raise
by leaving this job, this worker may quickly
say “No”
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59. Job Environment as a Nonfinancial
Compensation Factor
• Sound policies
• Capable managers
• Competent employees
• Congenial coworkers
• Appropriate status symbols
• Working conditions
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60. Work-Life Balance
• Focus on solving personal issues
that detract from employee’s work
• Can be key factor in attracting and
retaining employees
• Moved from being a great benefit to
a business necessity
• Workforce today not homogeneous
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61. Work-Life Balance Factors:
Flextime
• Practice of permitting employees to
choose, with certain limitations, their
own working hours
• Work same number of hours per day
as they would on standard schedule
• Many firms are using flextime
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62. Illustration of Flextime
10-62
Flexible Time Core Time
Flexible
Time
(Lunch)
Core Time Flexible Time
6 a.m. 9 a.m. 6 p.m.3 p.m.Noon
Bandwidth
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63. Work-Life Balance Factors:
Compressed Work Week
• Permits employees to fulfill their work
obligation in fewer days than typical
5-day workweek
• Four 10-hour days
• Often greater job satisfaction
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64. Work-Life Balance Factors: Job
Sharing
• Two part-time people split duties of one
job
• Partners must be compatible, have
good communication skills
• Trust must exist between job sharers
and their manager
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65. Work-Life Balance Factors: Two
in a Box
• Give two executives the same
responsibilities and same title and
letting them decide how the work is to
be divided
• Full-time job for both executives
• Requires work and constant
communication
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66. Work-Life Balance Factors:
Telecommuting
• Employees are able to remain at
home, or away from office, and
perform work using computers and
other electronic devices
• More popular in recent years
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67. Work-Life Balance Factors: Part-
Time Work
• Some do not want or need full-time
employment
• Highly educated professionals are
often choosing part-time
opportunities
• Recent recession caused many
workers to take part-time jobs
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68. A Global Perspective: Global
Customized Benefits
• Global company may find a
standardized benefits program for
all employees impractical and
unsuccessful
• Must understand culture of each
country because culture will have
major impact on benefits workers
desire
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69. 10-69